The recent Executive Order on integrating financial technology innovation into regulatory frameworks deserves urgent attention from banks, credit unions, fintechs, and the broader financial services ecosystem. It is unclear what, if any, policy changes will result from this action. However, this serves as a recognition that the U.S. financial system needs to keep modernizing if the country is going to remain the global leader in financial services, payments, capital formation, risk management, and financial innovation.
Maintaining the United States’ position as a global leader in banking will require continued investment in the infrastructure, rules, partnerships, and operating models that define how money moves, how capital is accessed, and how financial services are delivered. That is the context in which banks, credit unions, and fintechs should evaluate the May 19, 2026 Executive Order titled “Integrating Financial Technology Innovation into Regulatory Frameworks.”2
The central issue is not whether financial technology innovation should be supported. It should. The more difficult question is how to support innovation without weakening the risk, compliance, and supervisory foundations that make the U.S. financial system trustworthy. For banks and credit unions, the concern is that expanded access for nonbanks could create new competitive asymmetries if rights to public payment infrastructure are separated from the obligations traditionally carried by regulated financial institutions.
The order directs federal financial regulators to review regulations, guidance, supervisory practices, and application processes to identify where existing frameworks may be getting in the way of responsible financial technology innovation. It also directs the Federal Reserve to evaluate the legal, regulatory, and policy framework governing access to Reserve Bank payment accounts and payment services by “uninsured depository institutions and non-bank financial companies.” That includes firms involved in digital assets, novel financial activities, and direct participation in instant payment networks.
This should also be viewed alongside proposed legislation such as the bipartisan Payments Access and Consumer Efficiency Act, or PACE Act. The PACE Act would allow qualified nonbank payment providers, including fintechs and digital asset firms, to apply for direct access to core Federal Reserve payment infrastructure such as Fedwire, FedNow, and FedACH.3
Taken together, the Executive Order and the proposed PACE Act point to a broader policy debate: how should the United States modernize access to core payment infrastructure while preserving safety, soundness, consumer protection, fair competition, and global leadership in financial services?
For banks and credit unions, however, this debate is not theoretical. Expanded access to Federal Reserve payment infrastructure could materially alter the competitive landscape. If nonbank firms receive access to core payment rails without being subject to comparable expectations for capital, liquidity, cybersecurity, fraud prevention, consumer protection, operational resilience, sanctions compliance, and supervisory accountability, modernization could unintentionally create an uneven playing field. That outcome would effectively institutionalize regulatory arbitrage. The central issue this order seeks to resolve is whether access, risk, stability, responsibility, innovation, and oversight can be properly aligned.
One implication is that the historical link between regulated financial institution status and direct access to core payment infrastructure may be weakening. Banks and credit unions have not simply benefited from access to payment systems; they have also carried the regulatory, operational, compliance, liquidity, cybersecurity, and consumer protection obligations that support trust in those systems. If nonbanks are granted more direct access, the framework must ensure that comparable activity and comparable risk are met with comparable obligations.
The existing bank fintech partnership model has been imperfect, but it has served an important structural function. Many fintechs have been able to deliver innovative user experiences because regulated financial institutions provided the underlying payment access, compliance infrastructure, risk controls, liquidity management, and supervisory interface. If new rules allow some fintechs to bypass traditional financial institutions entirely, policymakers should be clear about what responsibilities move with that access. Otherwise, the market could shift from a partnership model to a direct access model before the supervisory framework has fully caught up.
The responsibility is clear. Financial institutions remain central to trust, consumer protection, risk management, compliance, liquidity, credit intermediation, and community access to financial services. As new technology enters the market, those disciplines become more important, not less.
The risk is that public policy could unintentionally separate payment system access from the full set of obligations that have historically accompanied that access. Fintech innovation can improve financial services, but innovation alone does not substitute for prudential discipline, operational resilience, fraud controls, liquidity management, or supervisory accountability.
There is also a sequencing risk. Policy can move faster than supervisory capacity, examination practices, enforcement mechanisms, and industry standards. A nonbank that participates directly in Federal Reserve payment services should not be treated as a technology company merely using financial infrastructure. It should be expected to meet rigorous, bank-grade standards for operational resilience, information security, fraud monitoring, sanctions screening, dispute handling, liquidity risk, third-party risk management, governance, and incident response. Without that discipline at the outset, expanded access could increase systemic and consumer risk rather than reduce friction.
Another challenge is that fintech oversight remains fragmented across state and federal frameworks, creating additional complexity around supervisory consistency, accountability, and enforcement.
The opportunity, if implemented well and supervised appropriately, is a modern financial infrastructure that can support faster settlement, lower transaction costs, stronger fraud controls, better liquidity management, more efficient access to capital, and more inclusive financial services. But those benefits are not automatic. They depend on whether the access framework preserves accountability, requires comparable risk controls across comparable activities, and avoids creating regulatory arbitrage between banks, credit unions, fintechs, and digital asset firms.
