Banks' Credit Cards Must Give Ground for Newer Channels to Fly

Who’s hooked more on credit cards and other plastic, U.S. consumers or their banks?

A key conclusion of the Capgemini World Payments Report 2025 is that many banks have a plastic habit that will be hard to kick.

While instant payments and pay-by-bank are increasing their presence in the U.S., and the popularity of digital wallets continues to grow, traditional credit card bank issuers won’t be able to successfully — that is, profitably— adapt to the evolving payments landscape until they figure out how to create value from these new streams.

The U.S. payments industry is often painted as being behind the rest of the world, in faster payments, mainly thanks to the strong role of credit cards.

“The U.S. is a very large, very mature market for credit cards,” says Nilesh Vaidya, global head of banking for Capgemini. “As a result, in the U.S. there wasn’t much of an incentive to get something done in instant payments.”

Now, as instant payments and pay-by-bank at least partially converge, and digital wallets become more popular, U.S. banks may have to adapt. Some of the moving parts for this transition are already in place, including the fledgling Paze digital wallet owned by the same group of large banks that own the Zelle payments service.

Outside of traditional institutions, the recently launched “PayPal Everywhere” push, and the announcement that Walmart will give shoppers the choice to pay instantly via their bank accounts are worth watching. The latter is one more move on the part of large merchants to try an end-run around payment networks that charge interchange fees.

Understanding the Dynamics Among Payments Players and Consumers

“There are many large financial institutions in the U.S., and not all of them have a cards business,” explains Vaidya. “Those who don’t have that cards business are not dependent on that revenue stream and don’t have to cannibalize it. So, they could be the ones that chart out a new path.”

Banking players in payments must transition from a heavy dependence on interchange fees to means of making money by charging for value they add to new payment streams, according to Vaidya.

In addition, in its report Capgemini explains that finding ways to create value from new payment streams will require greater focus on open banking and open finance, to build more connections between banking’s payments role and other aspects of commerce and finance.

Right now, Capgemini notes in its global study, U.S banks are behind their own curve.

Vaidya says that there are three factors that U.S. institutions have to keep in mind as they build solutions that tap newer channels.

First, ease of use is critical to capturing consumer volume. Pulling out a credit or debit card to swipe or tap it is something everyone is used to.

Second, consumers want rewards. Merchant-funded rewards already play a part in existing pay-by-bank approaches and Capgemini believes that will accelerate. Much of the earning will be automated.

Third, consumers want protection, as buyers — the ability to return goods as part of the payments process and also the ability to resolve disputes that may involve refunds or adjustments.

Vaidya points out that Paze doesn’t currently have a rewards scheme in place, but that it will likely need one to persuade consumers to use the bank-owned digital wallet rather than major, entrenched alternatives like Apple Pay and Google Wallet.

As the evolution in payments progresses, Capgemini predicts that some channels will emulate other channels. For example, the study suggests that pay-by-bank may evolve to include some features of credit cards. In India, the UPI (Unified Payments Interface instant payment system) provides for pre-approved credit lines linked to UPI payment accounts. The study says repayment terms can run from short-term to multiple years.

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Looking at Digital Wallets in the U.S.

The Paze digital wallet has been moving slowly since the concept was first leaked in early 2023, though indications are that the pace of Paze implementation may be picking up. Multiple bank owners of Early Warning Services, the consortium that operates Paze, have announced its availability to their card customers. (Paze opts cardholders into the wallet, which is ecommerce-only at present. The cardholders choose which of their card relationships will come up first when a merchant makes Paze available on its website.)

Vaidya believes once Paze gains momentum what it is and how it works is going to evolve to accommodate consumer preferences and other payment trends.

“Once acceptance of Paze grows,” says Vaidya, “the banks could make debit cards the first card presented, or they could make account-to-account payment the first option.” (“Account-to-account” is another name for pay-by-bank payments.)

This makes Paze, in Vaidya’s estimation, as much a channel as a means of payment via bank plastic.

“I think Paze has a lot of potential,” says Vaidya. “It needs a little bit more runway to get there.”

Vaidya’s expectation is that Paze will not stay confined to an option on websites but become a phone-based payment option as well. He thinks this functionality is inevitable as he anticipates that Paze will become part of each bank player’s payment or mobile banking app. A model is Zelle, which many bank’s have incorporated in their banking apps.

“Putting it on the phone is key,” says Vaidya. “The phone is the missing piece.”

Use of digital wallets has increased significantly, according to the study, and this will continue both online and in-store. Vaidya points to the growth of Zelle, which is overtaking person-to-person payment apps that had a head start over the banking industry’s entry.

The U.S. players have a European example to watch, called Wero, a product of the European Payment Initiative.

Wero is expected to bring convenience to customers of European banks, but the study predicts more will come of it.

“It could create a level playing field for European banks against BigTech wallets such as Apple Pay and Google [Wallet],” the study says. “Currently, these tech giants dominate the mobile wallet space. As a pan-European solution, Wero offers a European alternative that may empower European banks to compete more effectively.”

Looking at Instant Payments in the U.S.

At present, Paze is open only to the largest players, and only the owners of Early Warning. By contrast, any U.S. bank or credit union can take part in the Federal Reserve’s FedNow instant payment service and the Real-Time Payment network of The Clearing House, whose participants lean more towards larger players.

That said, the study the study reflects that in all of North America, “Instant payments are just getting started.” While FedNow has seen aggressive signups by institutions, many remain in receive-only mode, which holds back overall volume of use.

A big challenge will be showing customers the “why” of instant payments and then structuring offerings in a way that gives the bank an opportunity to make some revenue.

The study found that in the U.S. payments executive report significant activity. Nearly half — 49% — are putting priority on customer-facing applications of instant payments, including pay-by-bank, social media payments and bill-splitting. In addition, 34% say they are putting priority on corporate applications of instant payments, among them refunds and chargebacks, cash forecasting, payment reconciliation, intraday cash pooling and buy now, pay later service.

Right now, the conundrum is who will pay for instant payments, no pun intended.

“Banks have to put some fees on the accounts used, and maybe allow a certain number of transfers out of it for that fee,” says Vaidya. “Or they could put some charges onto the merchants receiving payments.”

Other combinations arise, especially as this comes together with open banking and finance. But it comes down to the “toll.”

“That’s another missing piece,” says Vaidya.