PACE Act could open Fed rails

House lawmakers introduced a bill on April 21 that would let some nonbank payment firms plug directly into Federal Reserve payment systems instead of routing through partner banks. (youngkim.house.gov) The Payments Access and Consumer Efficiency Act, or PACE Act, was introduced by Rep. Young Kim, a California Republican, and Rep. Sam Liccardo, a California Democrat. Payments Dive reported April 21 that the bill has no Senate companion yet, though Kim’s office said one is under discussion. (youngkim.house.gov) (paymentsdive.com) The proposal would create a new class of “registered covered providers” supervised by the Office of the Comptroller of the Currency, the national bank regulator. Those firms could apply for a “payments reserve account” at a Federal Reserve Bank with access to Fedwire, FedNow and FedACH. (pymnts.com) FedNow is the Federal Reserve’s instant-payments service, which the central bank says can move money within seconds at any time of day, any day of the year. Today, the Fed says the service settles obligations between depository institutions through entries in their master accounts at Reserve Banks. (federalreserve.gov) That structure is why the bill reaches beyond fintech branding and into market plumbing. Many payment apps and crypto payment firms now need sponsor banks or other intermediaries to reach the Fed’s clearing and settlement systems, adding cost, delay and dependence on bank partners. (thepaypers.com) (gncrypto.news) The bill sets a high bar for entry. Payments Dive and The Paypers reported that applicants would need licenses in at least 40 states, 1:1 reserves against payment obligations, Bank Secrecy Act compliance, and proof that the business would benefit the public through competition, innovation or broader access. (paymentsdive.com) (thepaypers.com) The reserve rules are meant to make these firms look less like lenders and more like narrow payment utilities. PYMNTS reported that reserves would have to be held in cash, deposits, short-term Treasurys or similar liquid assets, while The Paypers said customer funds would have to be kept separate from company assets. (pymnts.com) (thepaypers.com) Support has come from fintech and crypto trade groups, including the Financial Technology Association, Blockchain Association, The Digital Chamber and the Crypto Council for Innovation. Kim’s office published statements from those groups arguing that direct rail access would cut fees and speed up consumer payments. (youngkim.house.gov) Banks have signaled more caution. Payments Dive reported that the American Bankers Association said in February that regulators should move carefully on direct access for startup payment firms because of potential consumer risks. (paymentsdive.com) For now, PACE is a House bill, not a new rule, and the current system still runs through banks that already hold Reserve Bank accounts. If Congress advances it, the next fight will be over which nonbanks get a key to the Fed’s pipes — and under how much supervision. (paymentsdive.com) (federalreserve.gov)