The State of Payments: Shifts, Friction & The Road Ahead | Episode 500

Hello, everyone, and welcome to episode 500 of the Leaders in Payments Podcast. Before we jump into the episode, I want to say thank you. Whether you've listened to one episode, a hundred episodes, or all 500, I truly appreciate you being part of the Leaders in Payments community. Reaching 500 episodes is not something I take lightly, and it would not happen without listeners, guests, sponsors, partners, and friends of the show who continue to support what we're building.

I've spent more than 20 years in this industry, and I've watched payments evolve dramatically. When I started, companies like Square and Stripe didn't even exist. Since then, we've seen an incredible amount of innovation across the ecosystem. Payments have moved from something often thought of as infrastructure or back office operations to something much more strategic, connected to software, customer experience, data, risk, embedded finance, and business growth.

So for this milestone episode, I wanted to do something a little bit different. Rather than sit down for one traditional interview, I reached out to several leaders across the payments industry and asked each of them the same three questions. I wanted to hear what they're seeing right now, what they believe is still harder than it should be, and what they think the industry needs to prepare for over the next three to five years. But before we get into those questions, I want you to hear directly from each of them.

So let's meet the leaders who contributed to this special 500th episode. Jim Oberman here, CEO of Payrock. And I'm really, really pleased and honored to be able to congratulate Greg and the leaders in payments team for hitting a milestone of 500 episodes. I just cannot believe that.

And uh I did a little check-in, Greg. Uh it goes back to you started this in January of 2020. Think about that. Uh, that's uh now going into the sixth year, and it was right before COVID that uh you started doing these episodes and these podcasts.

So we wanted the whole, the whole payment industry really wants to thank you for committing to that the way you have so earnestly, and you've brought a lot of value to all of us to learn more about what's happening in payments. So, congratulations again. I'm Kathleen Pierce-Gilmore. I am the president of SoFi Tech Solutions at SoFi.

And SoFi is uh a bank that serves millions of end consumers. Um, we help our consumers get their money right. And then inside SoFi is the business I run, which is the tech tech platform that powers SoFi, which also powers a number of other brands and fintechs and neobanks, and even some uh regular old banks. Greg Cohen, I'm the chief executive officer of Fortis.

Uh, Fortis does embedded commerce and payments, uh, specifically in with the B2B and services, post-professional services, business services communities, uh, working almost exclusively with software partnerships and uh and the ecosystems that uh that drive business with them. Alex Stillman, the CEO and one of the co-founders of Rapid. Rapid is a FinTech as a service platform that provides companies the ability to build on top of a global financial infrastructure solutions for collecting, disbursing uh money, issuing cards, and storing money in custodian accounts.

This is Steve Penato. I am the CEO of NMI. We are an embedded payments enablement platform that serves the channel, that's banks, ISOs, software companies, and various fintechs with a whole gamut of services that allow them to embed payment acceptance and money movement in their businesses. We navigate about $700 billion a year in payment volume across our systems to give you a sense of scale.

I'm Jess Holgrave. I'm the CEO at Wallet Connect. We are a connectivity layer in financial infrastructure for financial markets, for payments companies, trading platforms, uh, for stable coins and Web3. Hi, my name is Derek Dean, and I'm the CEO of Flute.

Here at Flute, we build enterprise great payment tools for the everyday economy. So the merchants who keep communities running shouldn't have to trade control for simplicity or overpay to get good technology. So we exist here to prove that they don't have to. So after 500 episodes, one thing I've learned is that payments never change in just one direction.

It changes through technology, regulation, customer expectations, and the constant pressure to make commerce easier. So I started by asking each guest what shift they're seeing in payments right now. The biggest shift right now is the thing that's really already been shifting for pretty rapidly for the last five to seven years, and that's that payments used to be a product somebody sold to a merchant, and now it just comes baked into the software the merchants are already using.

And really that's rewiring the customer acquisition economics. So you got to think for decades, payments was a product. You had a Salesforce, you had ISOs, you signed merchants up one at a time, and the entire game was distribution, right? Get a card reader into one more store.

