Even members of the same family have a hard time deciding what movie to watch on a Friday night, what to name the new puppy or what color to paint the living room. Getting consensus across an organization to move a new project forward can become painstakingly arduous — that’s quite often why inertia reigns supreme.

There is one thing that nearly everyone agrees on. And that is the importance of protecting their financial interests.

Financial stability represents a fundamental human need. Whether wealthy with diversified investment portfolios or living paycheck to paycheck with financial pressures, individuals understand that safeguarding their money directly impacts their quality of life, future opportunities and sense of security. That’s as true for Gen Zs living their best-connected lives at home and at work as it is for Grandma collecting Social Security and dividends still trying to figure out how to Venmo birthday money to her grandkids.

Financial stability is also a complex calculation that goes beyond dollars and cents sitting in a bank or investment account. It’s about how wealthy people feel when they look at the value of their home, how well their investments are doing and how secure they feel in their jobs. It’s why preserving and growing one’s economic resources remains a common priority, and source of anxiety in uncertain times — regardless of how many zeros and decimal points one’s bank account balances may have.

That’s why financial decisions often come down to the quantitative and qualitative inputs that determine how wealthy any one individual, or household, may feel at any given point in time. Taking into account their income today, their wealth and their well-being in the years to come.

Based on brand-new, unpublished data from PYMNTS Intelligence, the financial confidence of Americans has been shaken severely. And their spending plans, present and future, are starting to show it.

The Not-So-Wealthy Effect

A new report to be released by PYMNTS Intelligence next week finds that the vast majority of consumers, whether they are living paycheck to paycheck or not, are pulling back their spending. They are doing that by buying fewer things or buying cheaper products.

This national study of 2,820 consumers (conducted March 12-31, before the world-shaking announcements of April 2) found Americans already making the connection between tariffs and the economic pain of persistent inflation and a possible recession, even before the full impact of these policies has hit home — and their wallets.

And they’re not waiting around to change their buying and spending patterns.

Nearly 78 percent of both groups across all major retail categories of spend — clothes, food, health and beauty, personal services, household and tech/digital services — are rethinking what they buy and how much they are willing to spend when they do. Tech purchases, eating out and buying coffee at the local coffee shop are consistently on the chopping block, even for those who do not feel financial pressures.

Those living paycheck to paycheck are concerned because higher prices crimp how far their paychecks can or will go. Those not living paycheck to paycheck are pulling back because they want to keep their powder dry, just in case.

Both groups were also probably feeling less wealthy than they did at the start of the year when the stock market took off and so did their 401(k)s. Even before the market meltdown of last week, the month of March 2025 saw the Dow down 4.2% and the S&P down 5.8%, with the market posting its worst month since March of 2022.

Yet even with this pullback, consumers weren’t cutting everything. Some spending is sacred. Kids’ activities top this list — parents will keep paying for soccer equipment, piano lessons and math tutoring even while cutting their own spending. Personal care services that most of us can’t DIY (or shouldn’t attempt) like haircuts and professional beauty services also seem resilient. These patterns show that when consumers tighten their belts, they’re making emotional choices, not just financial ones.

Keep in mind: these pullbacks were all before Liberation Day, which brought tariffs that were more extensive than widely predicted, and before the ensuing stock market crash.

After years studying consumer behavior (especially during COVID), we’ve found consumers are better economic forecasters than even some of the fanciest economic models. During the pandemic, consumer predictions of the durations of the crisis were better than the medical experts. Their spending patterns told the real story all along.

So, if consumers do what they say will do — and have already started to do — with their spending, the simple back-of-the-envelope math predicts a potentially gloomy outcome for the U.S. economy. That’s why many market and economic experts predict slowing economic and anemic GDP growth.

According to Census, U.S. retail spend was roughly $7.4 trillion over the last year, 80% of which can be attributed to consumers. The PYMNTS Intelligence data finds that 78% percent of consumers say they will cut back (buy less or buy cheaper), given the expected economic situation. Even a decrease of 2% in overall spending across that group would amount to a loss of $92 billion every year to the U.S. economy.

If prices increase by 10%, the PYMNTS Intelligence study finds that 18% of consumers say they will simply stop buying those items.

These data were collected before Liberation Day. And assumes that those consumers are still employed with wages that keep pace with inflation. There’s no guarantee of either because companies could cut jobs as demand for their products and services soften, and wages might not keep up with inflation as the job market softens.

The Business Uncertainty Multiplier

A consumer pullback is just one chapter of a very complex global economic story.

According to a forthcoming PYMNTS Intelligence March 2025 Certainty Project Study, 25% of middle market businesses report facing high levels of uncertainty, with a staggering cost equivalent to 6% of their annual revenues.

The ripple effects are tangible: 32% of these businesses say they have or will miss business opportunities due to that uncertainty, 33% faced delays in getting products to market, and 31% experienced client turnover because of their own uncertain business outlooks.

Let that sink in.

That’s roughly a third of U.S. businesses making between $100M to $1B in annual revenue — and the integral bridge between the enterprise and smaller business supply chains — who face some sort of economic uncertainty.

This same study also suggests that those supply chains — having just recovered from pandemic-era disruptions — are likely to face new chaos as businesses absorb the reality of tariffs actually taking effect on every import into the U.S. and higher tariffs on goods imported by 60 important trading partners.

Among middle-market businesses in the consumer and industrial goods industries, an overwhelming 89% expect shortages, delays and higher costs for materials. These businesses are doing the best they can to make lemonade out of tariff lemons, with 26% stockpiling inventory and negotiating with suppliers for better prices before the full effects take hold.

This is coming at the same time as these businesses face growing uncertainties about their own sales and margins, making them ill-positioned to absorb much of those higher costs as Administration officials hypothesize.

According to PYMNTS Intelligence research, the tariff policies that middle market businesses were expecting in March created a further crisis of confidence. Six in 10 expected higher uncertainty and planning challenges as a direct result, while 70% anticipated difficulty exporting due to retaliatory tariffs from trading partners. Overall, 38% of middle-market businesses expected negative impacts from tariffs — a figure that jumps to 53% among those in goods industries, up dramatically from 35% just a month earlier in February.

And this was all before the Trump Administration announced tariffs that were higher, covering more countries and possibly more permanent than were widely expected on Liberation Day.

What We Can Learn From Pinball Machines

Just north of Boston lies Laconia, New Hampshire. Laconia is famous for two things. It is right smack in the center of New Hampshire’s Lakes Region, with all four lakes touching some part of its city limits. And it is home to Funspot, the largest Arcade Center in the world, crowned the world’s largest arcade in the 2008 Guinness Book of World Records.

Funspot was established in 1952, and is home to more than 600 arcade games, many from the heyday of pinball machines and arcade games, its owners claim. The arcade industry, globally, is set to reach $21 billion by 2030, despite (and many say in spite of) the shift to video games. After all, who doesn’t love a game of good old-fashioned arcade pinball?

Pinball combines skill and chance. One powerful flip sends a metal ball careening across a field of flashing lights, blaring music and unexpected drops. Players work the flippers to keep the ball in play, building momentum and points until the game ends. No two games — or players — are alike.

Edward Lorenz was an American mathematician and meteorologist and considered the founder of modern chaos theory. His work at MIT was pathbreaking in furthering the world’s collective understanding of complex systems. Those insights have been applied to fields as diverse as weather, biology, computer science and economics.

In his 1993 book The Essence of Chaos, Lorenz uses pinball to illustrate complex systems. He notes that tiny differences in how players launch the ball create completely different outcomes. Though the physics of the game are deterministic, the results seem random due to the presence of these small sensitivities.

Both pinball and economics follow set rules yet defy precise prediction. In the example of tariffs, economists build models to analyze their impacts, but struggle with the same challenge that makes predicting a pinball’s path impossible: compounding and interdependent interactions that magnify even the smallest of initial variations.

A pinball bounces off bumpers and obstacles, each collision altering its path and influencing all future movements. Similarly, tariffs trigger responses throughout the economy — consumers change habits, companies shift supply chains, trading partners retaliate — creating feedback loops that standard economic models can’t capture or anticipate.

This is especially true in real time today, given the uncertainty of how the tariff game is going to play out. Tariffs could be gone by Easter or here through the century — or anything in between.

Navigating the New Economic Chaos

Today’s consumers, already nervous about spending, are the first bumper in our economic pinball machine. Their pullback creates the initial ricochet that determines how badly tariffs hurt the broader economy.

Our research consistently shows that consumers predict economic trends better than the experts. When they sense trouble — as they clearly do now with tariffs — their changes in behavior become self-fulfilling prophecies. Less spending leads to inventory pileups, less demand, then production slowdowns, then job cuts, then even less consumer spending … and down we go.

The lesson from pinball is clear: in complex systems, you can’t control every bounce once the ball is in play. Tariffs might seem straightforward, but the economic game that follows almost defies prediction. It involves the interaction between dozens of countries, millions of businesses and billions of consumers globally — and their guesses as to what everyone else is going to do.

Consumer spending drives nearly 70% of our economy, making it the most powerful bumper in this economic pinball game. When consumers collectively flinch — as our data shows they already are — the economic ball can careen in wild and dangerous directions.

The $92 billion consumer pullback we’ve calculated, based on the March expectations, is just the first bounce. But if the current tariff situation proceeds as outlined, the direct and indirect effects have the potential to impact every single person and every single business in the world.

And unlike arcade pinball, this economic game affects real families, real jobs and real communities. The stakes couldn’t be higher.

Yet even as economic headwinds gather, there are compelling reasons for optimism — or at least not descent into deep pessimism. Throughout our nation’s history, periods of economic challenge have consistently sparked innovation, adaptation and renewal. Let’s hope there is the collective will to course correct and play through the storm.

The post What Pinball Tells Us About Spending in the Post-Tariff World appeared first on PYMNTS.com.

Even with its $260,000 price tag and would-be owners with fancy garages and built-in charging stations.

Of the 15.9 million cars sold in the US in 2024 — the highest since 2019 — only 8 percent (1.3 million) were EVs. Even that depended in part on government incentives of $7,500 for new EVs. Those subsidies are now in jeopardy.

President Trump’s “Unleashing American Energy” Executive Order signed on January 22, 2025 says it will eliminate the EV mandate, potentially putting EV subsidiaries on the chopping block. That EO also will also remove funding for building EV charging stations. If that happens, analysts report that demand for EVs will decline by 28% between now and the end of the decade.

No incentives to defray higher purchase prices — even before potential tariffs raise the price of new cars — and fewer charging stations create an untenable market dynamic that could push the EV industry into reverse.

This all paints a starkly different future for electric cars in America than previously imagined.

The Promise vs. Reality

When Tesla’s Roadster first hit streets in 2008, it abruptly changed the narrative about automotive innovation and American ingenuity. This software-powered vehicle put traditional manufacturers on notice that environmentally friendly cars could also be beautiful, high-performing and accessible. Optimistic forecasts predicted a swift transition from fossil fuels to electric, and manufacturers worldwide began retooling plants to compete. Government subsidies and mandates primed the pump. Early adopters loved them for their fuel efficiency, good looks, lower cost of ownership and low carbon footprint — not to mention the $7,500 subsidy if they bought one. Some wanted to help save the planet.

Yet today, America’s EV revolution finds itself caught in the middle of a potential platform misfire — driven not by a single fatal flaw, but by what appears to be fundamental misalignments in what’s required to ignite complex, multi-sided ecosystems.

At its core, the EV industry in the U.S. represents a classic multi-sided market — a business ecosystem that requires the right incentives for multiple distinct user groups to participate simultaneously, agree on standards and compete on features and products, not proprietary standards and government subsidies. When these elements fail to align, the entire system sputters.

Today, manufacturers develop vehicles with different battery capabilities and ranges. Charging networks deploy incompatible standards, creating consumer uncertainty about where to charge. Not everyone has a garage for overnight charging.

Most importantly, the sparseness of charging stations makes consumers nervous. Their charge anxiety is intensified because of the still-limited battery ranges of most EVs.

Perhaps no factor better illustrates the EV movement’s vulnerabilities than its failure to establish unified charging standards. Unlike what makes a credit or debit card riding the Visa and Mastercard rails worldwide work anywhere it is presented, EV manufacturers and charging networks have pursued proprietary solutions that fragment the ecosystem.

