Merchant services are progressing at an inconceivable rate, backed by technological advancements, changing consumer preferences, and data-driven personalization, forcing even traditional players to step up their game. Whether it’s the recent increase in BNPL adoption, contactless payments, digital wallets, or the rise of AI and ML-backed systems for better security and efficiency, today’s consumers want fast, lean, secure, and streamlined solutions for their day-to-day lives.
For small and medium-sized businesses, these developments present both opportunities and challenges. Staying updated on these trends is crucial for maintaining competitiveness and ensuring smooth operations.
Below, we provide a clear overview of the key changes in merchant services and offer practical insights to help businesses navigate the industry effectively as we approach 2026.
Key Changes in Merchant Services
1. Invisible Payments Are Reshaping Checkout
Invisible payments are transactions processed so seamlessly that customers scarcely notice them, as steps like credential entry, authentication, and authorization occur entirely in the background. This model leverages pre-stored payment credentials, network tokenization, and unified checkout orchestration to eliminate friction at the point of sale.
Underpinning invisible payments is tokenization, where sensitive card data is replaced with secure network tokens. Research forecasts that tokenized payment transactions will exceed 1 trillion globally by 2026, up 58% from 2022, an indicator of merchant reliance on background-billing mechanisms that both streamline checkout and reduce fraud.
Equally critical is the rise of digital wallets; the total number of wallet users is expected to surpass 5.2 billion by 2026, representing over 60% of the global population. By storing wallet credentials on file, merchants can charge consumers automatically for one-click purchases, subscriptions, and renewals without ever re-prompting for payment details.
Real-world examples abound. Ride-hailing platforms like Uber handle billions of trips through a Unified Checkout layer that abstracts dozens of payment endpoints, where riders simply tap “end trip,” and the charge is settled automatically. In brick-and-mortar, Amazon Go’s Just Walk Out technology combines computer vision and sensor fusion so shoppers enter, select items, and leave while their Amazon account is billed behind the scenes.
The Internet of Things (IoT) and wearables further extend invisible payments beyond traditional screens. IoT-enabled devices, from smart coffee machines that reorder beans automatically to in-car commerce systems, are projected to process $89 billion in payments by 2026, while the broader IoT payments market reached $27.6 billion in 2023. Wearable devices such as rings and watches – hands-free payment conduits – surpassed 1.1 billion units in service by 2022, embedding payments into everyday activities.
Furthermore, e-commerce retailers report cart abandonment reductions of up to 35% when checkout steps are minimized. Plus, as network tokenization doubles by 2029, merchants will enjoy even higher authorization rates and lower fraud losses, making invisible payments both a customer-experience boon and a revenue accelerator.
2. Digital Billing Gains Ground as E-Invoicing Becomes the New Standard
Paper invoicing is rapidly giving way to fully digital billing – by 2025, the global e-invoicing market is expected to grow from $19.64 billion in 2024 to $24.28 billion, a 23.6% year-on-year increase driven by digital transformation and regulatory mandates. Governments worldwide are accelerating e-invoicing adoption. The EU’s Directive 2014/55/EU has required all central government bodies to accept electronic invoices in public procurement since April 2019, and member states such as Belgium will extend mandatory PEPPOL-format e-invoices to all B2B suppliers by January 2026.
The North American e-invoicing market is experiencing explosive growth, having reached $3.72 billion in 2023 and projected to climb to $19.10 billion by 2031 at a 22.7% CAGR as organizations across retail, manufacturing, and government sectors digitize their billing flows.
3. Contactless and Biometric Payments Are Becoming Standard
Contactless payment adoption exploded during the COVID-19 pandemic as consumers and merchants sought touch-free transactions to minimize contagion risk. In 2024, the total value of contactless payment transactions reached $7.4 trillion and is projected to more than double, growing by 113% to over $15.7 trillion by 2029, reflecting the technology’s entrenched role in in-store and transit payments. Concurrently, 81% of consumer payment cards globally are forecast to be contactless by 2026, up from just 44% in 2019, enabling seamless “tap-and-go” checkouts across retail, hospitality, and public transportation networks.
The underlying infrastructure is now ubiquitous as 97% of point-of-sale terminals worldwide support NFC-enabled contactless payments, and digital wallets like Apple Pay, Google Pay, and Samsung Pay are capturing an ever-larger share of transactions. Apple Pay alone is expected to account for 10% of all global card transactions by 2025, doubling its current footprint amid rising merchant acceptance and consumer preference for wallet-based checkout flows.
