In the first part of this series, we examined the new Payment Account proposal and its implications, including the risk discipline required of those applying for the new accounts. In this second part, we look at how institutions can evaluate their exposure to the changing settlement environment, explore the potential impact on bank revenue streams, and consider how firms should be repositioning themselves in response.
The implications of a layered settlement model will not fall evenly across the ecosystem. Non-bank firms looking to take advantage of the new Payment Accounts will need to meet high expectations in terms of risk discipline. At the same time, the most immediate competitive and economic consequences are likely to be felt by sponsor and correspondent banks.
For fintechs and other payments-focused firms, the proposal presents clear opportunities for reduced reliance on sponsor banks and correspondent arrangements, together with the potential for improved settlement speed, transparency, and cost efficiency. However, as we explored in our first article, establishing a new Payment Account will require significant investment in compliance architecture, liquidity discipline, and governance maturity. Access may be narrower, but regulatory expectations will still be high.
Not all payment firms will experience this opportunity in the same way. High-volume businesses with relatively straightforward payment flows, such as remittance platforms, payroll processors, and marketplace disbursement operations, may be among the more likely candidates to benefit. These firms have the transaction volume to justify the infrastructure investment and the clearest path to improving unit economics as variable sponsor costs are replaced with more fixed operating costs.
Embedded finance firms and BaaS-adjacent models face a more complex tradeoff. Where banking relationships bundle credit, compliance, and product infrastructure, direct settlement access solves only one layer of dependency. The potential savings are real but narrower than the headline suggests, and the transition requires unwinding structural dependencies that a payment account alone does not resolve.
The domestic framing of this proposal obscures a broader strategic consideration. A non-bank with direct settlement access could be better positioned to participate in emerging cross-border real-time payment linkages, such as those demonstrated by Singapore through the PayNow-UPI connection to India. While still evolving, these models point to a future in which direct participation may extend beyond domestic settlement. This could be particularly relevant for remittance-focused firms and for community banks serving internationally active customer bases, where correspondent dependency and cost disadvantages are most pronounced.
There is also a data and messaging dimension. As non-bank institutions move closer to direct settlement, alignment with ISO 20022 standards and more structured data architecture becomes a prerequisite for participating in more interconnected payment networks. Institutions evaluating direct access should consider both the potential for expanded cross-border participation and the infrastructure requirement to support it, rather than viewing domestic cost reduction and international opportunity as separate considerations.
For sponsor and correspondent banks, even limited adoption of direct access might reset pricing expectations as specific clients migrate, specific contracts expire, and specific funding lines disappear. Sponsor institutions that frame this as a general competitive headwind, rather than in terms of a client-by-client exposure model, may only discover the problem after it has begun to materialize.
The traditional role of ‘access intermediary’ is unlikely to disappear, but it will evolve, client by client, with a different service model centered on compliance infrastructure, governance support, and relationship banking for institutions that move early enough to make that pivot credible.
Against that backdrop, existing master account holders should be asking hard questions about revenue concentration, liquidity exposure, and supervisory posture:
Most fintechs are not likely to abandon sponsor relationships abruptly. They will quietly build internal capabilities while keeping existing arrangements in place, extending the period during which both models coexist.
That overlap creates a window for sponsor banks that move early to restructure contracts on more durable terms, establish compliance-as-a-service offerings, and develop shared liquidity products that remain valuable to clients even after those clients obtain direct accounts. Banks that prepare for the transition now will improve their chances of retaining revenue streams; those that wait for regulatory certainty may find that clients have already prepared to move elsewhere.
Framing the change in the market environment simply as an access question understates its importance. Sponsor banks do not simply provide a settlement pipeline; they offer a bundled package of access, compliance, liquidity, and float income that is priced as a single relationship.
The new framework has the potential to pull that bundle apart. Each service would have to justify its own price against alternatives that the fintech did not previously have. That is a structurally different conversation than the all-or-nothing arrangement most sponsor banks currently offer, and may force an honest accounting of how much of the existing revenue reflects value delivered versus captive pricing.