Tesla’s Supercharger network, long considered the gold standard for user experience, remained closed to non-Tesla vehicles until recently. Even as the industry gradually converges toward the Combined Charging System (CCS) standard, implementation inconsistencies create friction. Non-Tesla vehicles produced before 2025 require adapters. Some stations require specific apps, while others accept credit card payments directly.

A Tesla driver approaching a non-Tesla station must navigate compatibility questions gas vehicle drivers never consider: Does this station support my vehicle? Will I need an adapter? How do I pay? The problem for Tesla drivers is that they can’t use anyone else’s charging station easily, so they are limited to the still-small Tesla network.

For most, the result can be a staggering array of competing, non-interoperable connector types, protocols and even payment systems.

This fragmentation creates friction for potential adopters already hesitant about getting behind the wheel. That only deters rather than ignites the innovation necessary for mass-market consumption beyond the early adopters willing and able to play through the proverbial bumps in the road.

In some ways, it’s analogous to the bad old days of wondering if a consumer’s preferred way to pay would be accepted by their favorite merchant. And when merchants had to pay for and support multiple terminals at the physical and virtual points of sale to process different payment methods, or risk losing a customer.

More interesting, perhaps, is that we have seen this movie before. And in this country.

What the 2020s Can Learn from the 1910s

The first electric car in the U.S. isn’t the Tesla in 2008, but a wagon that took to the streets in Des Moines Iowa in 1890-1891.

The inventor, William Morrison, basically electrified the horse-drawn carriages of that time. This souped-up rig could carry six passengers and cruise at a top speed of 14 mph.

Electric carriages were a hit.

Unlike its gas-powered competitors at the time, these babies didn’t require a dangerous hand-crank to get them going, or longer warm-up times before they could be driven, especially in winter. They came with fancy interiors and were bought and driven mostly by the more affluent members of society at the time — especially women. The range, reported to be nearly 100 miles, wasn’t a problem because they were mostly used to travel short distances around town.

There were infrastructure issues to overcome: an inadequate power supply and a paucity of battery charging stations. Private companies and consortia came together to create battery exchanges and subscription business models to support the delivery of a fast refill — sort of a mobile charge-and-go service. All batteries worked in all cars.

The electric wagon’s success was short lived.

Paved roads and interstate highways created the demand for cars with longer driving distances and faster speeds. The discovery of plentiful petroleum reserves and advances in the automotive production process eliminated some of the design and operational frictions of the circa-1900 gas-powered cars. They became cheaper to produce, cheaper to buy and operate. They gave consumers the freedom to hit the road. And consumers bought them. Most of the EV car manufacturers stopped production of their cars in the 1910s.

The Battery Range Reticence

One hundred and fifteen years later, it’s funny to see how the EV industry is facing some of the same fundamental challenges and constraints.

The range reticence of the 1910s when consumers were ready to put pedals to the metal and explore the world in their cars has become “range anxiety” today.

Although critics dismiss this as overblown, the fear of running out of power without convenient charging options reflects legitimate infrastructure gaps in the EV ecosystem.

The average American driver has grown accustomed to gassing up in under five minutes at over 145,000 gas stations nationwide, usually in convenient locations, each of which has a number of pumps. By comparison, there are roughly 53,000 EV-friendly stations across the country — with 130,000 charging ports — and they’re unevenly distributed and not so easy to find. This creates enormous uncertainty, which increases anxiety.

As critically, it takes a long time to power up. Even fast chargers typically require 30-45 minutes to restore 80% battery capacity — an eternity compared to gasoline refueling. For apartment dwellers and those without dedicated home charging or an office parking lot with adequate charging stations, this becomes a big time-suck. It requires planning and a level of friction that could ultimately become a barrier to consumer adoption and EV industry scale.

Of course, this would be no big deal if batteries delivered longer driving ranges. But battery technology, while improving, continues to fall short of consumer expectations shaped by their gas-powered cars and trucks.

Current lithium-ion technology represents an uncomfortable compromise between range, charging speed, weight and cost. And resource limitations further complicate scaling. The International Energy Agency estimates that meeting global EV targets would require a 40-fold increase in lithium production by 2040, and they assume massive increases in production of cobalt, nickel and rare earth elements. Supply chains for these materials face increased geopolitical risks, now in particular given China’s role as a top supplier of lithium.

All these things make EVs impractical as primary vehicles for many American families right now. Long road trips require careful planning around charging availability. These practical limitations restrict the addressable market primarily to multi-car households with single-family homes where charging stations can be installed and accessed.

The Infrastructure Conundrum

Before the advent of electronic medical records, a patient wanting to get a second opinion or in need of  a specialist had to run all over town collecting physical, paper copies of her medical records. Manilla folders dominated doctor’s offices and were anything but interoperable, private or efficient. The lack of sharable, digital files created delays, waste and, in some cases, adverse medical outcomes.

President Obama signed the Health Information Technology for Economic and Clinical Health (HITECH) Act in 2009 as part of the Affordable Care Act. HITECH earmarked $27 billion to accelerate the adoption of electronic medical records by physicians in the U.S. Physicians could qualify for up to $44,000 in Medicare incentives or $63,750 in Medicaid incentives over six years by demonstrating “meaningful use” of the technology. In 2008, only 9% of hospitals had comprehensive EMRs. Less than a decade later, according to the Department of Health and Human Services, the adoption of EMR systems had grown to 96%.

EMRs have become the digital backbone for innovations in the digitizing and sharing of permissioned patient information, and the integration of new capabilities like GenAI that create new efficiencies for doctors and patients. Yet without the government push, and incentives for the providers who had to adopt and use them, we’d still likely be treading fragmented-paper-medical-records water today.

The need for developing a robust charging infrastructure for EVs in the U.S. presents a similar chicken-and-egg conundrum: Who steps in to build capacity for a critical mass of vehicles that don’t yet exist?

Private charging networks face daunting economics while utilization rates remain low during the early adoption phase. Unlike gas stations that serve virtually all vehicles on the road, charging stations currently cater to a small fraction of the cars on the road in the U.S.

Major electric utilities face similar dilemmas in grid infrastructure. Many residential neighborhoods lack capacity for multiple households simultaneously charging high-draw EVs. Commercial fast-charging hubs often require expensive grid upgrades, sometimes costing millions before the first vehicle charges.

The federal government’s $7.5 billion investment through President Biden’s Infrastructure Investment and Jobs Act is an  insufficient down payment on the estimated $40 billion needed for a comprehensive national charging network. More concerning: deployment has lagged, with only a fraction of planned stations operational years after funding allocation. Two years post-funding, only 8 charging stations were up and running, Analysts say that the $7.5 billion should have been enough to open 5,000 charging stations with 20,000 spots.

Yet, without a critical mass of EVs in an area, it’s challenging to strategically place charging stations. Yet without reliable charging access, consumers hesitate to purchase EVs.

This chicken-and-egg dilemma affects the entire market because consumers anywhere can purchase electric vehicles. But without a critical mass of charging stations, or at-home charging access, they face uncertainty about charging availability where they want to drive their vehicles.

Breaking this cycle, therefore, requires substantial upfront investment to establish a critical mass of charging stations, which would then energize EV adoption. The elimination of EV subsidies for charging stations and consumer purchases will create a disincentive for automotive manufacturers to rachet up EV production. Private markets would invest in creating charging stations, just as they did in developing gas stations, if they anticipated enough demand. But with EV purchasing stalled, no one is taking that risk.

We may be at the tipping point where the EV industry in the U.S. goes into a doom loop for now.

Already, uneven levels of consumer interest have caused automakers to pull back on their EV ambitions. That will further depress investment in charging stations. And the beat goes on.

The Automaker’s Dilemma

Automakers find themselves in an increasingly precarious position, having committed hundreds of billions to EV development only to face disappointing sales. Although declaring their commitment to the market, major manufacturers have been canceling projects and extending implementation timelines.  Battery maker Clarios decided to postpone its plans to IPO in the U.S. because of the lack of clarity in infrastructure investment related to EVs.

Ford has put its electric SUV on hold and cut its EV development budget by $12 billion. Mercedes-Benz, which originally planned for 50% EV sales by 2025, now targets 2030 and only “where market conditions allow.” Currently, EVs account for less than 7% of their U.S. sales. Volkswagen has reduced plans for six global battery factories to potentially just three, they say based on market conditions.

As manufacturers reduce investments, charging networks see less potential demand, further slowing infrastructure development. Consumers, sensing hesitation from industry players, become even more reluctant to make an expensive purchase that they will have to live with for six, seven, eight years or even longer.

Cracking the EV Chicken and Egg

Today, the EV movement stands at a critical crossroads.  Manufacturers scaling back investments, charging networks struggling to build a business case, and hesitant consumers create a self-reinforcing cycle of retreat.

Yet history shows these multi-sided market challenges can be overcome. The payment card industry transformed global commerce by solving similar problems through collaboration and standards.

In the early days of credit cards, banks recognized that no single institution could create sufficient network effects independently. This realization led to collaborative standards. Visa and Mastercard established shared protocols while allowing competition at consumer and merchant levels.

Crucially, these networks recognized that all sides of the market needed simultaneous incentives. Merchants benefitted from more consumers with cards to pay for purchases at their stores and consumer access. Consumers gained convenience and universal acceptance. Issuing banks earned fees while managing customer relationships. The system worked because it aligned incentives across all participants.

For EVs to succeed, the industry needs to focus less on individual advantages and more on industry-level outcomes. Otherwise, electric vehicles risk remaining a luxury niche rather than the transportation revolution once promised.

The path forward requires acknowledging a fundamental truth: in complex multi-sided markets, the ecosystem succeeds together or fails together. The sooner the EV industry at large embraces this reality, the greater its chances of breaking free from its impending doom loop and building sustainable momentum toward widespread adoption.

The post Why the EV Dream May Be Crashing in America appeared first on PYMNTS.com.

For millions of Americans, this isn’t a hypothetical — it’s their reality.

Today, some 67% of Americans say they live paycheck to paycheck, according to a recent PYMNTS Intelligence study. The paycheck-to-paycheck lifestyle spans income brackets, education levels and professions. The every-other-week rhythm of waiting for the next paycheck has become America’s most common financial heartbeat.

Read More: Paycheck-to-​Paycheck Ranks Swell as Rising Prices Erode Savings

Living paycheck to paycheck means consumers need their next paycheck to meet their monthly obligations. How much of a cash cushion they have is hugely important in determining how far consumers are willing to push their paychecks every month — and how stressed out they might be if faced with an unexpected financial shock.

A possibility that could become more of a certainty as the latest news out of Washington is that President Trump declines to rule out the possibility of a recession in 2025 — and lots of analysts agree.

Not Your Typical Paycheck-to-Paycheck Consumer

For me, the paycheck-to-paycheck conversation was turned on its head about nine years ago.

In May 2016, I came across a cover story in The Atlantic titled “The Secret Shame of Middle Class Americans.” The author, Neil Gaber, described his personal story of living paycheck to paycheck, despite a career as a successful writer, and — in his words — being “reasonably prosperous.”

Although he was “nowhere near rich,” he earned a “middle to upper-middle income” salary, lived in Manhattan and sent his two daughters to private school. Yet, he describes being unable to cobble together enough money to cover a $400 emergency expense without having to ask friends or family members, including his own grown daughters sometimes, to pitch in.

His 6156-word story wasn’t intended to garner sympathy. It was intended to shed light on the paycheck-to-paycheck treadmill that he and his family — and, he contended, many middle-income Americans — were on.

Gaber described the emotional toll that his “financial impotence” took as he tried hard to shield the family from the many financial bumps in the road.  He admits that most of his financial issues were related to the lumpy nature of how he was paid: lump sum book advances that created tax issues and the need for disciplined financial management over several years as he completed his novels.

Then there were unexpected ups and downs of life that delivered painful financial gotchas.

Selling his co-op in Manhattan to reduce his monthly housing costs took two years, during which time he paid double housing costs; book deals took longer to finalize and writing gigs got axed. Saving money was a challenge. Credit cards helped stretch his income but came with revolving debt at high interest rates that only compounded the problem.