Parallel to contactless taps, biometric authentication is emerging as a cornerstone of secure payments. The global biometric payment market will expand from $42.9 billion in 2024 to $46.6 billion in 2025 – a 8.7% year-over-year increase – and is projected to reach $66.7 billion by 2029 as banks and retailers upgrade terminals and apps to support fingerprint, facial, and vein-pattern scanning.
Plus, over 30 million POS terminals worldwide are slated to support biometric payments by 2024, and by 2025, contactless biometric methods – such as facial recognition – could underwrite 68% of all payment transactions, marrying speed with fraud resilience.
Multiple biometric modalities are gaining traction across sectors. In banking, fingerprint authentication leads with 76% adoption, followed by facial recognition at 54%, voice recognition at 32%, and behavioral biometrics (typing patterns, gesture analysis) at 27%, with an overall biometric implementation CAGR of 22.8% between 2020 and 2025. Payment card manufacturers are also innovating as a report forecasts that by 2026, at least 20% of all newly issued payment cards will embed biometric sensors (e.g., fingerprint readers), enabling truly on-card authentication without any additional hardware.
For merchants, integrated contactless-biometric checkouts translate into faster throughput and enhanced security. Banks implementing multimodal biometric authentication have reported a 66% reduction in account-takeover fraud within a year, while 60% of consumers in Latin America – and growing percentages globally – express comfort using biometrics for both in-store and online payments.
As regulations like PSD2’s Strong Customer Authentication mandate more robust identity checks in Europe, adopting contactless payments paired with biometric authentication will be essential for businesses to stay compliant, reduce liability, and meet rising consumer expectations by 2026.
4. Gen Zs Are Redefining Consumer Spending and Payment Preferences
Generation Z, born between the mid-to-late 1990s and early 2010s, now makes up about 32% of the global population and nearly 40% of consumers worldwide. Their spending power is expected to grow significantly, from $2.7 trillion in 2024 to $12.6 trillion by 2030, making them a key group for businesses to watch.
Gen Z’s approach to payments stands apart from previous generations. In 2023, over 85% used their smartphones for purchases, whether online or in-store. More than half regularly use mobile wallets like Apple Pay and Google Pay, compared to just 15% of Millennials. Peer-to-peer payment apps are also gaining traction, with Gen Z adoption projected to reach 83% by 2028, up from 48% in 2023.
Tap-to-pay cards are another favorite, where 80% of Gen Z prefer contactless card payments for speed and convenience. When it comes to spending habits, 65% choose debit over credit to avoid debt. They are also early adopters of Buy Now, Pay Later (BNPL) services, with 42% using platforms like Afterpay or Klarna. Gen Z and Millennials account for three-quarters of all BNPL users in the U.S.
Cash is increasingly rare in their transactions as 70% prefer cashless payments, and only 10% say cash is their main method. Their mobile habits extend into entertainment, too: 43% of Gen Z mobile gamers aged 18–24 make at least one in-app purchase each month. Social media also influences their buying choices, with 63% reporting they’ve purchased products they found on platforms like Instagram or TikTok.
In comparison, Millennials rely more on traditional payment methods like debit (41%) and credit cards (34%), and Baby Boomers remain cautious about digital wallets, with only 35% trusting their security versus 48% of Gen Z.
As Gen Z’s income grows and their influence expands, businesses will need to align with their digital-first mindset, offering fast mobile checkouts, P2P and BNPL options, and social commerce features to stay competitive through 2026.
5. Privacy and Payment Regulations Are Evolving
The regulatory landscape around payments and data privacy is rapidly evolving. In the United States, the California Privacy Rights Act (CPRA) – which amended the CCPA effective January 1, 2023 and became enforceable by the California Privacy Protection Agency on July 1, 2023 – has expanded consumer rights (including the “right to limit” and “right to correct”) and authorizes fines of up to $7,988 per intentional violation and $2,500 per unintentional violation. In Europe, the General Data Protection Regulation (GDPR) continues to impose stringent data‐protection obligations, with penalties reaching €20 million or 4% of worldwide annual turnover for serious infringements.
On the payments side, the EU’s PSD2 directive introduced Strong Customer Authentication (SCA) in September 2019, mandating two‐factor authentication for most online card payments – a measure that cut fraud volumes by roughly 50% and fraud value by 33% between December 2020 and April 2021. Meanwhile, card networks have tightened subscription‐billing rules: Visa’s free‐trial guidelines (effective April 18, 2020) and Mastercard’s negative‐option rules now require express cardholder consent, enhanced disclosures (trial terms, renewal dates, billing frequency), clear statement descriptors, and easy cancellation links to reduce disputes and enhance transparency.