The objective should not be innovation for the sake of innovation. It also should not be defensive resistance to change. The objective should be responsible modernization with equivalent accountability.
And on that topic, the potential policy and regulatory changes arising from this order must be able to address the following questions:
- What oversight will existing regulators have over nonfinancial institutions with direct access to payment systems? Will it be substantially similar to the oversight applied to banks and credit unions?
- What regulatory framework will need to be put in place to eliminate the risk of rapid runs on fintech platforms, fintech liquidity crises, failure contagion across payment networks, and fintech operational outages?
- With certain technology companies dominating in their respective fields, how are regulators going to address the possibility of power concentration? If Apple, Amazon, Google, and Meta already have market power, what are the implications of them having direct banking access?
- How will privacy, surveillance, and consumer protections be maintained if large technology firms are able to combine payment/financial data with the existing information they have about end users?
- If there is a mass shift in deposits from financial institutions into fintech platforms, would this lead to more bank failures and a declining lending capacity?
- Are technology companies capable of addressing AML/illicit finance risks in the same manner that financial institutions can?
All of this needs to be viewed through the lens of promoting healthy and stable innovation in banking. There is a reason financial institutions have been around for hundreds of years. They aren’t always quick to jump on the latest trends, and they don’t need to do so. But they do need to understand which technologies could affect their business model, their clients and members, their payment economics, their deposit base, and their competitive position.
Fintechs face a related but different challenge. The regulatory environment appears to be moving toward more structured pathways for collaboration, access, supervision, and, potentially, more direct participation in core financial services. That creates opportunity, but it should also raise the bar. Direct or quasi-direct access to payment infrastructure should not come with lighter expectations simply because the participant is not chartered as a traditional bank or credit union. Firms that move money, hold customer value, initiate payments, manage wallets, or connect to critical infrastructure should be expected to demonstrate credible controls, resilient operations, strong compliance capabilities, clear governance, and risk discipline appropriate to the role they play in the system.
The institutions that succeed in this transition will not simply be the fastest adopters. They will be the most disciplined and informed. They will understand the market without chasing hype. They will distinguish useful infrastructure from speculative distraction. They will choose partners carefully. They will make investments that fit their business model. They will engage regulators constructively. They will design pilots with clear objectives, measurable outcomes, and scalable controls.
The United States has an opportunity to lead the next phase of financial innovation, but that leadership will depend on the ability of regulated financial institutions, fintechs, policymakers, and technology providers to work within a framework that supports both innovation and trust.
Innovation without trust can create instability. Regulation without modernization can create stagnation. The better path is a financial system that remains safe, sound, competitive, accessible, and technologically capable. For banks and credit unions, the message is not that every institution needs to start acting like a fintech. Most should not move that quickly. However, every institution should have a thoughtful point of view grounded in strategy, economics, risk, customer and member needs, regulatory direction, competitive exposure, and technology readiness. It should identify where the institution intends to lead, where it intends to partner, where it intends to monitor, where it should advocate for stronger standards, and where it should avoid investment until the business case is stronger.
The Executive Order is not the end state. It is another signal that the modernization of financial services infrastructure is accelerating. It is also a reminder that policy design matters. Expanded access can support competition and innovation, but only if the obligations attached to that access are sufficiently rigorous to protect consumers, institutions, and the broader financial system.
For institutions that approach this moment thoughtfully, the opportunity is significant: stronger client relationships, better payment experiences, improved efficiency, more resilient operations, and a meaningful role in shaping the future of U.S. financial services.
The U.S. financial system has led the world because it has repeatedly adapted.
This is a moment that calls for adaptation, but not complacency. Banks and credit unions should prepare for a more open and more technology-driven financial infrastructure, while also insisting that expanded access does not create opportunities for regulatory arbitrage.
The institutions best positioned for the next chapter will be those that modernize deliberately, defend the value of regulated trust, choose partners wisely, and engage constructively in shaping the standards that govern the future of U.S. financial services.
Posted by Larry Pruss and Bob Rohr on May 29, 2026.
Sources
- Investopedia, Bretton Woods Agreement: https://www.investopedia.com/terms/b/brettonwoodsagreement.asp
- The White House, Executive Order, “Integrating Financial Technology Innovation into Regulatory Frameworks,” May 19, 2026: https://www.whitehouse.gov/presidential-actions/2026/05/integrating-financial-technology-innovation-into-regulatory-frameworks/
- Representative Sam Liccardo, PACE Act announcement: https://liccardo.house.gov/media/press-releases/reps-liccardo-and-kim-introduce-bipartisan-pace-act-make-everyday-payments
- Bank for International Settlements, financial innovation and digital finance materials: https://www.bis.org/press/p250624.htm