But mostly, Gaber said, his paycheck-to-paycheck lifestyle was his choice.

His choice to be a writer, and specifically a novelist, with the unpredictable income swings and caps inherent in that profession. His choice to live in New York rather than a cheaper place. His choice to pay for private school and college for his girls, their weddings and childcare as they grew up.

Gaber said that his paycheck-to-paycheck lifestyle wasn’t the result of living “an extravagant lifestyle” but something more fundamental: too little income, too many expenses in the choices he and his wife made. And those choices had consequences over time, including an inability to save as much as he needed or wanted to.

His story stuck with me, mostly because it was antithetical to the stereotypical paycheck-to-paycheck persona: poor, uneducated, unemployed, with few future prospects.

And Gaber’s claim that more middle-class Americans fit that definition than were willing to admit it.

Unpacking the Paycheck Economy

In March of 2020, the PYMNTS Intelligence team began to benchmark the paycheck-to-paycheck status of Americans as part of our monthly consumer studies related to COVID, the digital shift and how people spent and saved their money.

It seemed  like a good time to gather and benchmark intelligence about how consumers would spend and save their income.

The U.S. was entering a once-in-a-hundred-year global pandemic, a period of instability and uncertainty. Documenting all the puts and takes would offer important insights for businesses, startups and investors. To our knowledge, this effort is the largest dataset documenting the shift to digital and the related spending and payments behaviors over that period — and those studies continue to this day.

To capture the paycheck-to-paycheck sentiment, we asked U.S. consumers to self-report their financial lifestyle against whether they need their next paycheck to meet their monthly financial obligations. And if they say they do, whether they can do that comfortably or whether they will struggle to make all payments on time.

Our results over this five-year period are remarkably consistent with the personal story Gaber recounted in May 2016.

They suggest that the American consumer’s relationship with money goes well beyond simple income calculations. It speaks to their values, priorities and the complex balancing act between choice and necessity that shapes those personal financial decisions.

Who is the Paycheck-to-Paycheck Consumer?

Like Gaber’s account in 2016, the American consumer’s paycheck-to-paycheck status is shaped by financial obligations and lifecycle, not just income. It is often based on the choices people make about how they align their expenses to their paychecks.

It’s not about being “poor.” And alternatively, not living paycheck to paycheck isn’t about being “rich” — even though most people prefer to define it in those stark terms.

It isn’t even about whether consumers save or don’t. In fact, 4% of people living paycheck to paycheck and who report having issues paying their monthly bills and 5% of those say they live paycheck to paycheck without issues say that savings and investments are part of how they allocate their monthly income.

Instead, we find that paycheck-to-paycheck living spans all income levels, including half of high earners (defined as those earning $100,000 or more each year) as of January 2025. Across all income groups, people report similar abilities to pay their monthly bills without a struggle but needing the next paycheck to stay on track. This implies that living paycheck to paycheck isn’t solely about financial hardship or an inability to meet basic needs, but how people choose to manage their monthly income.

Here’s an example.

In November 2024, high-income individuals (those earning $100,000+ annually) constituted a larger portion of struggling paycheck-to-paycheck consumers than middle-income earners. At the same time, from January to April 2023, nearly 25% of lower-income individuals reported not living paycheck to paycheck, a figure that declined to just 16% by January 2025.

Conversely, the proportion of higher-income people not living paycheck to paycheck increased slightly, though with significant fluctuations throughout this period. This disparity between lower-, middle- and higher-income groups indicates either similar cost pressures across income levels or potentially different spending choices among higher earners.

That suggests that paycheck-to-paycheck living is a continuum between choice and necessity. This choice-necessity framework provides a unique lens for understanding the dynamic nature of paycheck-to-paycheck behaviors.

Our research reveals that 21% of American consumers (37 million) live paycheck to paycheck primarily out of necessity — there is a significant mismatch between money in and money out every month. More than half — 54%,or some 93 million consumers — do so due to a blend of choices about how they spend their paychecks and circumstances that create unexpected financial events. And 25% live this way predominantly by choice.

Higher earners cite family support obligations (such as kids at home and their attendant expenses), debt payments and higher spending on discretionary items — food out, vacations, clothes — for living paycheck to paycheck by choice. Lower-income earners point to wages that are insufficient to cover the rising costs of basics like housing and food for living paycheck to paycheck out of necessity.

A quarter of middle-income paycheck-to-paycheck consumers live this way by choice, unforced by necessity. Like their higher-income counterparts, their decisions, by default, become necessities as they have defined them. Sending their kids to private school, like Gaber did, was a choice, but one that he and his wife considered a necessity.

By contrast, over half of lower-income paycheck-to-paycheck consumers report necessity as their primary driver, because so much of their paycheck is allocated to paying for basic essentials.

Notably, the proportion of low-income consumers living paycheck to paycheck by choice has increased 5% since 2023, while necessity-driven cases rose 3%, indicating a growing polarization in how lower income consumers now manage their income to expense ratio every month.

Although these lower-income individuals are more likely to be living paycheck to paycheck by necessity, almost 1 in 4 are living this way by choice. The choice-driven group tends to be younger (Gen Z or millennials), and they are more likely to have children.

Whether consumers are driven by choice or necessity varies by income and generation, and by how much money they have in the bank.

People who live paycheck to paycheck by choice have about $1,400 more in savings than those living paycheck by necessity. And, although inadequate savings correlate with financial hardship for some, others maintain substantial savings, yet still spend most of their income each pay period.

Choice versus necessity determines how consumers spend their paychecks every month. Regardless of how consumers define their paycheck-to-paycheck status, everyone allocates some of their income to the basics — housing and groceries. However (and not surprisingly), consumers whose paycheck-to-paycheck lifestyle is shaped more by more choice than necessity allocate more of their income to discretionary expenses.

More than two-thirds of those consumers chose to spend money on social activities at least once a month in the past year, compared to 43% of those who live paycheck to paycheck out of necessity. Consumers who live paycheck to paycheck out of necessity are half as likely to be planning to spend on leisure, entertainment and recreational activities because they lack the cash to spend on discretionary items.

How paycheck-to-paycheck consumers use credit cards varies. We know that 90.5% of American consumers who want credit cards have and use them. According to the latest Federal Reserve data, American consumers have more than $1.4 trillion in credit card outstandings. Consumers have always used credit to leverage their spending power, and consumers across all paycheck-to-paycheck personas use it for that reason.

Consumers living paycheck to paycheck either by choice or necessity have higher credit card balances than those who say they don’t — and obviously for different reasons. Those who say they struggle with meeting their monthly financial obligations are much more likely to revolve their balances, using credit to fill in the gaps between paychecks or to ride the storm when unexpected expenses arise.

A third more consumers who report struggling to meet their monthly obligations say they always revolve their credit card balances than those who say they comfortably pay their bills each month. The share of struggling paycheck-to-paycheck consumers who usually or always revolve their credit card balances has risen 7.4 percentage points since 2023.

Savings tips the balance of the paycheck-to-paycheck lifestyle. Having cash savings significantly changes how people view their financial situation and how they save or spend accordingly. Living paycheck to paycheck — or not — is also influenced by how confident people are about the adequacy of their cash cushions if something goes haywire.

During COVID-19, fewer American consumers reported living paycheck to paycheck despite higher unemployment. This unexpected trend occurred because stimulus checks and enhanced unemployment benefits provided many households with unprecedented cash reserves. Between 2021-2023, the percentage of Americans reporting paycheck-to-paycheck living dropped to 54.5% as debts decreased and savings grew.

Having savings doesn’t automatically change whether people still think of themselves as living paycheck to paycheck, but it’s an important factor, especially for those living paycheck to paycheck by choice.

We find that just over 40% of people with $2,500 to $5,000 in savings still choose to live paycheck to paycheck. Those with less than $1,000 in income are both more likely to live paycheck to paycheck and more likely to do so by necessity. And with $1,000 to $5,000 in savings, they  feel they have some security but are more nervous, and an emergency expense of $1,200 might be enough to tip those scales.

The data also reveals a significant decline in self-reported paycheck-to-paycheck status once savings exceed $5,000. Those who continue identifying as paycheck to paycheck despite having over $5,000 saved appear to do so by choice rather than necessity, as they report comfort with their bill-paying ability including spending on discretionary items, while maintaining a safety net for unexpected expenses.

The largest generational cohort of consumers who report living paycheck to paycheck out of necessity are single millennials, many of whom live in rural locations. A third of those millennials have dependent children living at home — spending is about providing for their families, with little room for much else.

The $45,000 Paycheck-to-Paycheck Tipping Point

Analyzing five years of PYMNTS Intelligence data reveals two critical income thresholds in describing the financial lifestyle of consumers.

The data finds that the first significant threshold occurs at $45,000-$49,999, when individuals begin to shift from struggling paycheck-to-paycheck living to a more comfortable paycheck-to-paycheck lifestyle.

The second critical threshold appears in the $125,000-$149,999 range, where people become increasingly likely to say they no longer live paycheck to paycheck either by choice or necessity.

As income climbs to more than $85,000 per year the incidence of living paycheck to paycheck by choice begins to decline as more and more consumers indicate they no longer live paycheck to paycheck at all. What’s particularly interesting is that this shift is not universal, and many individuals with moderate to high incomes continue living paycheck to paycheck despite having the financial capacity to do otherwise. They’re comfortable paying bills but still spend most of their income monthly because of their monthly income and savings backstop.

Since these individuals can pay their bills comfortably, their continued paycheck-to-paycheck status suggests deliberate spending choices on more or more expensive things, rather than pure income constraints. These choices might include supporting dependents, purchasing larger homes or even second homes, or using private schools.

If paycheck-to-paycheck status were solely dictated by income necessity, we would expect to see a much steeper decline in all paycheck categories as income increases. However, the gradual nature of this decline suggests other factors at play, including the fact that consumers with incomes over $250,000 are 30% more likely to continue to live paycheck to paycheck (generally by choice).

The key insight is that even as financial capacity increases with higher incomes, many individuals continue to choose to live paycheck to paycheck rather than transitioning to non-paycheck-to-paycheck status.

Why Paycheck-to-Paycheck Status Matters Right Now

It’s been 15 years since the U.S. experienced a great recession, even though there was a slight dip in 2020 owing to the COVID shutdown. Today’s environment of economic uncertainty and rising prices, the threat of tariffs and the current administration’s hints at a likely recession have significant implications for all consumers and how they will spend their paychecks in the weeks and months ahead.

Consumers across all income brackets are likely to pull back on spending, but for different reasons. Those with savings cushions may voluntarily push pause on spending until they have more certainty in order to preserve cash and income, while those without financial shock absorbers in the form of savings will be forced to cut back out of necessity.

The “comfortable paycheck-to-paycheck” group faces particular vulnerability as economic pressures mount. The Fed is unlikely to lower interest rates in the foreseeable future, and if there is inflation because of tariffs, rates might go even higher. That’s bad news for consumers with adjustable mortgage rates that are set to rollover from historically low levels around 3% — just as interest rates on their credit cards and other loans rise. That means new monthly paycheck pressures owing to the increased cost of housing and credit card debt, especially if wages don’t keep pace.

As basic goods become more expensive due to tariffs and rising production costs, these consumers could also see their discretionary income significantly reduced.

PYMNTS Intelligence finds that more than half of consumers surveyed in February 2025 who are knowledgeable about the proposed tariffs said their wallets would take a beating; 78% said because of higher prices, and 75% because of product shortages. Many who were previously managing comfortably may find themselves sliding into the “struggling paycheck-to-paycheck” category as more of their paychecks are allocated to the basics whose monthly costs continue to rise.

Read more: What American Consumers and Small Businesses Think About Tariffs

That, of course, assumes consumers have a paycheck.

The Paycheck Economy

The labor market is starting to soften — and not because of the government layoffs, which impact a relatively small part of the American workforce overall. As businesses face their own uncertainty, they will likely freeze hiring, expenses and investments to grow the business. The ripple effect of this uncertainty itself is its own force.

