Commerce continues to migrate away from traditional bank merchant processors and towards consumer-oriented marketplaces and payment platforms, according to McKinsey’s 2024 global payments report. An increasing role will be played by marketplaces and platforms devoted to vertical specialties. In the process, the U.S. economy may see these players give instant payments a strong nudge.
Gains for these nonbank payment intermediaries are especially strong in the U.S. This includes platforms like Shopify, Square and Toast, which facilitate transactions for vendors, and marketplaces like Amazon, eBay and Etsy, which sell goods as well as handle the related payments processing. Some of the latter go further, such as Amazon offering its payments functionality on independent ecommerce sites and via its Amazon Pay wallet.
McKinsey estimates that 30% of consumer spending occurs via these intermediary channels globally. In the U.S. the firm thinks 35%-40% of consumer purchases go through these channels, and in the European Union, between 25%-30%.
“These platforms and marketplaces increasingly outsource processing to merchant acquirers such as Fiserv and Global Payments at wholesale prices while controlling the customer experience and earning higher margins on valued-added services,” the report says.
McKinsey reports that sales by small- and medium-size companies is even higher via these services. Increasingly platforms and marketplaces provide integrated solutions to merchants as independent software vendors.
The growing role of intermediary companies will be significant both for its impact on payments processing trends now, but also for its influence on how payments are made in the future, according to McKinsey’s Uzayr Jeenah, one of the report’s authors and a partner in the firm’s Toronto office. Among the trends influenced may be the way and pace of U.S. adoption of instant payments services, according to the consultant.
How Platforms and Marketplaces are Building Share of Payments
Embedding payments into marketplaces gives big players the ability to monetize payments processing and to build in fraud protection services and specialized services like chargeback protection, says Jeenah. Chargeback protection kicks in when consumers dispute charges, such as when the goods never arrive.
The progress of major mainstream ecommerce providers into payments has been underway for more than a decade, according to Jeenah. But a newer aspect of what is driving the high rate of growth of the intermediary services in the U.S. is the development of vertical payment processors specialized by industry. Jeenah explains that the U.S. market is so huge that it can afford to create payment processing that is very focused on the needs of a single field. Having gained critical mass to make a business of specialized needs in the U.S., he suggests, in time these specialized firms will be able to add incremental volume through activity in other countries.
One such vertical is legal services. Online software-as-a-service platforms catering to the needs of law firms have been adding invoicing and payments processing functions. An example is AffiniPay, which offers payment processing including legal payment management software and services called LawPay. The latter handles credit and debit card processing for law firms and also makes specialized services, such as Pay Later, available to clients. Pay Later is operated by Affirm, one of the major consumer buy now, pay later and installment payment plan providers.
Jeenah says healthcare payment processing is another vertical — “super complicated and also gigantic.” That is a vertical some banks have leapt upon, he adds, often via acquisitions of fintechs providing the services.
This vertical adoption of payments is not something most in the business foresaw, says Jeenah, “but I think it’s going to be an increasingly important part of payments.”
He says that much of the movement has been driven by private equity investment. “Private equity is coming in, buying companies’ businesses, throwing in growth capital, and enabling them to scale even faster,” says Jeenah. “It’s acting as a turbocharger.”
Some traditional bank merchant acquirers have addressed these growing challenges by acquisition, notably in the vertical space. Some banks have attempted to become the payments engines behind the brands that consumers see. Among legacy players, while Fiserv serves the intermediaries, it also acquired Clover in 2019 in the course of its acquisition of First Data Corp. and has been expanding it. Clover provides merchant point-of-sale services and some major banks offer it to their merchant clientele.
Jeenah has doubts on how long trying to be the payment engine behind platforms will work. He says the nonbanks will want to reach deeper and deeper into the payments process to grab as much revenue as they can.
“They believe that as technology continues to advance, they will actually be able to do that more efficiently than the legacy merchant acquiring banks will be able to do,” says Jeenah.
Read more: How U.S. Instant Payments Can Catch Up to the Rest of the World
Could Growing Influence of Intermediaries Influence Instant Payment Adoption?
Other countries have seen deeper and faster penetration of instant payments partially because of governmental mandates for adoption, Jeenah points out. In the U.S., that factor has been absent in both the introduction of the Real-Time Payment Network and the more-recent launch of the Federal Reserve’s FedNow service.
In the U.S., adoption thus far has been market driven, Jeenah says, and in many other markets, credit cards haven’t had the dominant role that they play among consumers in this country.
Jeenah says many banks aren’t rushing to adopt instant payments because they don’t perceive demand from their merchant bases. On the flip side, he’s says, “Merchants are saying, ‘Well, we’re not going to go there until the bank gets there.’ It’s a chicken or the egg situation.”
As platforms and marketplaces become more dominant in ecommerce, Jeenah says, their influence over what payments methods will be used by consumers will grow.
Jeenah says some intermediaries, to save costs, will provide incentives to encourage consumers to pay with automated clearinghouse debit or account-to-account payments. He thinks that in time A2A payments will migrate into A2A instant payments.
And Jeenah notes that some big retailers and merchants are trying to push their own wallet solutions. (By policy, McKinsey generally avoids speaking about specific companies and brands.) One of the most notable efforts is Walmart’s plan to step up its online pay-by-bank option in 2025 by hooking into both RTP and FedNow networks through Fiserv. Few details have surfaced yet. Walmart has been offering pay by bank to online customers of Walmart.com via Fiserv’s NOW Gateway since early 2024, processing the payments through the automated clearinghouse network.
“Customer behavior in the U.S. will take a very long time to change, and you’re not going to see the rapid adoption of instant payments that we have seen in other geographies,” says Jeenah. Loyalty to credit cards and credit card rewards will be a factor for some time.
Read more: Must Banks Kick Their Plastic Addiction to Get New Payments Channels Off the Ground?
A Strategic Look at the Paze Digital Wallet
Jeenah sees the banking industry’s Paze ecommerce push as potentially a key counterbalance to the progress of the nonbank intermediaries. It’s still very early days for Paze, he says, “but what they’ve built now with the tokenization of credit and debit cards is pretty cool.” Paze, offered via Early Warning Services, is a joint project of seven major banks. In time other banks and credit unions are expected to gain access to it.
Right now, Jeenah says, Paze “doesn’t have much in way of carrots for the merchants.” He says that merchants are desperate to drive down costs, and that the necessary carrot will be a break on processing price. Potentially, to create that carrot, account-to-account service, also called pay-by-bank, could be turned on inside of Paze, Jeenah speculates.
He says that overcoming loyalty to credit cards will take at least a decade. But not so debit cards.
“Debit cards are at real risk,” says Jeenah, “because they don’t bring in rewards. From a consumer perspective, there’s limited upside to using debit cards.”