Looking at the revenue streams individually, the exposure pattern becomes clearer. The largest hit is float income. Fintechs currently park prefunding balances at their sponsor bank, that act as a cheap, sticky deposit. When a fintech moves to direct access, that balance moves to the Fed and disappears from the sponsor bank's funding base entirely. For banks that have been treating fintech prefunding deposits as a reliable, low-cost funding source, even moderate client migration could create LCR and NSFR (Net Stable Funding Ratio) pressure. This needs to be stress-tested against specific client scenarios well before the first migration notices arrive.
Processing and settlement fees are more defensible than float income, but defensible should not be confused with safe. These fees are attached to services such as routing, reconciliation, and settlement execution that fintechs require. The problem is that a fintech with its own Fed account suddenly has negotiating leverage. Fintechs without alternatives accept the pricing structure presented to them; clients with alternatives renegotiate.
The time it takes for the impact to play out will depend on the nature of each bank’s contract portfolio. Banks holding long-term contracts will retain those fee economics for now. Banks running shorter or informal pricing arrangements may encounter compression faster than their planning cycles assume.
Compliance fees are the one revenue stream with genuine upside. AML/BSA oversight, sanctions screening, and regulatory reporting are bundled into most sponsor arrangements today. If direct account access raises the compliance bar for account holders, many fintechs will not be able to meet this bar using internal resources on day one. The sponsor bank that reframes itself as a compliance infrastructure provider, offering services that a fintech can contract for even after it holds its own Fed account, can retain real revenue through the transition and beyond. However, the window to establish credibility in that role before the framework is finalized is narrowing.
Cross-sell and relationship income are the hardest to model and the easiest to underestimate in near-term projections. Credit lines, FX, and treasury management are examples of products that sponsor banks can sell off the back of a settlement relationship. Set settlement sponsorship aside, and the relationship dynamic shifts and weakens. Not immediately, not visibly quarter to quarter, but it erodes. Banks may recognize the danger only after a client has already partially migrated, and the cross-sell pipeline to that client quietly shifts to other institutions.
For fintechs and other payments-focused firms, the advantages of the proposed Payment Account look compelling at first glance. Variable, relationship-dependent sponsor costs could be replaced by fixed infrastructure that the firm owns and controls. For high-volume, thin-margin payment businesses, that is a unit economics story worth pursuing.
For others, however, the numbers require more careful modeling. Building a supervisory-ready compliance and liquidity infrastructure is expensive. Maintaining the existing sponsor relationship while internal systems are developed and validated will add near-term cost to the transition. Many fintechs could find that the infrastructure build cost exceeds the sponsor fee savings for two to three years, before the economics turn favorable. The strategic direction is right, but the financial case needs to be constructed from the actual numbers for each institution, even if reducing bank dependency sounds strategically appealing.
On the other side of the table, some sponsor and correspondent banks could face a fairly sharp repricing story. Float could leave the balance sheet, and the NII attached to it may be hard to replace on equivalent terms. Processing margins are likely to narrow as market dynamics shift. The potential offset lies in compliance and governance services; however, banks must be willing to reposition proactively rather than defend existing structures. They should also analyze and monitor the risk that cross-selling opportunities will slowly dry up – there is a risk of registering this kind of revenue impact too late.
Many of the implications of the new Payment Account are foreseeable, but banks should avoid treating them as a general competitive headwind. The banks that successfully navigate market change will be the ones that disaggregate their product bundles, model each revenue stream against specific client migration scenarios, and take deliberate decisions regarding each piece of the strategic puzzle.
Read the final part of our series to explore how institutions seeking direct settlement access can rationally choose between three potential routes, thus resolving the ‘charter strategy’ question. We also clarify whether institutions should wait for regulatory clarity – or take action now.
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