As more consumers shift from choice-based financial decisions to those driven by necessity, overall consumption could contract, challenging economic growth. Retailers and service providers may need to adjust their strategies to address a growing segment of more price-sensitive consumers across income brackets if they hope to make a sale. Even wealthy consumers who don’t live paycheck to paycheck may pull back after looking at their stock portfolios and feeling less wealthy. Even the billionaires. Bloomberg reported yesterday (March 10) that the billionaires who attended President Trump’s inauguration have lost $210 billon collectively over the last seven weeks.

That detail aside, the data emphasizes that you can’t judge a paycheck-to-paycheck consumer by its cover. High earners who have structured their lifestyles around their full income with minimal savings could face similar challenges to lower-income households when economic conditions tighten.

The impact of economic uncertainty will be felt across the spectrum, with similar outcomes despite very different income and paycheck-to-paycheck starting points.

As Gaber said in his article back in May 2016, it’s about choices. It isn’t just how much money comes in, but the set of choices, obligations and priorities that determine where it goes.

In an economy increasingly characterized by unpredictability, understanding this nuanced reality isn’t just navel gazing. It also isn’t distorting the definition of paycheck to paycheck or its importance in understanding how consumers manage spending. It’s essential for understanding how consumers will react to financial pressures, and how vulnerable large swaths of the American consumer may be.

The economy’s resilience depends on their ability, in mass, to spend the paychecks they have — and knowing they’ll keep getting them.

The post Who Is the Paycheck-to-Paycheck Consumer in America? appeared first on PYMNTS.com.

Consumers have done their homework.

Today, 71% of U.S. consumers and small businesses say they are knowledgeable about these potential import tariffs. Only zillennials and Gen Z aren’t up to speed on the details.

That’s according to a study of 2,291 consumers and 560 SMBs conducted by PYMNTS Intelligence between February 5 and February 12. “Knowledgeable” is defined as a respondent who answered correctly when asked about the countries potentially impacted and percentage of tariffs potentially imposed.

But knowing about something doesn’t necessarily make consumers feel better about it.

The Worry Factor

More than half of those informed consumers — 57%, to be exact — think these tariffs will hit their wallets hard. They’re not only worried about the big picture economy (though 40% are concerned about that, too). They’re worried about their own bottom line.

That’s because 78% of those consumers anticipate higher prices and 75% expect product shortages. If you’re getting flashbacks to those empty store shelves during COVID, you’re not alone. It’s the same kind of anxiety that consumers now express, just with a different root cause.

What’s surprising is that this not-so-rosy sentiment is consistent across income, financial lifestyle (e.g., paycheck-to-paycheck versus not), and demographic cohorts. Most every consumer views the impact of the proposed tariffs as more negative than positive.

A Short History Lesson

Of course, tariffs are not a new thing. The recent trade war with China saw prices rise on goods imported into the U.S. in 2018-2019. Consumers said thanks but no thanks to electronics and appliances. A paper appearing in the Journal of Economic Perspectives in 2019 estimated that those tariffs reduced U.S. real income by $1.4 billion per month by the end of 2018 because those price increases were completely passed through to consumers.

Tariffs are also not a century-old presidential artifact — although many economists compare the Administration’s sweeping tariff ambitions to those of President William McKinley. For all of you who have not consulted ChatGPT for a quick tariff refresher: As a member of Congress before his presidential inauguration in 1897, McKinley authored the McKinley Tariff Act of 1890, which raised the average tariff to nearly 50%. As president, he raised them even higher.

The idea then was to protect American industry, but it came with a price — literally. Consumers paid more, and international relations got pretty complicated until the early part of the 20^th century.

Why Today is Different

But the world McKinley knew is about as different from our world today as a horse-drawn carriage is from a Tesla. Modern supply chains look more like a giant spider web that spans the globe. Just open your Amazon boxes for evidence. And if, like me, you love to turn fresh tomatoes into tomato sauce in the winter, then thank Mexico. It is the second largest supplier of agricultural products to the U.S., including more than $2 billion worth of tomatoes. There’s a decent chance that the car driving next to you on the highway was made in Mexico, or the parts that went into it came from Mexico or Canada.

Pricing Pressure Points

These potential U.S. tariffs come at a time when many Americans are already feeling pretty punked out about prices. The U.S. is dealing with above-target inflation, it and has been since March 2021 — that’s nearly four years of watching prices on largely everything behave badly. Sure, the overall inflation rate is now hovering around 3% — but dig into the details and things look a bit messier. Auto insurance? Up 11.8%. Health insurance? Up 4%. And anyone who buys groceries knows food prices have jumped nearly 20% since 2021. There’s just no stimulus money hanging around the hoop to soften the financial blow today.

That means the increase in cost for buying and paying for the essentials — food, insurances, utilities, housing, credit card balances — will dent discretionary spending for all consumers. In fact, nearly seven in ten consumers in the PYMNTS Intelligence study say that tariffs would decrease their purchasing power. For many households, especially those with low to middle incomes, more than 70% of their paycheck already goes to essentials before they even think about any extras.

Today’s consumers are also more leveraged. Revolving debt is at an all-time high, an increase of 4.8% year over year. Many consumers who improved their credit scores during COVID got credit line increases and used them. Now more of those balances are revolving and delinquencies are rising, with 3.6% of outstanding debt in some stage of delinquency, according to the New York Fed. All of that suggests some cracks in what has been a resilient consumer as essential expenses take priority when it comes time for bills to be paid.

Fifty-one (51%) percent of consumers who are unemployed and looking for work cite the possibility of tariffs as negative to their financial standing, which we interpret as meaning their chances of finding employment and paying their bills on time.

Small Business Optimism?

Small businesses, however, see a silver lining.

According to the PYMNTS Intelligence study, about half of the small businesses studied view these potential tariffs as an opportunity to boost demand to source and have consumers buy domestically. They’re also quite confident about finding domestic suppliers. They see tariffs as a way to level the playing field with their larger enterprise competitors with more rigid global supply partners.

Small businesses say they’d hold the line on prices, although that sentiment varies by sector. As many small businesses say they will prioritize replacing suppliers with domestic partners as those who say they will raise prices in response to tariffs. More than a quarter (26%) of small businesses say they will raise prices if tariffs are imposed, but only 9% consider that as their first line of defense against tariffs. Nearly four times as many small retailers said they would rather discontinue a product they could not source domestically than raise prices, at least initially. Fifteen percent of small businesses will raise prices but explore value-added services to justify the additional cost to the consumer.

It all sounds good on paper, but modern supply chains are incredibly complex. Even “domestic” products often rely on imported materials or components. There is no guarantee that substitutes will be as good, as cheap or as relevant to consumers as those they buy now.

This is where we see a fascinating disconnect between what consumers plan to do and what small businesses hope will happen. Small businesses might be banking on “buy domestic” sentiment, but whether consumers buy at all depends on how confident they are in their financial wellbeing.

The Hidden Cost Nobody’s Talking About

There’s a side to this story that no one has addressed: the uncertainty that consumers and businesses, large and small, now face as the tariff decisions remain in limbo.

As we have seen from the fourteen-month Certainty Project study, fielded by PYMNTS Intelligence and spanning some 700 middle market CFOs and COOs, uncertainty is an invisible tax that affects everyone. The lack of clarity changes how people behave. And uncertainty has a ripple effect.

Businesses report that uncertainty costs them as much as 7% of their revenue, 4% for the average business. Those losses are related to decisions not taken, investments not made, people not hired and products not developed. Each of those no-go decisions or wait-and-see pauses reverberates across the people and businesses on the other side of those actions.

As consumers imagine a world where the proposed tariffs are imposed, they say they’ll switch from spending to saving. Nearly half of consumers (48.6%) in the PYMNTS Intelligence study say that if tariffs are imposed as described they would save more than they would spend.

That may not bode well for the U.S. economy, since 70% of GDP is the result of consumer spending. When consumers feel uncertainty, they get anxious. They tend to close their wallets and wait it out.

For the many small businesses who might be feeling optimistic about domestic sourcing, there is the uncertainty about how those domestic suppliers might set their own prices in response to the tariffs. There is no guarantee that their prices will be competitive (aka cheaper), or their products will match what consumers want to buy.

If local sources are as expensive or the products are not as good, it’s likely that consumers will take their business to the shops that offer the products they want to buy. Small businesses — particularly the two-thirds of micro-and-smaller small businesses that have not even begun to plan for a world where tariffs become de rigueur — may find themselves flat footed, at least for a while, and unable to pivot hard enough and in enough time to adapt successfully.

As always, consumers will decide.

They are much smarter about how they shop, and their smartphones have become their best bargaining tools. According to the 2025 Global Digital Shopping Index (GDSI), 42% and 48% of consumers in the U.S. and globally use their smartphones as shopping assistants; 19% and 24% (U.S. and all countries respectively) do so even as they are standing in the physical store.

We’re already seeing consumers embrace price comparison apps and digital coupons like never before — both are features ranked most highly by consumers in the GDSI when asked about their merchant and store preferences. They’re checking prices while standing in store aisles, hunting for better deals online and using their mobile devices to track price histories and product recommendations.

Retailers of any size who want to keep their customers will need to up their digital game — because when consumers feel the squeeze, they go hunting for deals. They’ve got better hunting tools than ever before and the endless supply of mobile storefronts to shop from.

The Bottom Line

As we navigate this latest chapter in America’s complex relationship with tariffs, one thing stands out: We’re still in the realm of “what ifs.” Yes, consumers are worried, and small businesses are oddly optimistic — but that’s what happens when nobody really knows what’s coming. When the future is unsettled, the tendency for people and businesses is to hit the pause button on decisions. The waiting game itself becomes an inevitable part of the economic narrative.

We’ve also been here before.

American businesses and consumers have shown remarkable adaptability in the face of economic change. Small businesses might need to dial back some of that optimism about finding everything they need right here at home — after all, global supply chains didn’t pop up overnight. They may be overly optimistic about the potential boost in local sales, but they also recognize the reality of the consumer pocketbook, and the options they may have to shop wherever the prices are the best.

But small businesses are also creative and passionate about their business, and they know how to pivot when they need to. They also have the muscle memory from COVID, and the investments they made to digitize their businesses,  to see them through.

Consumers, even though they are feeling the squeeze from inflation and debt, have also demonstrated their ability to roll with the punches. They might say they’re going to save more (and maybe they will), but history tells us people usually find some middle ground between watching their wallets and living their lives.

In the end, uncertainty becomes an economic force — not necessarily good or bad, but definitely influential. While everyone’s waiting to see how the tariff talks shake out, both businesses and consumers have time to plan their next moves. Whatever ends up happening might look different from what anyone’s expecting — but that’s usually where the most interesting opportunities and innovation happen.

The post Higher Prices and Fewer Choices: What American Consumers and Small Businesses Think About Tariffs appeared first on PYMNTS.com.

When the scientific world wants to better understand human behavioral psychology, they often run extensive experiments using them. I’m reading an interesting book about urban development and population density called Rat City.  The book documents the many decades of scientific research conducted by Professor John B. Calhoun who used the Norway Rat to simulate the behavior of humans in crowded living conditions. His goal was to help urban planners improve city center design. It is a cleverly crafted history lesson on the evolution of cities, including my hometown, Baltimore, using rats as the main characters.

Punch line: Intensely overcrowded conditions caused most of the rats to turn violently on each other, become cannibalistic and dramatically shrink the population. You should still read the book to find out which rats survived and why. And why rats were the reason that Thomas Jefferson didn’t like cities very much.

A year ago, Scientific American published an article explaining research done at MIT about people and habits. Specifically, how people form habits, and why it’s hard to break old ones and form new ones. And yes, the research was done using a series of controlled experiments using rats.

The research outcomes confirm much of what we already know because we live it every day: most of the habits we form and behaviors they trigger are standardized and largely preprogrammed into our brains.

However, the research also finds that even as new habits are developed, old behaviors are never totally erased from our brain’s hard drive.

Old habits are merely suppressed. When presented “cues” associated with old behaviors, it can get easier (more tempting, perhaps?) for those old habits to replace the new ones. Although, the stronger the reward for the new behavior, the less likely it is people (or rats) will revert to their old patterns.

That brings me to one of the longest running, most insightful, real-time modern behavioral experiments ever run on humans: COVID-19.