But that whole world is ending. Today, a merchant doesn't go shopping for a payments provider. They buy software to run their restaurant or the medical practice, and payments is just built in. Nobody sold it to them as a separate thing.

And on the surface, that might sound like a small change, but it's actually the biggest one in the business because it flips the economics. When payments ride inside the software the merchant already chose, the cost of acquiring that merchant goes to basically zero for whoever owns the software. So that software company doesn't just refer the payment anymore and take a tiny cut. In a lot of cases, they own the merchant, they take the risk and they keep the spread, and that jumps massive.

A platform runs its own payments, earns three to five times what it ever made, just referring them out. And so that's why a toast or Shopify makes more money on payments than on software. The software is the hook, right? Payments is the business now.

Uh and the scale on it is huge. It's something like $7 trillion of US payment volume uh now runs through software platforms instead of the old direct channel. Um, but the part that I really watch is what comes next because payments is only the first thing, really, the software is eating. Once a platform owns the money flowing through a merchant, it can stack everything else on top.

You got lending and business cards, instant payouts, and really even bank accounts. So the the payment is just the wedge. The real prize is the merchant's whole financial relationship, and software is walking right into it. Well, you know, I think we have passed an inflection point, and it seems that at this point, most banks are actually moving into modernization of their tech stacks.

You know, they were in spin cycle in business case mode for what I would say years and years. And the pressure has built so intensely. So, with this emergence of AI, it's creating even more pressure for these banks to modernize. And at the same time, it's also making it more possible than ever.

So I really think this is a moment of inflection. I think the biggest shift we're seeing in payments uh is really something that's been going on for a while, but it's probably, I think the the world, new world of technology and AI and capabilities is putting it on a hyper warp and hyper speed. Payments has always been a middleman business, uh whether it be between channel partners or even the businesses or merchants themselves. Um, and it's created a little bit of a challenge for much of the legacy ecosystem where value is being pushed out into it, used to be the areas of software.

Now it's the area of capabilities, um, not just capabilities for payments, but across the entire value proposition. And when a lot of the software partners are challenged because of uh, you know, uh systemic issues in the software business model that we're seeing with new technologies, it creates even more upheaval and frustration uh for the payment providers that play along with them. Payments has always been a part of software. Uh back in the old days, it was the software in a Veriphone terminal.

Today it might be the software in your virtual terminal or the software uh in the channel partner software that you deal with. But as those channels get disrupted, so does the payments flow. And it's really about moving from being a payment provider, no matter what that flow has to be, into really thinking about how you help a customer accept more or sell more or collect more in that value chain. And that shift is happening faster as our distribution channels are being disrupted by new technologies and new players.

And I think that's something we all have to address strategically within our own businesses. So there are a couple of trends that we see. Uh, we saw a significant shift over the last uh three to four years into digital wallet payments like Google, Payel, PayPay and others, both on the point of sale and online. Uh so that was a huge shift that we saw, you know, coming uh in the last three, four years.

We also see a lot of movement into frictionless payments and the ability to try and provide a seamless checkout experience as much as possible, which is probably one of the bigger trends that is coming. And this is actually linking probably to the future, which is agentic payments. What's the biggest shift we've seen in payments? And it's the same thing we've heard on a lot of the recent podcasts.

Um, the experience that a customer has to make a payment for something they're buying is being embedded more and more into the software provider. It's an embedded payment experience. So, really, the center of gravity today is revolving more and more around a more holistic experience that a customer is having with a business. And the business is usually better served when that payment experience is part of a broader buying experience.

So that's what we're we're seeing. Uh, some analysts in the industry say software is eating the world. It really is. Now, that being said, I'm a pragmatist as well.

In the United States economy, there are still plenty of businesses that need quick and easy, simple payment solutions, whether that's a terminal at the point of sale in the store, or whether that's online to be able to buy something online or pay a bill online. Those kinds of methods are still great experiences. I think there's been, I'm going to cheat and answer with two. Um, the biggest shift this year, and and I say this because this is the space that we work in, I think has been stable coins as core infrastructure.

