Payment options beyond traditional methods: a necessity affirmed
In a bid to cater to the evolving needs of merchants and customers, Mastercard and J.P. Morgan have joined forces to modernize account-based payments with their innovative Pay by Bank solution. This move is aimed at helping merchants grow sales while reducing payment acceptance costs.
The push for account-based payment methods (APMs) is not limited to Mastercard and J.P. Morgan. Merchants across the globe are seeking APMs to gain a competitive edge, especially A2A or closed-loop payments, which can reduce typical payment processing costs associated with cards and support faster merchant funding via new instant-payment rails.
The demand for APMs is particularly high among younger generations like Gen Z and millennials, who have shown a high propensity to use such methods. By 2026, this demographic alone is projected to have over 87 million APM users.
The trend towards APMs is not going unnoticed by banks. In response, several banks are planning to launch payment wallets to compete with established players like PayPal and Apple Pay. The Wall Street Journal reports this development, highlighting banks' efforts to retain market share and drive customer engagement.
The growth of APMs is also prompting payment service providers to focus on offering critical services like fraud reduction, dispute management, and compliance measures for changing regulations as a foundation for their full-service APM solutions.
Moreover, customers are demanding rich, frictionless experiences bundled with rewards. This has led to the adoption of buy now pay later (BNPL), wallet players, biometrics payments, merchant-owned apps, and gamified loyalty points.
Even traditional players like German banks and financial institutions are jumping on the bandwagon. Through the Initiative Deutsche Zahlungssysteme e.V., German banks and savings banks are developing and promoting digital payment systems like the girocard to compete with PayPal, Apple Pay, and other alternative payment methods. The girocard, the most popular debit card in Germany, is expanding its digital offerings for smartphone and smartwatch payments as of 2025.
The domains of e-learning, gaming, online retail, and wealth management have shown promising indications to be the top verticals that are looking to offer APMs. Citi Retail Services is one such example, expanding embedded payment capabilities with Citi Pay.
The shift towards APMs is not just a trend but a significant transformation in the payment landscape. According to a survey involving 60+ merchants with revenue exceeding $100m, more than 85% of large US merchants plan to accept new APMs like digital wallets, account-to-account (A2A) bank transfers, and buy now pay later (BNPL) within the next one to three years.
This transformation presents opportunities for payment providers to diversify their payment revenue. With APM payment volume reaching $19t globally in 2022 and processing fees potentially approaching $250b, the stakes are high, and the race to capture this market is on.
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