Lockdowns and New Habits

It’s hard to believe, but five years ago this week, on January 23, 2020, the Chinese government imposed a mandatory 76-day lockdown in City of Wuhan located in China’s Hubei province.

No one ever dreamed that would become the starting line for a once in a hundred-year global pandemic that would kill more than seven million people and infect nearly 778 million others over a five-year period.  I remember, as I am sure you do too, when the mandatory lockdowns in the U.S. were expected to be about two months. Little did we know then….

With the COVID pandemic now in the rear view, many speak of the return to pre-pandemic behaviors. We are back to shopping in stores, back to going to movie theatres and live events, back to eating out at restaurants and back to seeing doctors in person, back to riding in Ubers without having all the windows rolled down during the trip.

And, of course, all of that is true.

But it’s also true that the rapid shift to digital, driven by the pandemic, has formed new digital-first habits.

And that the correct comparison point for measuring consumer digital engagement isn’t from the peak of the pandemic and the physical-world constraints on doing business in person, but from how consumers used digital channels in January of 2020 — before the pandemic began.

PYMNTS Intelligence began tracking the shift to digital by consumers in March of 2020 — on March 4^th, to be precise — to examine the durability of the shift to digital across key segments of the digital economy. We believe that we have the most robust data set to systematically track how consumers shifted digital over the last five years.

“Shifting digital” — as measured by the research — means using more digital than physical channels to perform many everyday tasks. This data set has been refreshed monthly, using national surveys of consumers, for the last five years.

The digital shift we observe over that time isn’t concentrated within a certain demographic cohort. Everyone has increased their use of digital channels, from the 16-year-old Gen Z to her 86-year-old great grandma who orders her groceries from Instacart, pays her bills online, orders stuff from Amazon, Facetimes with her granddaughter and even Venmos birthday money.

And those new habits haven’t totally reverted to the physical-first behaviors that were second nature in 2019.

Even as stores, restaurants and doctor’s offices are visible cues for consumers to once again fully engage in the physical world.

Tracking the Digital Shift

By the end of 2024, PYMNTS Intelligence data finds a consumer who has gone back to shopping in the physical store. But  an estimated 41% of retail shoppers do more of their shopping using digital means today than they did before the pandemic. Nearly three quarters of those consumers say they plan to stick with or accelerate those behaviors in the future.

Eating out at restaurants (and back inside of those establishments) is back too, as anyone who’s tried to get a reservation at the last minute can attest. But 19% of restaurant diners use digital means to order food from aggregators more than they did before the pandemic. Seventy-two percent of these consumers say they plan to maintain these behaviors going forward.

People are back shopping in the grocery stores. But the share of consumers buying their groceries online and picking them up in stores has increased almost 30% since January of 2020 — even at Walmart. PYMNTS Intelligence data finds that more than a quarter (27%) of Walmart+ subscribers say they got their subscription to get free grocery delivery. These same studies show that Walmart’s online acceleration is driven, in large part, by grocery purchases.

The doctor’s offices are again places where patients gather to wait for their appointments. But today, nearly a third (31%) of consumers use telemedicine services every month to talk to their healthcare providers. At the beginning of the pandemic, it was estimated that only 5%-8% of the U.S. population even knew that telemedicine (visiting your doctor from home) was even an option.

And yes, fewer people are working remotely in 2024 than during the pandemic. But return-to-work mandates are meeting resistance after consumers have spent the last five years forming new habits and schedules that don’t include commuting to and from the office.

The apps that consumers have on their smartphones are the visible, and actionable, cues that prompt their engagement in this digital-first world 24/7/365. These apps have become the easy buttons for connecting to the physical world. They are a starting point, though maybe not always the only or even the ending point, for the path to a transaction, whether that transaction is a purchase, seeing a doctor, ordering food or watching a movie.

We observe a shift to digital that is durable, and a physical world that has truly become an extension of the digital experience. It’s now second nature to nearly every consumer on the planet.

The Five-Year Flashback

I wrote last week about the finite number of hours that each of us have to spend over our lifetime. How each of us makes trade-offs about how we spend them, especially when faced with a serious threat or a massive opportunity that could add or subtract hours in that hours bank. In March of 2020, every person living in the world faced a serious threat to how many hours they might have left. On March 11, 2020, the World Health Organization declared Covid-19 a global pandemic. Life as we knew it ground to a halt.

At that time, cases outside China had increased by thirteen times, with the number of affected countries tripling. The WHO expressed grave concerns about the disease’s severity, rapid spread and mounting death toll. Their advice: isolate and socially distance. Those were the only weapons the world had to fight the disease at that time. A vaccine would not be available for most people until April of 2021.

Fear gripped communities as people fell ill and hospitals filled. We all knew someone who had gotten sick. Cities became ghost towns overnight. Lockdowns and masks became the norm.

The pandemic’s toll was staggering.

New rituals that defined the physical world emerged: queuing on footprints spaced six feet apart in stores, outdoor dining in winter, and daily checks of local case numbers. Even after the vaccines rolled out, the threat of severe illness loomed as variants compromised the efficacy of existing vaccines. That kept many wary of venturing out. So did the friction associated with doing business in the physical world.

For more than two years, people retreated indoors. Out of an abundance of caution, and with the fear of getting extremely ill or even dying, most consumers gladly traded their old physical shopping habits and moved online.

This forced all businesses to get scrappy and innovative — and fast-track their digital agenda to make those experiences better.

Restaurants that never did takeout suddenly figured it out. Online marketplaces stepped in to give once physical-only retailers a place to sell their inventory. Curbside pickup became the hot physical retail ticket. Messaging platforms became sales channels. Clienteling using new apps became a way for customers and associates at stores to engage. Video meeting platforms became substitutes for meeting in the physical world — and remain that way five years later.

Even doctors didn’t want patients in their waiting rooms and shifted scheduled visits to Zoom. Insurers changed their reimbursement policies to give doctors the same payment for a telehealth visit as an in-person session to encourage the shift.

The physical world began to reopen in the second half of 2022, even though it would take until May of 2023 for then-President Joe Biden to officially declare an end to the pandemic.

By then, engaging with businesses online had hit its stride. And the numbers tell the story. PYMNTS Intelligence estimates that there is an additional $90 billion in eCommerce volume, an additional 1.2% in online retail sales, as the result of the permanent shift to digital caused by the pandemic behaviors.

The Revenge of the Physical Experience – Sort Of

People, a little stir crazy and hungry for the social engagement of the physical world that was irreplaceable online, reengaged with the physical world. They booked flights to travel anywhere and everywhere, went back to restaurants in full force and got in their cars and went to the store. “Physical retail is back,” the media and pundits exclaimed.

But “back” is all about what you might be measuring. Physical retail wasn’t exactly in great shape before the pandemic. Department stores sales were in a downward decline for the two decades prior to the pandemic, declining by 51% nominally and by 66% on an inflation adjusted basis from 2000 to 2020.

When people went back to the physical store in 2022, 2023 and even 2024, the cues they got there were different. The merchandise was different (limited), and the service levels were different (not enough salespeople). At first, physical retail sales appeared to tick up, in part because of inflation and in part because people did return to the store. However, when adjusting for inflation, department store sales declined by slightly more, or 67.7% from 2010 through 2024.

At the same time, digital experiences were getting better and better for many of the things that consumers once only did in the physical store. The efficiency of online for certain, predictable everyday or regularly-replenished purchases had moved online. People were still going to the physical store, but not as often — and once there, they were buying different things. Maybe not even spending as much. Their visits were purposeful, and mostly for the things they needed the same day or wanted to inspect before committing to buy.

Take groceries.

Many of the center isle items that consumers once put in their grocery baskets in the physical store in 2019 are now being bought online. Before the pandemic, three out of four consumers regarded canned foods as grocery products to be stuck into their grocery baskets in the store. Today, PYMNTS Intelligence data finds that fewer than two-thirds do. The same holds true for condiments, spices and cooking supplies. The share of buyers who believe that household items like cleaning supplies, paper products and personal or healthcare products are now the things only or regularly purchased in the grocery store has decreased by 10%.

The Digital Shifters

The pandemic has fundamentally reshaped consumer behavior, creating a seismic shift toward digital-first interactions that goes well beyond a temporary hiatus from the physical world. What began as a survival mechanism during global lockdowns has evolved into a permanent — and digital — reimagining of how people engage with businesses, services and experiences.

This transition mirrors what the MIT scientists found in their lab rats. Consistent exposure to a new environment with stronger rewards creates a durable preference for the new, even as old cues with their associated reward systems are presented. Lasting behavioral change occurs when new systems offer greater rewards and the contrast to the status quo reinforces the reason for the change — a phenomenon that is observable in human behavior post-pandemic as well.

Of course, certain physical interactions remain irreplaceable — like getting a haircut, watching Taylor Swift live in concert, going to the Super Bowl, or sharing a meal with friends. But the convenience, efficiency and personalization offered by digital platforms have established entirely new expectations. Consumers now demand seamless, smart experiences that blend technological convenience with human connection.

Emerging technologies like generative AI will accelerate this transformation, promising even more personalized, contextual interactions that blur the lines between digital and physical worlds.

The most successful organizations will not force consumers to choose between digital and physical channels, but instead create experiences that feel natural, intuitive and responsive. They’ll leverage data, artificial intelligence and user-centric design to meet customers exactly where they are — whether that’s on a smartphone, in a physical store or somewhere in between. The pandemic didn’t just change habits; it rewired fundamental expectations about convenience, accessibility and personal interaction.

For a new generation of consumers, digital isn’t an alternative, it’s the primary mode of engagement. Companies that understand and embrace this reality will not just adapt but lead in a world where technology and human experience are increasingly interconnected.

The future belongs to those who see beyond traditional boundaries, who recognize that the most powerful experiences are those that feel both cutting-edge and deeply human.

Businesses that recognize this fundamental shift and view consumer engagement as a fluid, integrated ecosystem will be the true winners.

The post Five Years Post-COVID, We’re Really Not Shopping (or Doing Much Else) Like It’s 2019 appeared first on PYMNTS.com.

It takes about a half an hour, on average, to manage the ripple effects related to an unexpected event — a merchant dispute, a travel delay, a school closure, rescheduling a doctor’s appointment, a billing error, you name it. That’s over and above the time spent identifying the problem and any initial attempts at troubleshooting to resolve it. Assuming consumers have only one such issue a month, that’s about six hours every year, almost a full workday, dedicated to the hassle factor. Already in the last 30 days, I’ve had three such hassles.

Is a Little Lost Time Really a Big Deal?

It’s widely accepted that early detection of diseases — and cancer, in particular — saves lives. The earlier the diagnosis, the shorter the path to treatment and the higher the probability of being cured and living longer. Researchers say that for many cancers, the survival rate for someone whose disease was caught early is three times that of someone whose disease was not. Early detection doesn’t just add more years of life — it makes those years higher quality and more productive.

Benjamin Franklin famously said lost time is never found again. It’s why time is such a valuable currency. Time is universal and it is ubiquitous. And as Franklin pointed out, it’s also finite. Every consumer has a time budget.  Assuming a life span of 79 years, that amounts to 690,144 hours, measured by hours in a day (24), days in a week (7) and weeks in a year (52). It’s hard to unsee that now, isn’t it?

It’s why we all care so much about how we spend the time we have. It’s the mental framework everyone uses to decide whether to spend time doing something or pay to have someone else do that same thing instead. The time-value of money is as much a personal assessment of value as it is a business measure of investment efficiency.

For innovators and business leaders, time can be innovation’s headwind or tailwind. How much time it takes to change, to implement and commercialize a new idea, and whether the “new” alternative is different enough (and worth the money) to abandon the old is how consumer and business buyers decide when and if to take the leap.

GenAI as Time Shifter

One of GenAI’s biggest impacts on people and society is giving people different ways to spend the most precious currency they have: their time. In some cases, this means spending less time on things that a software assistant can do faster and better (and cheaper) at work or at home. That shifts more time to activities that people or their employers may consider higher value and more important.

In other cases, GenAI accelerates the time to new ideas and transformational breakthroughs. That shifts the benefits from time forward with the promise of better outcomes (more time or better use of time) for many people and businesses — and often at a lower cost.