That ability to move assets, move funds instantaneously for very, very small amounts of money in actually a very compliant and seamless way, I think is incredibly powerful. And we're seeing payments companies start to recognize that. Not only just recognize it, but actually implement it, whether that's for cross-border payments, B2B supply chain payments, money remittance, and increasingly things like consumer payments as well. The other piece that I'm really excited about is agentic commerce.

I think that's much earlier. Nobody knows quite how it's going to play out. But I think that everybody, everybody can see a future where we have agents acting on behalf of ourselves as consumers or as businesses. A lot of the infrastructure still needs to be built around that to make it safe and secure.

But I think it's also a super interesting trend over the last couple of months. Yeah, it's the submersion. I think it's been going on for a while. Our the payment experience is being submerged into software or life experiences, whatever they are, whether it's your your television, a service, a car.

Um, they just, you know, the the act of paying, of taking out a card or money or whatever, is becoming embedded in our life experiences. And I think that will continue to persist uh and even accelerate. In payments, we talk a lot about removing friction, but friction does not disappear. Sometimes it just moves somewhere else.

So I asked each guest, what is still harder than it should be, given all of the innovation we've seen in payments? The merchant experience, the the the sign up, get a price, become boarded, get trusted, um, receive your money, reconcile it, navigate it, choose which rail is right for which transaction type and the price versus your margin, just the merchant experience overall, both from the merchant perspective and then from the providers, like our channel partners and us, delivering to them and making their what they would like to accomplish be possible, it's still too difficult.

Uh then it should be. You know, it's so funny, Greg. It's still hard to move money, despite all of the new ways to move money, you know, stablecoin infrastructure, all the advancements in traditional Rails, like the introduction of Fed now, real-time payments, it's still hard. I have a funny story.

I sold my home and we were trying to receive the funds and we set up the wire instructions to find out that the wire instructions were not done accurately. And I ended up getting a check in the mail several days later. And it was supposed to be instant. So even though we've made all this progress, it's still difficult.

Um, and then the other part of it is this it just as technology has gotten better for us good guys that are trying to make move make make money move faster and more seamlessly, the technology's also gotten better for the bad guys that are trying to take advantage of the system. And that introduces friction as well. So this is the one that really gets me because it it cuts against the whole story we like to tell about how far payments has come. We spent years making the moment of taking a payment beautiful.

You tap, you glance at your phone, like you're done. It felt like magic or it feels like magic. But underneath that, the merchant's actual job, just getting paid by everybody who wants to pay them at a price they can understand, is still weirdly hard. And it's hard in a few like specific ways that nobody really talks about.

Um, if you start with the one that that is generally surprised me when I first signed with the numbers, is that as an industry, we are better at stopping good customers than we are at stopping fraud. There's this figure from Dato Insights that I come back to, which is that false declines, and that means the real, legitimate customers who get wrongly turned away at a checkout, cost retailers worldwide something like $400 billion a year. And then the actual card fraud, like the thing that all this machinery is built to stop, is only around $50 billion.

So we lose roughly nine times more money slamming the door on good customers than we ever lose to the actual criminals. And most of those declined, those declined orders were actually perfectly fine, right? About a third of those customers just never come back. So we got really good at catching fraud, and along the way, we created a much bigger, quieter problem, which is really learning how to say yes to the people we're wrongly turning away.

The second one is uh is cost, right? Um and think about this for a second. Almost everything in technology has gotten cheaper over the last 10 years. Compute, storage, software, all of it's dropped.

But taking a payment didn't. A small business is still paying somewhere between two and three and a half percent every time it takes a car. I mean, if you ask the owner what their real rate is, most of them couldn't tell you. And and that's not anybody being shady.

It's just that the pricing has gotten incredibly complicated. There are hundreds of interchange categories, the rules change a couple times a year. The merchant never sees that complexity, though. They just they they just see a number that they can't predict and can't really control.

So then the wild thing from a merchant's perspective is that we keep inventing new ways to pay. And we almost never retire all the old ones. So cards and digital wallets, buy now, pay later, pay by bank, uh, account to account. All every one of them is great for the customer, and and every one is just one more thing that the merchant has to plug in and reconcile at the end of the month.

