At the current pace of innovation, it can feel futile to make predictions about 2026. But the fact is, for banks and payment firms, every year seems unprecedented in that aspect. From account-to-account rails to delegated, automated, always-on commerce, the journey has been one of relentless innovation and disruption, and 2025 is no exception.
The payments ecosystem is entering another era of acceleration: non-cash transactions have surged tenfold since 2007, hitting 1.6 trillion in 2024 and projected to reach 3.5 trillion by 2029, propelled by digital wallets, e-commerce, and instant payments.
As digital-first experiences become the default, merchant expectations are evolving to meet shifting consumer preferences. They, rightfully, demand providers who can deliver seamless, omnichannel, and intelligent payment solutions.
Once the natural choice for merchants, banks now face the urgency to reinvent themselves in the face of agile competition around them.
Are the banks losing ground?
Since the beginning of the 21st century, as e-commerce went mainstream and following the 2008 financial crisis, most banks stepped away from the merchant acquisition business. Several structural challenges diminished their interest: intense competition eroding profitability; keeping pace with modern payment infrastructures; a constantly changing and increasingly complex regulatory environment with steeper penalties for non-compliance; and operational costs of maintaining aging platforms. Their focus shifted towards the credit card business. Effectively, creating a vacuum that PayTechs have swiftly moved to disrupt, building avenues for explosive growth as they capitalize on the continued e-commerce expansion.
New data from Capgemini’s World Payments Report 2026 finds that 40% of small and mid-sized merchants plan to switch to PayTechs within a year. Why? They are on the hunt for faster and easier onboarding, better service, and more flexible digital solutions for several segments of consumers they serve.
PayTechs use data, automation, and AI-driven tools to tailor merchant experiences and deliver advanced value-added services (VAS) such as fraud prevention, data-driven insights to personalize customer experiences, and automated reconciliation. In contrast, banks often rely on legacy processes and rigid operating models. The result is a widening satisfaction gap: only 15% of small merchants and 22% of mid-sized merchants are satisfied with the service of their banking providers. It’s a wake-up call.
Banks and the widening merchant satisfaction gap
While the banks try hard to address the pace of technology adoption, they are still slow in adapting to an AI-dominated payments landscape. Today, 41% of banks report adopting generative AI technologies, whereas 60% of PayTechs have already integrated it across their end-to-end operations. This highlights a critical gap in innovative evolution, falling back in the race to serve merchants, creating friction and frustration in the process.
Onboarding: For many small and mid-sized merchants, inefficient bank onboarding is a key driver of discontent. Manual pre-screening, fragmented identity verification, and outdated credit models slow down approvals. For many merchants, onboarding with a bank can take up to several days, compared to under 60 minutes with PayTechs. The cost is also higher, $496 versus $214.
Agent-driven automation can help banks streamline this process. Tools such as adaptive scoring models and intelligent document verification can accelerate KYC, underwriting, and compliance.
Fraud Prevention: As non-cash transaction volumes rise, so do fraud risks. Many banks operate with regimented fraud monitoring that carry limited real-time visibility, leaving merchants exposed to identity theft, credential abuse, and chargeback disputes. Our report finds that merchants have lost about 2% of their total revenue due to payment fraud in the last 12 months.
Machine learning models can help identify emerging fraud patterns and detect anomalies earlier. Adaptive AI frameworks enable continuous learning from new data, improving response times and reducing false positives without compromising customer experience.
Value-added services: Banks often deliver generic solutions that fail to meet the nuanced needs of various merchant segments. The results are often underwhelming engagement and poor retention. Only 23% of banks effectively use data for merchant segmentation and performance benchmarking. As a result, only one-in-four merchants receive fully personalized value-added services from their banking partner.
AI tools can deepen personalization by analyzing transaction data, segmenting merchants by business type, and offering tailored insights such as inventory alerts for retailers, dynamic pricing for hospitality, or scheduling tools for healthcare. By integrating such contextual solutions, banks can reposition themselves from being payment processors to strategic growth partners.
Payment Processing: Time is money. The unfortunate reality is that around 43% of small and mid-sized merchants experience up to nine hours of downtime annually, impacting sales and customer satisfaction. Why? Banks are struggling to scale their systems to accommodate increasing transaction volumes. Many still rely on legacy back-end architectures that cause delays in settlement, reconciliation, and refunds. In a digital economy, payment reliability is non-negotiable.
Payment orchestration: The bridge to competitiveness
Payment orchestration is emerging as the key enabler for banks to modernize merchant servicing. It consolidates multiple payment channels, simplifies settlement flows, and provides merchants with real-time visibility into transactions.
When supported by AI, orchestration can automate decision-making, optimize routing, and provide predictive insights that enhance reliability and efficiency. Recent advances by Adyen display their strengths in machine learning to fine-tune transaction performance, improving conversion rates and reducing manual fraud checks.
Banks must adopt similar orchestration strategies to improve uptime, reduce operational complexity, and deliver more integrated merchant experiences. Especially, if they want to gain traction and close the gap with PayTechs on both performance and perception.
Banks still hold the trust advantage
Despite losing ground in innovation, banks retain one crucial and unmatched advantage: trust. Despite their gaps, 66% of merchants still trust banks more than PayTechs for their financial services needs, citing factors such as brand reputation, regulatory compliance, and long-term stability. Moreover, 80% of merchants indicate they would consider switching back to banks if service levels matched those of PayTech competitors at the same cost.
Banks are in a pivotal moment. They must decide whether to remain observers or become orchestrators of the next payments era. The merchant gap is not impossible to close.
Banks’ ability to collect and safeguard first-party customer data is both their greatest strength and is the key to solving many of their challenges. What they need now is to harness this intelligence. AI can be a bridge to help them reimagine merchant servicing, making every transaction smarter, faster, and more human. If they do this, they will not just win back lost ground. They will redefine the very fabric of digital commerce.