The ability to save and shift time is a GenAI superpower and it is — or will be — accessible to everyone. In a GenAI powered world, we trade time machines for computers and LLMs. Using apps to make better use of our time will become second nature, an embedded part of our day-to-day.

Those breakthroughs will also shift how and with whom consumers and businesses spend their money. As Franklin also said, a penny saved is a penny earned. The intersection of GenAI and payments will change how billions of pennies are earned, saved and spent.

From Swiping to Talking

I did a lot of cooking over the holidays, and that meant I spent a lot of time in the kitchen. Like many of you when cooking, the television was on the background to keep me company.

I kept noticing an ad with people talking into their phones. It was obvious they were having a conversation with someone. The conversations were like those that one could imagine having with a friend or family member. At first, it wasn’t obvious whose brand the commercial was promoting or who the person was on the other end. I assumed it was an ad selling a new handset model.

Turns out the “person” at the other end was Gemini. The commercial wasn’t about a particular brand of handset at all, but an app that consumers could download and use on any phone.

The conversations the ad featured were about navigating the consumer’s day-to-day life, not asking for help writing the next great email to a prospective client or a voice command to change the TV channel to the Food Network.  It’s the version of a virtual assistant that consumers say they want — the one that can manage the hassle-factor scenarios that take so much of their time and mental energy. Or get practical advice on questions or decisions that come up.

According to a PYMNTS Intelligence study, roughly a quarter of U.S. consumers would be willing to pay $10/month to have access to a virtual assistant that could do that. And, that relegates handsets to being an access device to a smarter app ecosystem that users value. It’s those apps that will monetize relationships with their users. They will help them save time. Virtual assistants are examples of one such app. So are the others that consumers use that will only get smarter and easier to use as GenAI becomes an embedded part of those app experiences. And as voice becomes the access method that consumers use to engage with them.

It’s those apps that will monetize relationships with their users. They will help them save time. And that will challenge how handset manufacturers make money, and how app stores monetize GenAI.

When AI’s in the App

This must come as a real bummer to Team Cupertino. The launch of the latest Apple handset with Apple Intelligence last year was a strategy to pull forward the upgrade cycle and get consumers hooked on a smarter Apple experience that they would monetize through app subscriptions. That didn’t seem to go as planned. New research from analysts that track handset sales — remember Apple doesn’t release those data anymore — suggests that Apple Intelligence has not moved the needle on what they describe as “sluggish” iPhone sales.

For the first time ever, they said, last week Moffett Nathanson initiated a sell on Apple. Among the reasons: its lackluster performance in China and disappointing outlook with GenAI and Apple Intelligence.

The jury is out on whether the April release of a new and improved Siri integration will make Siri smarter, more useful and monetizable beyond the sale of the handset used to access her.

Data finds that virtual assistants that can cross operating systems are a headwind for Apple. According to an eMarketer study, more U.S. consumers are using Alexa and Gemini (176 million consumers) than Siri (90 million) which comes installed as part of iOS. Gemini became available on the Apple App Store in late November and was downloaded 7.1 million times in November on iPhones.

As GenAI becomes more integrated into third-party apps, Apple must decide how to monetize these features without alienating developers or facing further legal challenges. Its options are also a bit more limited, such as the tried and true 30% haircut on fees for digital apps.

At the same time, virtual assistants need to figure out their own models. Google with Gemini (in theory) can connect to commerce and search through shopping — and Alexa can connect to retail, healthcare, grocery and other products and services through the Amazon ecosystem. GenAI business models will adapt to where and how they can best distribute their apps without degrading the user experience — and without regard to the devices consumers are using to access those apps.

GenAI as the Antidote for Healthcare Pain and Payments

Imagine a world in which your doctor knows you’re getting sick before you do. Where healthcare isn’t an issue you panic about when something goes wrong, but a proactive partnership that keeps you healthy from the start.

GenAI has the potential to shift the conversation — and time and dollars spent — from how much it costs to make people well when they get sick to preventing illness before it even begins. That will make the future of healthcare about using GenAI to better understand and prevent disease. Interactions with the patient will become patient-first and smart-technology driven.

The economics are compelling. Right now, the U.S. is drowning in healthcare costs — $4.9 trillion in 2023, projected to hit $7.7 trillion by 2032.

Reports find that 28% of U.S. consumers skip, delay or stop medical care because they can’t afford it. That number is even higher for younger consumers. And although forty percent of consumers find their care costs manageable, they say they cannot afford to pay more. This same report finds that thirty percent say they struggle to pay for the care they need.

That’s not just expensive — it’s unsustainable.

By using intelligent monitoring devices and personalized health insights, it’s possible to dramatically reduce the cost of chronic disease management. Medication can be remotely prescribed, administrated and monitored as appropriate, staving off a full-blown, expensive and potentially physically debilitating medical crisis.

Each prevented chronic illness could represent saving hundreds of thousands of dollars in unneeded medical treatments.

GenAI has already, and will at scale, reduce the time and improve the accuracy of reading complex medical imaging scans, detecting subtle anomalies that might escape the human eye. It is set to revolutionize drug development, potentially saving pharmaceutical companies $400 million per drug and years of research time. It’s not just about cost-cutting; researchers believe that these AI systems could uncover new treatments they believe we’ve been overlooking.

As for clinical trials, some medical experts predict they might become a thing of the past. GenAI’s precision in matching treatments to patients’ molecular profiles could make traditional trial methods obsolete, accelerating the path from lab to patient.

We’re already seeing green shoots. Startup Recursion recently announced the completion of its NVIDIA-powered BioHive 2, which will help researchers access massive biological data sets and reduce the time required to develop treatments for various diseases, including rare conditions. At hospitals like Mass General Brigham here in Boston, GenAI is already screening patients and improving clinical trial efficiency. For doctors, the most immediate benefit is reclaiming time — automating paperwork so they can focus more on patient care.

Insurance companies will jump on the bandwagon, offering significant discounts to patients using these GenAI health monitoring systems, and employers who make them available to their employer population. There will be incentives for healthcare to be about being and staying healthy — where healthy is an outcome that is rewarded.

Investors are betting big on this vision, pouring a staggering $26 billion into making it a reality. This massive influx of capital underscores the immense potential and transformative power that many see in a future that fundamentally reimagines healthcare as a proactive, intelligent partnership between technology and human expertise. This technology can move us from a reactive model of treating illness to a predictive model of preventing disease before it even starts.

Saving time, saving money — even saving lives.

The GenAI Time Machine

GenAI isn’t just another tech trend; it’s a major shift in how people and businesses interact with technology. The apps people and businesses use are becoming smarter and more intuitive, pushing innovators and business leaders to rethink their strategies to stay relevant. Consumers are on board too, with more than half of them believing GenAI will enhance their healthcare outcomes. Most consumers say that GenAI at work is more helpful than harmful. And more consumers are building relationships with virtual assistants to reduce time spent on mundane tasks.

All of this points to a future where both consumers and businesses can make smarter choices about how they spend their time and money, leading to a more efficient economy. And a healthier financial outcomes for consumers. As Benjamin Franklin wisely noted, lost time is never found again.

Now, whether GenAI is the time machine we’ve been waiting for remains to be seen.

But when I asked OpenAI and Perplexity, what they thought, they both said yes.

The post The Big GenAI Time and Money Shift appeared first on PYMNTS.com.

Regardless of when the calendar pages change from one year to the next, many traditions stand the test of time. People still get dressed up and have parties. People still bang drums, light fires and kiss loved ones the very instant the old year becomes the new one. People still resolve to be better, even though they no longer do that in the hopes that the Gods will spare them. And people still make predictions about the year ahead, even though they no longer look to the stars to chart the future. As in the stars in the skies, not celebrity influencers.

But 2025 isn’t just another new year.

It is the midway point of a decade that has been indelibly changed by a global pandemic that lasted three years — and influenced by the rapid shift to digital, record levels of inflation and rising interest rates and, more importantly, by the introduction and adoption of GenAI.

And, at this midpoint, according to the Economist, nearly half of the world’s population lives in a country with a brand new political administration, with most representing a dramatic departure from the one they replaced.

That includes the U.S.

It seems like globalism is out, industrial policy is in and regulation is out.

It is inevitable there will be ripple effects on the pace and progression of innovation one way or the other.

On the first Monday of every year, I share my thoughts on the key themes that will shape the future of payments and the digital economy. My theses are based on data from across the 129 PYMNTS Intelligence studies and quarter of a million consumers and executives we studied in 2024, along with the hundreds of conversations I’ve had with some of the most interesting and innovative business leaders at the coalface of digital transformation.

That led me to these themes. Five for 25.

And whether you think I am six days late or two and a half months early depends on the calendar you use to start counting.

1. The Search for Simplicity Drives the Rise of the Orchestration Economy

The decade of the 2010s was about the rise of platforms and the creation of app ecosystems. For consumers and businesses, an all-you-can -eat menu of apps was just a download from inside an app store or API call away. Those apps lived their separate lives on whatever screens consumers or businesses used to access them.

At the start of 2020, we observed the convergence of single apps into ecosystems accessible through a single, digital front door. The rise of the connected economy for consumers, fueled by the global pandemic, meant downloading a single app like Instacart to order food and other essential items from dozens of stores or using their Uber App to book a ride, rent a car and have food delivered.

At the halfway mark, we see that convergence intensifying — and the rise of what I call the orchestration economy changing how businesses interact with each other and how services and capabilities will be accessed and delivered.

The complexity of business, the growing concerns over third-party risk and liability and the time and cost of vetting and integrating multiple providers contribute to this shift. So does the analysis paralysis from the sheer number of app options and point solutions now available to consumers and businesses.

In 2025 and beyond, new intermediaries will connect a portfolio of relevant features that they assemble with customers. These “uber orchestrators” operate like purpose-built business operating systems, deciding which features are relevant, how much of the tech stack they want to build and own, who they partner with or even buy and the economics of access. They make access to those capabilities relevant to customers — and their end consumers — easy. They make simplicity their source of monetary value.

Think of this as the platform and app ecosystem model turned upside down. Rather than the platform encouraging the birth of apps for its ecosystem, the orchestrator assembles or creates apps for its own ecosystem.

Orchestrators will commoditize basic, or “tablestakes,” functions that are important but are no longer sources of strategic value, and very often interchangeable. At the same time, they’ll wield influence over the features necessary to add more value to their customers and those they serve.  Those are the capabilities they’ll develop or acquire to create a competitive advantage. Those capabilities will become the cornerstone for the orchestration layer that will quietly disrupt the status quo.

Orchestrators will create competition among point solutions to become part of their stack. The buyers of point solutions will be different, and how they are used will be three or four levels below their ability to influence or control. That means their financial futures are decided by the orchestrators and their relevance and utility.

How orchestrators make their money goes well beyond cost per transaction. Reducing decision and regulatory risk and management complexity becomes a valuable ROI input.

Payments orchestration was the warmup act, the most mature example of the orchestration economy in action. But even that model is evolving to become more than just the giant gateway to local routing and alternative payments options, which is how it began.

We observe credit intermediaries aggregating access to multiple lenders, so merchants get credit optionality for consumers and businesses using a single platform. Data orchestrators are connecting item-level data from merchants with issuers that want to serve offers to accountholders using a single API. Money mobility and embedded banking orchestrators aggregate payments and banking capabilities so banks and non-bank providers have one “front door” through which to access a variety of services suited to their end customer.

In every case, the dynamics between the orchestrator and the feature set inputs it assembles and connects with its customers will reflect the part of the digital economy in which it operates. Regardless, the central tenet is the same.

The orchestrator’s superpower is simplicity and what it monetizes or deprioritizes. As the connector between features and customers, it shortens the distance between a good idea and a new way for businesses to monetize their assets and increase the lifetime value of their end user relationships.

2. Consumers, Not Banks, Force Convergence of Payments and Identity

The value of benchmarked data is the data-driven trendline about consumer habits and preferences. Since 2015, the PYMNTS Intelligence team has asked consumers about the attributes they value from their banks and the merchants they shop.

Over the past decade, consumer priorities have shifted from prioritizing convenience and efficiency to demanding robust fraud protection and innovative security measures. This shift is driven by alarming fraud statistics that highlight the vulnerabilities in how consumer credentials are authenticated, the success fraudsters now have in using technologies to trick people into giving them money and fake identities they create to pretend they’re someone they’re not.