User experience, and I'm gonna take a very narrow lens on this because uh of the work that we do around crypto and stable coins. I think user experience for some of these payment methods is still uh you know much more frictionful than it needs to be. Um, in order to drive the adoption of new technology, we need to meet consumers where they are. We need to give them form factors that are familiar and easy.

Um, and we need to give merchants as well the tooling and the infrastructure to deliver those payment methods. Today, user experience in crypto and stable coins is still much too high for us to see that that wider adoption. And maybe just one reflection on the industry more holistically versus just on the crypto and the stablecoin space is that despite all of these kind of trends in AI, which I think have given us as companies a lot of tooling, they've also given the bad guys a lot.

And I think it's crazy that we still see some of the fraud rates and some of those issues that we do today. Um, ultimately, the cost for people who are bad actors is also going to zero, driven by this technology. And that's definitely problematic. There's a couple of things that always sit in my craw as it relates to friction.

And one is just international. Like, you know, businesses now are expected to sell all over the world, and yet we have these artificial barriers from geography to geography that are put up by regulatory bodies in different areas. Even the card brands, when you go from region to region, require separate, you know, compliance blocks and regulatory frameworks and all the other things that creates it very, very hard for a business to conduct business. Obviously, some of the global players out there, like uh Adian or Stripe, have done things to put together in their own backyards and the uh, you know, the ability to kind of make it as seamless as possible, but it's still not seamless.

And I think that's uh that has been a it's a big challenge to really do global commerce in a both a card present, card not present, mobile invoicing environment. Uh number two, I'd say I'd put the regulatory framework, even domestically, is just creates so much friction in what we do. Uh state-to-state, you know, uh rules and regarding, you know, taxes or compliance or all these other things is been a barrier and continues to be. And then number three is is one that just I'll throw out there is that like the way, you know, the way it yeah, a way a physical transaction works makes zero sense when a phone is in everybody's pocket where it is connected to the cloud.

The POS device now is almost always connected to the cloud. Why in the world we need a payments device sitting in between two, you know, two individuals, usually a cashier and a consumer or cashier and a and a buyer, um, doesn't make a lot of sense other than to keep the existing ecosystem whole and in its current construct. And obviously you've got interchange and things to deal with that, but uh logically it makes no sense. We know where you are, we know where the consumer is, we know where the business is, we know if they're present or not present.

Um, and so that just, you know, I would call the legacy infrastructure, the legacy economics of our space, um, create friction in the way that something should just uh automatically happen. I think that in online payments, one of the biggest problems in everything that is related to 3DS and the way the transactions are authenticated. I think because a lot of things that are related to FOD and chargebacks, you still have these things that you need to get an OTP or to get a push notification to your phone and approve a transaction, and then basically turns everything to very high friction payments, and a lot of the payments are failing because of that.

And I truly believe that the existing technology and the existing capabilities in 2026 are capable of removing these barriers, but they are still not there for some reason. Although there's been innovation, why is it so difficult and fragmented still? Is the reality is payments is still localized, and it's localized uh geographically in different countries. Different countries and different states have different rules, uh, different card brands, whether it be Visa, MasterCard, American Express, Discover, whether you're in the United States or Canada or Europe or the UK, there's different rules.

So what happens is behind the front veneer experience side, there's this entire complexity of payment rules. And then when you introduce the fact that customers are demanding and requiring to be able to pay with not just a card, but with electronic banking, with sending money from one person to another. When you mix all that in, You got all these different roles. So the key is to figure out how to simplify that.

And that's what payment companies are investing in and working on really, really hard. Finally, let's look at the next chapter. Not 10 years out, but three to five years, close enough to feel real, but far enough away that today's decisions will shape how ready the industry is when that future arrives. So for the final question, I asked each guest, looking ahead three to five years, what changes should the payments industry be preparing for now?

