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Unpacking payments in the U.S.

Uncovering opportunities in America, a market ripe with opportunity.

The Thredd team

February 24, 2025

The U.S. is a stable, well-developed and increasingly innovative market where significant opportunities continue to be found.

With recent changes in regulatory governance likely to have a big impact on payment developments, we spoke to Ryan Dew, Global Head of Product Solutions at Thredd, to shed light on the current landscape and explain how to connect into its exciting prospects.

The U.S. payments market has a wide range of enviable charms that give it enormous appeal. A huge population, innovative companies and solutions, and significant demographic diversity are just some of the components that make it a compelling destination.

It’s also one with a strong commitment to financial stability and consumer protection. This is another positive factor for fintechs that want to launch or extend in the U.S., although the ways in which regulatory frameworks and approaches differ from European markets means that compliance can be more complicated for those unfamiliar with an increasingly stringent environment.

And despite its advantages, the country has traditionally been a little slower to adopt new payment technologies than others in Europe and Asia. As such, the U.S. remains a very card-centric market.

Credit and debit cards combined accounted for almost 70% of in-store payments in 2023 and are still expected to make up 57% of the total in 2027.1 In contrast, cash payments are lower than Europe and Asia and in further decline – only 12% of in-store payments in 2023 were made in cash, down from 16% in 2017 and expected to drop to 8% by 2027.

There is certainly an appetite in the country for more modern financial solutions. Figures from the American Bankers Association show that since 2020, U.S. consumers have consistently conducted banking via mobiles more often than they have in any other way, with almost half saying in 2023 that mobile apps are their most used banking method.2

Both consumers and businesses have also shown a willingness to adopt digital and contactless payments, creating strong demand for innovative card programmes. Although – in a country where an estimated 11 billion cheques are written per year, and where 75% of companies still use them3 – there is still ample room for further innovation.

Historically, the slower take-up of payment innovations has been largely due to an absence of need, says Ryan Dew, Global Head of Product Solutions at Thredd.

"For example, things such as tap to pay on public transport are the types of things that add convenience and create habits that drive shifts in people’s behaviour. The US is a big place, and outside of the major metropolitan areas, people tend to drive their cars as opposed to using mass transit.  Therefore the tap to pay muscle memory is less likely to form."

Ryan Dew Global Head of Product Solutions at Thredd

Digital innovations and consumer behaviour

Things started to change following the COVID-19 pandemic. Immediately, there was a new problem that a shift to contactless payments could help to solve. That created an impetus in the market, driving innovation and acceptance in a way that’s still reverberating today.

Digital wallets, for example, are continuing to accelerate in popularity for consumer payments, led by younger generations but with others catching on, as embedded payments in places such as restaurants and taxis drive ubiquity across age groups.

A recent U.S. study by PYMNTS shows that almost 80% of Gen Z consumers use digital wallets, compared to 66% of millennials, 47.3% for Gen X and 25.7% of baby boomers.4Digital wallets are also now the leading force in e-commerce payments, accounting for a 37% market share5, and consumers are increasingly bringing their online preferences to physical purchases too with mobile wallets’ share of in-store payments expected to double to 31% by 2027.6

Dew says that, while people are generally happy with the wallets that are already on the market, the real innovation is going to come through the underlying tokenisation technology.

“The number of use cases and the sophistication of those tokens is going to grow,” he says. “For example, being able to attach payment credentials to identity attributes so that you’re not only validating the payment card, but you’re also making sure the person is who they say they are. You’ll see much more innovation in this area, and the schemes are really focusing on it.”

Consumers are also continuing to adopt buy now, pay later (BNPL) payments. Total BNPL spending in the U.S. is forecast to reach $80.77 billion in 2024, a 12% year-on-year increase7, and the country is second-only to China in the number of BNPL users.8

The growth of both digital payments and BNPL are having an impact on merchants too, who are being pressured to increase the amount of payment options they offer. But it’s not all one-way traffic.

“Customers are becoming more demanding, they want to pay the way they want to pay, and they expect merchants to be able to accept multiple ways of payment,” says Dew. “But we’ve also seen Walmart recently launch a huge initiative to boost the growth of account-to-account payments, which they’re doing to keep costs down by reducing the transaction fees they pay to schemes. So, you'll also see merchants pushing customer behaviour in different directions in the future.”

P2P payments drive new opportunities

Peer-to-peer (P2P) payments are another technology that U.S. consumers have widely adopted. Apps such as Venmo, Cash App and PayPal have made broad inroads, with Zelle taking another technological leap that has enhanced benefits for consumers.