PYMNTS Intelligence data shows that 3 in 10 U.S. consumers — approximately 77 million individuals — have lost money to scams in the last five years, with a median financial loss of $545. Romance scams are even more devastating, averaging nearly four times that amount.

Fraudsters are increasingly successful because they use the best technology has to offer to personalize the scam to the innocent victim: to assume the role of authorities that consumers are told they owe money to or bad things will happen, potential partners they might like to fall in love with, investment and sweepstakes scams that prey on the desperate. It is one-to-one marketing of the worst possible kind. And it’s become a cash register for the fraudsters.

Banks have reported that fraud losses more than doubled from 2023 to 2024, highlighting the escalating threat.

All of this will force banks to make a passwordless future more than a talking point — and use advanced technologies to make identity an embedded part of the payments and banking experience.

This is not a new topic of conversation. The industry has been talking about the convergence of identity and payments for years. Yet passwords still dominate, even though banks recognize the issues and inconveniences they pose for consumers.

What is new is the pressure point that will drive change.

For the first time in a decade, consumers are explicitly flagging “innovation in security” as a top requirement from their banks, moving beyond traditional concerns about convenience and efficiency. Over half (53%) of consumers now indicate they would consider switching banks if scammed, signaling a fundamental change in how financial institutions are perceived and how much harder they must work to keep consumer trust.

The convergence of identity and payments will fundamentally transform consumers’ behavior and their expectations of financial services and payments providers. And not because banks say so — because the consumers will vote with their pocketbooks and do business with those who can protect their data and money and keep their trust. Open banking will make that process easier.

Innovators are investing in new technology to bridge the gap. Biometric authentication, including fingerprint scanning, facial recognition and emerging technologies like palm scanning, are at the forefront.

Digital wallets are evolving beyond simple payment method storage, becoming connected platforms that integrate payments, banking and identity. The rise of decentralized identity systems offers individuals greater control over their personal information and who can access it.

Meanwhile, the payments and financial services industries are leveraging AI and machine learning to improve the accuracy of authenticating consumers and onboarding merchants. Underpinning all these advancements are robust security measures such as tokenization and encryption, ensuring the protection of sensitive user data.

Make no mistake. This technological convergence is not just about enhancing security; it’s about meeting the evolving expectations of consumers who won’t wait forever for banks to catch up.

That puts the onus on the entire ecosystem to use the very best that technology has to offer to build the bridge between transacting and creating the digital consumer identity that becomes their confident commerce passport.

3. FinTechs Fight With Walmart Over Banking the Middle Class

About one in every four U.S. consumers has an account with a FinTech bank.

Roughly 47% of those consumers use it as their primary bank account. That’s about 13% of the U.S. population, or 34 million consumers. Twice as many lower-income consumers use it as their primary bank account. Twice as many Gen Zs as their parents do, too. Many more higher-income consumers have it as a secondary or tertiary account earmarked for particular uses.

The big FinTech banks that capture most of that share include Square with CashApp, PayPal, Venmo, Green Dot with Go Bank, SoFi, Chime and MoneyLion. More want to hop into that pool. The appeal is a mobile app with prepaid debit card that acts like a bank account, letting users spend with that account credential. Most of them offer the same menu of features including two-day early access to paychecks, no-fee P2P, no overdraft fees and high APR on stored balances. Some require a subscription fee, others do not.

In 2025, these challenger banks will have a new challenger: the world’s biggest physical retailer, Walmart, with One.

Walmart has been trying to become a bank since 1999. It’s been a long and winding road. It tried three times to buy an industrial bank. Then it tried to become one in 2005. That effort was scuttled by banks and regulators two years later.

Walmart’s prepaid Money Card launched in 2006 with Green Dot and counted one million users in 2021, according to a joint press release. That card gave consumers a bank account to store funds and buy things. Walmart Money Centers inside of every Walmart store have been offering a variety of banking services to consumers living in the cash economy, including check cashing and remittances, since the mid-2000s; real-time bill pay was added in 2014. It offered a co-branded card with Capital One until May 2024. And it began offering BNPL services with Affirm in 2019.

Walmart doesn’t report results for Walmart Financial Services and its various credit and banking-like products. Likely, however, it represents a negligible portion of its almost $700 billion in annual sales. A million cards after almost a decade, for example, is small potatoes in the card world. Its real value is using those services to get people into the stores to cash their checks, pay their bills and then shop with what’s left.

Well, maybe that’s before One.

At the end of 2024, One was said to have about $200 million in revenues and had processed over $15 billion in payments for its 3 million monthly active users.  Not bad for a FinTech bank that hasn’t been in the market for very long.

Walmart’s hope with One is that it will do what Walmart has been unable to do effectively until now. That is to turn its customer base into a mobile ecosystem. It’s a big market. There are 100 million people who walk through its doors every week, roughly 38% of the adult consumer population. That potential customer pool is about 20% more than J.P. Morgan’s entire customer base (84 million), and about double its active mobile banking population (53 million). It’s 15 times larger than what Chime reports as an active user profile.

The Walmart Pay launch in 2015 was supposed to be that stepping stone — and it showed early promise. It was accepted in all 4,000 Walmart stores. It was integrated with coupons and incentives. Within two years of launch, PYMNTS Intelligence data reported that Walmart captured 5.9% of transactions totaling $15 billion dollars for those 100 million consumers using their phones. To put things in perspective, that volume was the equivalent to roughly 20% of Target’s annual sales volume.

I was as surprised as anyone to watch its user base shrink over time. By 2020, usage plummeted to 3.3% of transactions, representing less than $10 billion in sales. It’s hard to know exactly why, but it was coincident with the elimination of key features like price matching.

Then again, maybe it was by design.

Walmart launched TailFin Labs in 2019 to get Walmart to think like a FinTech. The focus was to create new products that operated at the intersection of payments and retail. That team was tasked with figuring out how to serve the “mass market” consumer with an integrated payments + banking + commerce proposition.

TailFin birthed Hazel, a joint venture with Ribbit Capital, two years later. It was Hazel that acquired Even and One three years ago this month. Rebranded as One, it introduced its app to employees and some customers in 2022. Walmart is now equipped to become the foundation for the banking + commerce platform that has been its goal for the last 26 years.

It was all quiet on the Walmart/One front until last month when the $300M fundraise led by Walmart and Ribbit Capital was announced. This $300 million round sets a valuation of $2.5 billion for One. One says it will use the money to launch a credit card business.

To be clear, One is a mobile banking app independent of Walmart. Walmart is an investor and key stakeholder, but not the operator. But lots of the One goodies all point to Walmart, including 3% cash back on purchases made there and the ability to finance them using a BNPL option. A “Pay by Bank” option in 2025 will let customers to connect their bank accounts for purchases on Walmart.com. (And we know how much Walmart hates paying interchange fees.)

So, it’s not as if the connection is a secret.

It’s also a necessary one. Without it, One is just another FinTech bank trying to build a customer base by offering cash back and early access to paychecks.

One, with Walmart, can use the connectivity they have with brands to disrupt the economics of how pure-play FinTechs make their money. That can become the basis for a disruptive business model that doesn’t rely on investor checks to cover up shortfalls in positive unit economics. The sheer scale of their customer base and supplier relationships, and the ability to connect purchases with offers and financing, is unmatched by any except for one other retailer — Amazon.

But One is important to Walmart in another way: 17% of Walmart customers still pay with cash, and those consumers are invisible to Walmart. So, too, are consumers that pay with cards. Walmart’s incentive with One is to connect consumers with the One app to Walmart-funded offers. That provides important first-party data about who is using the offers. Those are Walmart’s — and One’s — bread-and-butter customers. Although its online sales are increasing, online represents only 16% of Walmart’s retail sales. In the store is where the retail action happens for Walmart.

But to return to banking the middle class, take a look at the Walmart customer.

They are largely lower-and-middle-income consumers. In fact, Walmart customers differ from those of Amazon and the population because they tend to be younger, medium-to-low-income and struggle more financially. Those are also the consumer cohort that is more likely to use digital banking services like those provided by One.

There are the usual headwinds of founding a new consumer-facing banking product, starting with getting customers on board. Banking the middle class means providing the right tools and services that appeal to them.

Right now, One looks like it could be a winner, and highly disruptive.

4. Logistics Become the Digital Economy’s Silent Disruptor

Jeff Bezos was interviewed by Charlie Rose in 2013. Prime with free two-day shipping was in its 8^th year and forcing every other retailer to follow suit. That year, Amazon had just opened its second Amazon Fresh (same-day grocery delivery) location in LA — five years after its first location opened in Seattle.

Rose asked Bezos: what took you five years to figure out? Bezos replied, “Making sure it made financial sense.” He added that delivering products same day is “magical,” but hard and expensive. But that same-day delivery would give Amazon the ability to “expand [Amazon’s] range of products.”

Reading that transcript, you just had the sense that same-day across multiple product categories was already on the roadmap. And that was four years before the acquisition of Whole Foods in 2017 made same-day grocery delivery a part of their retail portfolio.

Eleven years later, in 2024, Amazon reported that 60% of Prime members living in one of 60 major metropolitan areas received their packages the same or next day. They say that’s an increase of 50% year over year. Most of the products delivered  are from third-party sellers, who ride the logistics efficiency wave Amazon provides through its marketplace and Fulfillment by Amazon services. Amazon has invested billions over the years in building regional fulfillment centers, implementing robotics, using AI to predict shopping patterns and accordingly stocking inventory more accurately. In June of last year, a Truist analyst called out logistics as Amazon’s next $100 billion business.

Then there’s Uber. Its global ride hailing, delivery and freight carrier and brokerage capabilities make it more profitable than Lyft, which Uber doesn’t even think of as the competition. Uber is a logistics operation that innovates how any combination of people and packages move between Point A and Point B efficiently. Its focus as a logistics business is what drives its scale and new use cases.

Uber and Amazon are two obvious examples of the significance of investments in logistics, AI and transportation management systems to make their core businesses more efficient while silently disrupting the traditional players in the sectors where they do business.

The rise of ultra-efficient logistics will turn physical stores into relics for many product categories. As same-day delivery evolves into same-hour delivery, consumers will find fewer reasons to step into brick-and-mortar shops. We’re already seeing this trend in our data — globally, click-and-collect is losing its appeal, with shoppers opting for delivery or curbside pickup to avoid entering stores altogether.

Buy Online, Pick Up In Store may no longer be retail’s silver bullet, except maybe in grocery where it’s still hanging on. This failure will force retailers to completely rethink their value proposition. Stores can’t just be places to buy stuff anymore — they need to offer experiences, services or something truly unique to justify their existence.

Uber will use its investments in AI and self-driving tech to change the economics of moving people and products from Point A to B. It won’t be 2025, but it probably won’t take until the end of the decade before we see the integration of self-driving cars into its fleets. Once Uber doesn’t have to pay drivers and passengers don’t have to tip them, Uber’s business truly becomes a global logistics operation with a new economic model. Self-driving technology isn’t some far-off dream — it’s Uber’s next economic frontier.

Self-driving technology and mobility are also capturing VC dollars again. Those investments aren’t just about moving boxes faster. VCs are betting big on the entire ecosystem: AI-driven inventory management, predictive shipping, autonomous vehicles, you name it. They’re funding startups that are reimagining every aspect of how goods move between intended endpoints.

Then there are the vehicles themselves. Reducing the need for drivers changes how people use cars and how automobile manufacturers make them. They’ll be voice-activated and look different. They’ll make it possible for anyone who doesn’t want to or can’t drive to have the independence of getting anywhere they want without really getting behind the wheel. Those products will tap an entirely new market for vehicle sales. They will also silence regulators who have focused so much energy on the use of gig workers for ridesharing and delivery.

Logistics are the secret sauce that’s completely transforming how businesses operate and how consumers get what they want.

This suggests that the future of business will no longer be only about who has the best product. It’ll be about who has the smartest ecosystem that can move the right product to the right endpoint the quickest. For businesses, this means lower costs, happier customers and competitive advantages that were unimaginable a decade ago. For consumers, it means getting almost anything, almost anywhere, almost instantly.

