State Regulation is a Major Focus for Payments Companies
State legislatures have become the primary battleground for payments regulation, forcing companies to navigate issues across 50 different jurisdictions.
Why It Matters
As 2025's legislative sessions wind down, over 20 states introduced bills targeting interchange fees, privacy, commercial finance, and money transmission. Federal regulatory action has stalled. States are filling the vacuum.
The Illinois example
Illinois became the only state to ban interchange fees on sales tax and tips in 2024—without an opportunity for meaningful industry input during the 11-hour process.
What Happened:
- A Federal Court’s preliminary injunction found most of the law legally pre-empted
- Illinois state banks face competitive disadvantages
- Consumer payment disruptions threatened
- Legislature delayed implementation until July 1, 2026
The Lesson: Poorly designed legislation often backfires, hurting everyone—including consumers and entities it's trying to help.
When Engagement Works: Industry Scorecard
70: State proposals to restrict interchange since 2006
1: State that successfully enacted such laws (Illinois—effective date now postponed)
16: States where similar bills failed in 2025
The 2025 defeats came in Arizona, California, Colorado, Connecticut, Georgia, Idaho, Indiana, Kansas, Maryland, Missouri, New Mexico, North Carolina, Oklahoma, Tennessee, Texas, and Washington.
The Pattern: Early engagement with legislators yields results.
New Battlegrounds Emerging
- Commercial finance crackdown
Texas, Illinois, and California are implementing new disclosure requirements that could significantly increase compliance costs for companies serving business customers. - AI governance frameworks
Sixteen states are developing comprehensive AI regulations, including New York's specific rules for automated decision tools in banking. Early engagement opportunity. - Tax and compliance threats
Eighteen states introduced new taxes targeting payments companies. Industry coalitions successfully defeated bills in 10 states, but the threat persists. - Money transmission modernization
The bright spot: 25 states now have uniform MTMA standards, reducing compliance costs across state lines.
Strategic implications
This Regulatory Shift Creates Three Critical Business Challenges
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- Market fragmentation: State-by-state compliance can make certain markets unprofitable to serve.
- Direct cost impact: New requirements would require substantial technology and process investments.
- Competitive positioning: Early legislative engagement shapes workable rules. Late engagement means costly retrofits.
The Bottom Line
State regulation has replaced federal action as the primary source of new compliance requirements. Companies that treat regulatory engagement as normal business strategy—rather than crisis management—consistently achieve better outcomes.
Yet no individual company can efficiently navigate this complexity alone, and the regulatory environment will only grow more complex. In an industry where regulatory miscalculation can eliminate market opportunities overnight, the Strategic Leadership Forum provides the strategic intelligence and collective influence required to shape, rather than simply respond to, the regulatory environment.