I think the payments industry needs to really consider the kind of the 50-year time horizon of what we need to be building for. We're going through this massive revolution right now with digital assets and the infrastructure that is available to companies. And I think people need to be taking that very seriously and optimizing it for it. We're also seeing major kind of geopolitical changes and trends as well.

We're going to have a CBDC in the form of the digital euro coming to market over the next couple of years. We're seeing a massive push in Europe for more Euro-centric payment methods, let's say. We're also seeing a big shift and a big push for lower cost payment methods globally. These are all things that are going to drive change.

But at the core of that is this new technology that payments companies, if they're smart and they can get ahead of it, are going to be able to offer the best service to their merchants. Looking forward, looking ahead the next three to five years, what changes do I expect to see happening in payments? Number one, this isn't a fad, this is here to stay. AI, artificial intelligence, will impact the way buyers buy.

It will drive shopping experiences and buying experiences and buying choices, even before you get to where where payments are being done. You'll have situations where you'll pay your bills online or you'll manage your subscriptions and certain AI agents will help facilitate all that. So this isn't just human to machine anymore. This is going to be human to machine and then machine to machine.

And it's it's not anything to be worried about because, again, the regulatory kind of fence that's put around moving money will still protect you as a buyer and protect um businesses that are selling to buyers. You're going to see an increased demand for moving money faster, safer, quicker. And what I mean by that, some of the methods right now that are developing quickly are real-time payments, uh, FedNow in the United States, uh, digital currencies such as stablecoin. Uh that's gonna be a very, very popular um mechanism to transfer value from a buyer to the business.

And and then, of course, account to count. We're we're seeing all kinds of account-to-account payments. Um the other day I had somebody come to my house and it was a quick electrical fix of a problem I had. And the uh it was a one-person electrician uh business.

He said, Can you pay me Wazell or Venmill? I said, sure, I'll do that. And I, you know, I asked, Do you take credit cards too? He says, Well, of course I do, but I prefer to get paid that way because I get my money quick and easy and right away.

So you see, these are all the things that are happening in payments. And then, and then the last, last but not least, we're we've moved to a global economy. You can have a small business in the Midwest of America, and you could be making a product that you could sell to a customer in Europe, and there's ways to ship it there. And payments companies are going to figure out how to you're gonna hear more and more of the word orchestration.

So the future will be how do payment companies help businesses orchestrate how payments are routed, how payments are accepted globally from cardholders all over the world, or from people who want to pay with money that's in a bank account. So those are the things, those are the three big things that are gonna happen. AI is gonna impact payments. Everybody's gonna demand money to move faster and um and safer, and then they're gonna want choices on the way, on what payment rail uh gets the payments made on, not just card.

So, what I want to encourage leaders in payments to do is continue to take this massively complex payments environment and learn how to translate that to the simple, practical, pragmatic, boots on the ground. Why is this happening? I think that definitely agentic payments is is the place because it's super clear for everybody that you know going into Google and searching for an hotel and clicking on the hotel website and looking at the price and putting in your card and buying is definitely not the 2030 way of people you know booking things.

I think that using AI agents uh is the way of the future. And this is where payments are becoming a big topic because you don't want to be in a situation that your AI agent spent 10x more than what you wanted because he went ballistic. And I think this uh situation of how, first of all, to provide AI agents a secure payment method to pay and to do it in a frictionless way and to make sure that it is done based on what the consumer actually wanted, these things need to connect technologically.

Yeah, I mean the payments industry, and if anyone's followed by uh great restoration theme that I've had out there, I think the next three to five years are going to be really, really interesting. Uh, we have seen the fundamental valuations of merchant acquirers, if that's all you're really doing, come down significantly over the last uh three or four years. Uh literally this week, a business transaction for 10 and a half times uh EBITOT, which is a fairly low multiple for a fairly good business that was uh scaled over time.

And I think one of the biggest things that we are going to see, especially as many of these companies that were funded in the, you know, in the late teens or in the early 20s 2020s come to market and have to sell for uh whatever reasons of the valuations of their funds that hold those businesses, is, you know, kind of the growth of more of a platform sale. And I think that is the companies that are going to drive to greater growth to be able to either sell a platform uh in the payments ecosystem where it's not just about a credit card transaction or even an ACH transaction.