“Why the customers in the U.S. really, really like Zelle is because it's truly an instantaneous bank-to-bank transfer,” says Dew. “You don't have to receive that deposit into a third-party service and then move it into your bank account after it's been received. It just happens.

“The innovation is in how the money is moved, and as the market matures and the competition to Zelle starts to pop up, you're going to see much more services of this kind and many more customers will have access to those types of products.”

Consumers are already pushing for further innovation in this area. Nearly three-quarters of U.S. smartphone users will send money over P2P payment apps by 20289, and demands are increasing for financial institutions to offer similar services.

That’s partly down to the general evolution in consumer behaviour, but the risk of fraud plays a part too. P2P apps have been plagued by it – 28% of users say they have been scammed, according to a recent PYMNTS report, and estimates suggest consumers lost over $2 billion in 2023.10

As such, people are looking for all the benefits of P2P payments but with the added security of a trusted financial partner. This is bringing huge opportunities for partnerships between fintechs and financial institutions, with the latter leveraging the agility and specialist capabilities that the former can offer.

Regulatory structures and scrutiny

The strong innovative mindset that’s now present in the market is also bringing greater attention from the regulators, who are working hard to make sure disruptions in technology don’t jeopardise consumers’ access to their funds.

The heightened scrutiny is being driven by a number of factors, including concerns over the risks posed by fintech innovations. This has resulted in a greater examination of the stability of the financial system and the role of bank-fintech partnerships, while regulators have also increased their focus on preventing money laundering and terrorism financing – imposingstricter requirements on banks and fintechs as a result.

It’s a situation where the need for careful guidance has become even more important for fintechs seeking to limit the business risk that can come from lacking sufficient understandingof the U.S. technical, regulatory and business environment.

“The regulatory landscape is changing dramatically right now,” says Dew. “You’re starting to see the regulators on a federal level stepping in and policing the sponsor banks, making sure they are fulfilling their obligations to monitor the vendors they work with to ensure they're following best practises.”

That’s not to say that more regulatory scrutiny is a bad thing for innovation. In fact, before the Consumer Financial Protection Bureau (CFPB) introduced new open banking regulations towards the end of 2023, the lack of official guidance was making it harder for new developments to come to the market, says Dew.

“Now, I think you will see an acceleration from participants in the U.S. to figure out how they’re going to put some of those requirements in place. It’s going to drive a lot of innovation in the future,” he says.

“Open banking is an enabling technology that allows innovators to sit on top of a common language. As the regulations come into play, they govern the way people connect, for example, and put guardrails around how fraud monitoring and other standards should work. As a result, customer trust increases and people start to adopt those new technologies.”

It’s a situation where the need for careful guidance has become even more important for fintechs seeking to limit the business risk that can come from lacking sufficient understanding of the U.S. technical, regulatory and business environment. This is something we explored in our recent Launching in America Report on entering the American market.

Breaking into the market

So, with an increasing appetite for innovation and new regulatory structures being implemented to support it, what does that mean for payments businesses planning to launch products into the U.S.?

Dew says it’s essential they know the key ecosystem participants they need to connect with. That could be anything from realising they need a bank sponsor to having an understanding that issuers themselves can often directly facilitate access to technologies such as faster payments rails and fraud services.

“You need to have a platform – or a partnership with a platform provider – that is connected to those key endpoints that need to be in place to offer whatever product you're trying to launch. It can be a little bit daunting, but understanding what the key connection points are and what kind of service offerings they will help unlock can make it a lot easier,” he says.

“From our perspective, that’s what we’re here to provide. We’re here to understand the market, understand the landscape, understand the types of connections that need to be in place and either make those connections directly ourselves or provide partner solutions to do it.”

Real needs, real solutions

Currently, much of the payments innovation in the U.S. is focused on back-office business needs such as automation of manual, labour-intensive processes. There’s also a big trend for RegTech, where technology is used to improve regulatory and compliance processes.

“It’s a big growth area right now, and there’s a huge need with the regulators getting more active,” says Dew. “It’s an area were focusing on a lot, understanding how we can provide best-in-class tools to our partners, our sponsor networks and the issuers that we work with so that they can sleep at night knowing that someone's making sure that the programmes that they're supporting are staying regulatory compliant.”

Businesses are also increasingly using real-time payments to solve cash flow challenges, with the new FedNow service helping to drive adoption.