To comply, merchants must overhaul checkout and subscription flows – deploying consent‐management platforms and privacy controls that address CPRA/CCPA and GDPR requirements, integrating frictionless 3DS2 authentication for SCA, and embedding clear billing and cancellation mechanisms to satisfy Visa and Mastercard mandates. Failure to stay ahead of these mandates exposes businesses to hefty penalties – CPRA fines up to $7,988 per intentional violation, GDPR fines up to €20 million or 4% of turnover, and proactive monitoring or chargeback reviews by card networks – so merchants should track upcoming regulations like the EU’s forthcoming ePrivacy Regulation, the UK Data Reform Bill, and PSD3 revisions to remain compliant through 2026.
6. BNPL Growth Reshapes E-Commerce
Buy Now Pay Later has evolved from a niche financing tool into a mainstream payment method: global BNPL transaction values are forecast to rise by nearly $450 billion between 2021 and 2026, and by 2026 BNPL is expected to account for nearly 25% of all e-commerce sales, up from just 9% in 2021.
In the United States, user numbers are projected to more than double, from 50 million in 2021 to over 100 million by 2026, while BNPL lending volumes will exceed $100 billion as early as 2024. Driving this surge, Insider Intelligence forecasts that by 2026, 59% of Gen Z and 53% of Millennials will use BNPL at least once, compared with just 41% of Gen X and 24% of Baby Boomers.
Merchants offering BNPL see clear upside in conversion and spend: retailers using Zip’s BNPL solutions report a 20% lift in checkout conversions and a 46% jump in average order value, Affirm’s merchant partners experienced a 70% boost in cart sizes and nearly 30% fewer declines in fiscal 2024, and PayPal Pay Later users spend about 20% more per order compared to standard checkout flows.
While providers typically charge merchants fees of 2–8% per transaction, the revenue gains from higher ticket sizes and lower abandonment often outweigh these costs. That said, merchants should monitor tightening oversight, regulators such as the UK’s Financial Conduct Authority are moving to require BNPL providers to obtain formal authorization and perform affordability assessments, ensuring consumer protections keep pace with BNPL’s rapid growth.
7. AI Is Reshaping Payments with Smarter Security, Routing, and Revenue Optimization
AI-driven payments leverage sophisticated machine learning and deep learning models to analyze transaction data across billions of data points in real time, detecting anomalies within milliseconds and reducing false positives by over 30%, thereby slashing chargeback losses while preserving a seamless customer experience.
To satisfy PCI DSS mandates and emerging U.S. regulations on algorithmic accountability, leading gateways are embedding Explainable AI (XAI) frameworks – using techniques like LIME and Shapley value decomposition – to transparently justify each risk decision, empowering merchants to dispute declines and demonstrating compliance to auditors.
Major networks such as Visa have also committed over $12 billion to generative AI–driven scam detection initiatives, combining dark-web surveillance with machine-learning engines to dismantle more than 12,000 fraudulent merchant sites and intercept $350 million in illicit transactions in the last year.
Beyond bolstering security, AI optimizes transaction routing by continuously evaluating network latency, authorization success probabilities, and interchange fee schedules to select the most cost-effective path – Checkout.com’s Intelligent Acceptance engine, for example, executes over 60 million daily optimizations, lifting approval rates by 3.8% and unlocking over $10 billion in merchant revenue since mid-2023.
Predictive analytics then draws on historical spending patterns, device and location signals, and contextual behaviour to forecast preferred payment methods, trigger personalized promotions, and adjust pricing dynamically in response to real-time market conditions.
On the back end, AI-powered automation handles invoice generation, sends smart payment reminders timed to individual customer behaviour, and triages chargeback disputes – streamlining reconciliations and accelerating cash flow while reducing operational overhead across merchant operations.
Conclusion
As 2026 approaches, the merchant services landscape is becoming more complex and more competitive. Businesses that want to stay relevant will need to move quickly, adopting tools that support faster checkouts, smarter fraud prevention, and flexible financing options. The shift toward invisible payments, AI-enhanced processing, and mobile-first experiences isn’t temporary, it’s the new baseline.
At the same time, staying compliant with stricter privacy and payment regulations will be just as important as offering a smooth customer experience. Governments and card networks alike are raising the bar for transparency, data handling, and identity verification.
For merchants, this means it’s not enough to just keep up; you’ll need to anticipate where the market is heading. Whether it’s adapting to Gen Z’s spending preferences, integrating biometric authentication, or automating back-office tasks with AI, the businesses that invest in the right infrastructure now will be better positioned to compete, stay compliant, and grow through 2026 and beyond.