It's a it's a myriad of solutions that your merchant or your channel partner can take advantage of as they go to market. Um, or on the flip side, going extremely vertical with a set of solutions all around it. I think those are the two models that everyone is going to gravitate towards in one sense or the other, as the more commoditized acquiring business plays itself out both with lower multiples and with a harder time to actually attract and retain the customers that they have.

The consolidation of everything, maybe is is a way to say it. Um, but um the way payments will happen, be they user initiated, agent initiated, trusted, verified, um will continue to change as part of that disappearance or submersion I talked about prior, but I think it will accelerate. And then I think the optimizing at the transaction level, so this type of transaction for this of an amount, for this type of merchant, for this desirability of the timing of funds, all of that, the routing of that will become will have to become simpler.

This transaction should go on that rail to that card, or this should be account to account, or this should be immediate settlement tomorrow because that's when the funds are needed. And instead of having to sign up for each of those things and navigate that, I think what will occur is that we'll become embedded in experience with enough intelligence to route not at the just the merchant level and not at just the mid-level, but at the transaction consumer-initiated level, what is the best way for that to happen for that use case in particular, and making that seamless?

I think that is in front of us, it's important, and um the industry needs to prepare for that. Okay, so if the now is software payments, the next chapter, the next three to five years is about two things uh barely registered today, but are gonna bend the economics in the future. And I'll be straight about the size as we talk about this, because the I think this space runs on hype and these numbers matter. So the first is that money's starting to move over new rails, mainly real-time bank transfers and stable coins.

And uh the top line numbers of of what's going on sound huge. Oh, real-time moved about 2 trillion last year, but almost none of that was a shopper choosing a bank transfer over their card at checkout. Um, this is B2B, uh, payroll, money moving between accounts, and and stable coins is largely the same story because if you strip out the crypto trading, you're left with with under uh you know under 400 billion worldwide, mostly cross-border payments. So at the checkout counter, where you know cards we're talking about live for the most part, these new rails are are still almost nothing.

But we we I I I certainly pay attention anyway because they settle in seconds and don't carry interchange. Um RTP uh grew more than 40% last year, and we've and yeah, we've seen that stable coins finally have a law behind them. So the cost advantage is real. What's what's missing is a reason for for anyone to switch.

Um the uh the another thing is the AI agent, and and that's really really just software that does the buying for you. Um and and the tell that that is real is we're starting to build for it. In the last year, Visa and MasterCard both started issuing these identity credentials to agents, um, you know, basically verifying ID so the network can trust uh the bot pay. And then Google put out an open standard for it, uh, and Stripe found a way for an agent to pay uh on your behalf without ever touching your card number.

So when Visa and MasterCard are issuing ID at the bots, that's the industry telling you uh that it's coming. Um that said, it's it's early, right? Even earlier than the new rails. The volume's tiny and it's all online.

You know, I really think the lines between traditional players, the banks, the networks, and the platform providers are starting to get fuzzy and it's gonna fade into the background. Um, I think it's gonna really be all about trust and security rather than distinct uh parties playing specific roles in the ecosystem. As I think about the next chapter of the Leaders in Payments Podcast, I'm excited not only to continue these conversations here on the podcast, but also bring the community together in new ways through special content series, live conversations, and events.

One example is Embedify, our Embedded Finance Summit being held October 13th in Salt Lake City, Utah, focused on helping vertical SaaS companies better understand payments, lending, banking, insurance, payroll accounting, and the broader embedded finance opportunity. You can learn more at Embedify2026.com. I also want to thank each of the leaders who contributed to this special 500th episode.

I appreciate them taking the time to share their perspective on where the industry is today, what still needs to get better, and where the industry is headed next. After 20 plus years in the industry and 500 conversations on this podcast, I'm more convinced than ever that payments are no longer just about the transaction. They are about trust, access, experience, growth, and the future of commerce. Thank you for being part of the first 500 episodes of the Leaders in Payments podcast.

I'm looking forward to the next 500.