Launched in July 2023, FedNow is a new instant payments infrastructure developed by the Federal Reserve that allows consumers and businesses to send and receive payments instantly, 24 hour a day, seven days a week. Over 900 financial institutions were onboarded in the year after launch – although several major banks have yet to join – with the ultimate aim to onboard around 8,000 banks and credit unions.11

“Businesses are using technologies like FedNow to optimise their cash flow,” says Dew. “Being able to make your payments at the last possible second through a real time payment mechanism is critical to free-up cash and to help people run their businesses.”

Staying focused on the fraud lifecycle

Fraud is also an essential innovation focus, for business and consumer applications alike. The key is to deliver improved accuracy on stopping fraudulent transactions, reductions in the number of false positives, and retain the frictionless benefits that users have come to expect and demand.

The ones who can offer the best solutions will likely be the ones that win and, while implementing the latest technology is vital, it’s also important to take a holistic view of the entire process that a fraudulent transaction takes.

“Where you see a lot of the innovation on transaction fraud in particular is through the use of AI,” says Dew. “Machine learning can monitor massive data sets and trends and is able to spot fraudsters that that frankly we weren't able to spot five years ago. It's just gotten so sophisticated now that it's almost like you have to have an AI strategy or you’re going to be out of business at some point.

“But I think companies often fall down because they're not looking at it from an end-to-end lifecycle perspective,” he says. “Making sure that you have the proper monitoring tools so that you don't let bad actors in to begin with is critical to any kind of fraud strategy.”

That view is echoed by Jim McCarthy, CEO of Thredd, who says that there are fundamental fraud issues that haven’t been addressed yet.

“The world is under attack. Our team spends a lot of time finding the needle in the haystackfor our clients. But it’s not just future things like AI, the older kinds of attacks are getting recycled too. The bad guys are organised, they find the weakness, then they tell everybodyand they hit it until it gets shut down and then they go and find the next one.”

Jim McCarthy CEO, Thredd

Partnering for the future

Fraud is one area where fintechs and financial institutions are joining forces to offer greater value to customers, but it’s far from the only one. There are many other payment opportunities that are prompting a wave of partnerships.

In fact, a Cornerstone Advisors survey of U.S. banks shows that 39% have partnered with fintechs on payment facilitation and money movement, with a further 39% planning to partner.12 Mobile wallets are also prime territory, with 34% of U.S. banks having partnered and another 21% planning to.

The reason fintech partnerships have become so important for the industry is the convergence of two essential factors. The rise in consumer expectations for frictionless, digital experiences – with the pressures that those demands are imposing on traditional banks and institutions – running into decades of legacy infrastructure and technology at traditional banks that make it hard for them to innovate quickly.

“There's definitely an appetite to modernise technology infrastructure from a bank perspective, to support things such as P2P money movement services and alternative payment rails, and that's where partnerships with fintechs have started to pop up,” says Dew, adding that he expects to see a compression on interchange revenue in the future that will drive further shifts to faster payment rails.

However, fintech providers of embedded services, processing solutions or core technology that are hoping to partner with banks will need to be robust from a compliance perspective, he says.

“The banks know they need to be better at policing who they partner with, because they're going to be held accountable by the regulators.”

Whether you’re targeting business customers or end-consumers, launching – or scaling – in the U.S. requires a close understanding of the payments infrastructure, changing regulatory guidelines, and evolving market needs. If you’re interested in exploring the country further, get in touch to speak with our experts on the ground, or download our latest report.

Sources

  1. Market share of cash, credit cards, and other payment methods at point of sale (POS) in the United States from 2017 to 2023, with a forecast for 2027 | Statista, 2024
  2. Launching in America | Thredd, 2024
  3. 75% of Companies Still Use Paper Checks Despite High Cost | PYMNTS, 2024
  4. Consumers spend more with digital wallets | Emarketer, 2024
  5. Market share of cash, credit cards, and other payment methods at point of sale (POS) in the United States from 2017 to 2023, with a forecast for 2027 | Statista, 2024
  6. Market share of cash, credit cards, and other payment methods at point of sale (POS) in the United States from 2017 to 2023, with a forecast for 2027 | Statista, 2024
  7. Guide to Buy Now, Pay Later: Industry trends, regulation, and top companies explained | Emarketer, 2024
  8. Leading countries in the world with the highest number of buy now, pay later (BNPL) users as of 2022 (in millions) | Statista, 2023
  9. Three-quarters of smartphone users will send mobile P2P payments by 2028 | eMarketer, 2024
  10. More Than Half of US Consumers Use P2P Apps to Send Money | PYMNTS, 2024
  11. One Year Since the FedNow Launch: What You Should Know | Finextra, 2024
  12. United We Thrive: The Untapped Power of Bank-Fintech Partnerships | Bain & Company, 2023

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