And right now, the logistics innovators are writing that playbook.

5. Regulation Gets Rightsized

You have to wonder what Sam Bankman-Fried must be thinking right now.

A new crypto-friendly political administration promises to bring sexy back to the digital currencies that crashed and burned in 2022 — and hobbled the $32 billion firm he founded that same year.

We’re all quite familiar with the rags-to-riches story of FTX. How FTX robbed Peter (Alameda) to pay Paul (FTX). How that was done to hide the deepening hole of losses caused by the crypto winter. How that is what ultimately killed the Binance deal to buy them. And how that, ultimately, bankrupted the company over an 11-month period, and exposed the criminal co-mingling of funds that sent SBF  to prison for 25 years.

But what if crypto hadn’t crashed? Or had rebounded quickly? Or the Fed hadn’t raised interest rates so aggressively that the investors started running a million miles away from crypto? Would we be looking at an SBF crypto czar? SBF as a post-election fixture at Mar-a-Lago schmoozing with the newly elected President to advise on crypto policy?

It’s easy to forget now, but before he traded shorts and a T-shirt for an orange jumpsuit, SBF was a high-profile mover-and-shaker in political circles. He donated millions to political candidates and lobbied hard for more crypto-friendly policies.

But for that crypto winter, the egregious disregard for laws and regulations would have remained invisible to everyone but the FTX and Alameda teams. Several of whom testified under oath that they knew what they were doing was illegal and wrong. Their incentives as founders and startup entrepreneurs, giddy with the prospect of becoming billionaires, were at cross purposes with doing the right thing under the law.

Many executives and innovators believe that the Trump Administration will take a sledgehammer to the regulations they contend have hamstrung business and startup founders. The DOGE Committee says they plan to whack entire government agencies, consolidate others and shave trillions from the budget. With respect to our big little corner of the world, which is payments and financial services, DOGE says they will shut down the CFPB.

There probably are way too many regulations, and some of them should be pared back. They can make it hard for businesses, especially small and new ones, to grow and innovate. And who could possibly be against greater government efficiency?

Laws and regulations, however, are often necessary. Startup founders, for example, want to be billionaires — and are willing to move fast and break things to get there. Sometimes that leads to incredible products and services for consumers. In banking and financial services, however, they can break things that put the safety and soundness of our financial system at risk. And exposing all of us of the (remember the Great Recession?) to financial loss and job risk.  Look at Synapse and the 97 FinTechs and millions of customers who are still waiting for their money. Compliance is about the last thing startups want to spend money on, since their incentive is to acquire customers and find an exit at a gigantic multiple.

Laws and regulations are made to balance the promotion of healthy businesses and innovation with the protection of consumers and the economy more generally. Unfortunately, what has given rise to the DOGE committee and the groundswell of enthusiasm for dismantling regulation is the distortion of that equilibrium over the last eight years.

Regulators, and particularly the CFPB, have ignored the reality of business and the importance of incentives in how businesses work. When they make rules they say are in the best interest of the consumer, we often observe a downstream impact that is anything but.

The incoming administration’s approach to regulation is expected to create a more favorable environment for businesses, particularly small enterprises. This shift towards a pro-business stance isn’t just about cutting red tape; it’s about fostering an ecosystem where innovation and growth can thrive.

The new administration’s focus on reducing regulatory burdens could lead to a more dynamic business landscape. By streamlining regulations, businesses may find it easier to invest in new ventures, expand operations and create jobs. If anything, that will force a commitment to regulation that helps businesses to operate efficiently while still maintaining necessary protection for consumers.

That could lead to a healthy reset of regulation that balances the reality of business and business models, the wellbeing of the consumer and the healthy enforcement of rules when bad actors cross the line.

The hope, however, is that regulators will respect the difference between providers that align consumer and business incentives to deliver a compliant service and those who keep running the red lights hoping they’ll never get pulled over.

And that reformers will recognize that a lot of laws and regulations, when wisely and efficiently enforced, are a good thing.

The 2025 Starting Line

This year’s slate is a mix of topics aimed at how money is made, who is likely to find themselves marginalized, who could emerge as unlikely and even invisible forces to change the balance of power, and what buyers (consumers and businesses) value and are willing to pay (or switch providers) to get.

The common threads through them all: simplicity rules, time is an undervalued but highly valuable currency, and the biggest disruptors are hidden in plain sight. Mine is not the usual list of “predictions” that play it safe because they are already part of the present.

As you see, I resisted the urge to GenAI everything in these trends, even though that is the most transformational technology of our time. Its impact will change everything because it will soon be embedded in everything we do. But stay tuned.

In keeping with the under-the-radar theme, next week, I will dive into two of the most significant but unexpected impacts that AI will have on each of us in our personal and professional lives. I think you will be surprised.

I promise not to make it another five-thousand-word piece.

The post The Five Not-So-Obvious Things That Will Change the Digital Economy in 2025 appeared first on PYMNTS.com.

My writings in 2024 focused on fewer topics — those with deeper purpose and broader implications for payments and the digital economy. Issues that have the potential to fundamentally change the who, the how and the what of commerce as digital transformation becomes less of a boardroom talking point and more of the strategic DNA of every business.

Many of the issues that inspired my writings will persist as we wave goodbye to 2024 and say hello to 2025. Regulation, the consumer and business credit economy, the embeddedness of everything, working capital and cash flow, GenAI, the impact of changing demographics on every facet of the digital and physical economy, the role of Big Tech and Big Retail in how and where commerce happens — all seem so familiar and so well-trodden. Yet the nuance and context, often overlooked or underappreciated, truly are the essence of the story.

Knowing both is where I think you’ll find clues about how the next act of payments will unfold. And gain a deeper understanding of the new dynamics that will create value — and monetize it — in the new year.

So, those are the insights that I aim to bring to forward, one Monday at a time, and tried to in 2024. To start conversations, to offer a different point of view from the “traditional” mainstream way of thinking. Provocative by design. Data- and insight-driven at the core. Inspired by the many conversations that I had in 2024 with many of the most innovative people who touch payments, commerce and the digital economy — some 198 in all.

As we start the countdown to the five years that will end this extraordinary decade-in-the-making, I can’t promise that I’ll break my all-time Monday writing record in 2025 — but I’ll promise to get closer!

Thank you for reading and commenting. Wishing you the happiest, most joyous and most inspiring new year.

The post How 15 Pivotal Events Impacted the Digital Economy in 2024 appeared first on PYMNTS.com.

Apple Pay wasn’t the world’s first digital wallet — and it wasn’t even the first mobile wallet developed by Big Tech (remember Google Wallet in 2011?) — but it was the first wallet connected to an indispensable piece of hardware, from a brand that users loved and considered their lifeline to the digital economy.

The promise at launch was to use the iPhone and Apple Pay combo to replace cards entirely at the physical point of sale — at least, that’s what Tim Cook promised. It seemed like a lofty ambition in 2014 since not many iPhone users had the right phones to activate Apple Pay then, many merchants lacked contactless terminals to accept it, and few issuers were willing to provision cards for it (and pay Apple a fee to do it).

According to PYMNTS Intelligence, in the U.S., Apple Pay usage and adoption have grown over the last 10 years since most of those initial barriers are in the rearview. Apple makes it nearly impossible to activate an iPhone without installing Apple Pay, more issuers enable cards to be provisioned to the wallet, just about all merchants have contactless terminals now, and tap-to-phone payments expand acceptance beyond fixed terminals in stores.

Globally, there are reportedly now 744 million active Apple Pay users, more than double in 2017.

Apple Pay at 10

According to the PYMNTS Intelligence report, in the U.S., the result has been strong Apple Pay growth as a percentage of retail sales volume. Between 2014 and 2021, Apple Pay growth sort of flatlined. Between 2022 and 2024, Apple Pay grew rapidly. Its growth over those two years was 41%.

At the ten-year mark, Apple Pay has a 5.6% share of retail sales. Increased merchant acceptance drove 58% of that lift. In other words, Apple Pay users could — and did — use it to pay for their purchases at more stores. Most of those purchases came from gas and C-stores, grocery stores and restaurants.

Where Apple Pay hasn’t fared as well is getting more iPhone users on Team Apple Pay. More than 90% of iPhone users who could tap their phone instead of a card when shopping in a store still don’t. Less than 20% of Apple Pay’s growth over the last decade has come from new users. We also see that instore use and adoption has started to plateau.

Growing More Users

Apple Pay’s challenge, as with any new way to pay, is to expand beyond the early adopters to the mainstream consumers — who still think cards work just fine. Apple Pay has a massive 54% share of the in-store mobile wallet usage (the other 46% is captured by PayPal, Google, Cash App, Walmart, Samsung, and Venmo), but it’s still a pretty small pond. Physical cards remain its most formidable competitor. At least for right now.

Monetizing Apple Pay matters a lot to Apple. It’s a cornerstone element of the high-margin Services revenue bucket that is  a hedge to what has become a less predictable iPhone revenue and profits backstop.

Today, 46% of Apple’s revenue comes from the iPhone, with the U.S. as its biggest market. Europe at 26% represents a distant second; China at 17% a distant third. Across the business, Apple averages a net margin of about 46.26% as of Q3 2024, down slightly. The drag on profits has come from the hardware side of the business which has seen margins slip to 35%.

Services, though, is where the magic happens. At 28.2% of revenue, as of Q3 2024, Services account for nearly three quarters (74%) of Apple’s profits.

Services revenue has seen strong growth over the years, most recently reporting a 14% rise year over year. Specifically, Services is the bundle of revenue from the App Store developer fees, AppleCare, Apple Pay, Apple One/Apple’s subscription business like Music and TV, its ad business and the search exclusivity payment from Google. Apple Services has more than a billion subscribers to its services. Its retail ad platform generated $7.5 billion in revenue so far, almost as much as all of Foot Locker’s revenue in 2023.

A Slippery Grip on Handsets

Yet, Apple can’t assume that its grip on the handset market in the U.S. and globally is secure, despite an early strong showing in China for iPhone 16 sales. Apple’s share of smartphones in the U.S. has remained relatively flat since 2020 — which is part of the reason Apple stopped reporting the number of devices sold.

Without handset sales, there isn’t Apple Services revenue. And without its current App Store business model, its profit engine is at risk.

Opening its NFC chip to rivals will create competition at the point of sale for iPhone users who will have the option to use a different wallet to pay for purchases in the store. That has the potential to divert wallet volume, and the revenues from it, away from Apple Pay.

At the same time, Apple Pay’s reach is only as deep as its share of handsets in the market, consumers that use it and merchants that accept it. In the U.S., that’s roughly half of the smartphone installed base; globally it’s far less.  And as we’ve seen, getting more existing iPhone users to use Apple Pay in the U.S. is the big nut to crack. Along with convincing the world’s biggest physical retailer, Walmart, to join Team Apple Pay, which is where 9.4% of retail spend in the U.S. happens.

For Cupertino, the soul-searching for their infamous “one more thing” must address the four fundamental threats to Apple’s iPhone-centric business model. That’s where the combination of regulator pressure and GenAI have the potential to become the biggest disruption to the smartphone ecosystem since Apple’s launch of the iPhone in 2007. And its App Store a year later.

Threat Number One: GenAI as Device and Operating System Disruptor

Next month will mark two years since OpenAI made ChatGPT accessible to the world. Each month when PYMNTS Intelligence asks a panel of C-suite enterprise executives to identify leaders in GenAI and LLMs, Apple doesn’t make the short list. This despite Apple’s early embrace of voice-assisted AI with the introduction of Siri in 2011 and after reportedly spending $20 billion in AI development costs over the last five years. Insiders say that Apple is at least two years behind in its development and commercialization of GenAI.

We’ll finally see Apple Intelligence on October 28, more than a year and a half since the launch of powerful LLMs by Google, Amazon, Meta and Microsoft, and about a month after the launch of the iPhone 16 handset. Apple is said to have spent $1 billion developing Apple Intelligence. With it, Apple hopes to persuade fan boys and girls to upgrade to its latest model.

Apple’s last-to-market entry with GenAI faces high expectations for what it must deliver. More than 200 million people have already downloaded and are using GenAI apps on their mobile devices. According to Statista, more than 4 million people in the U.S. downloaded ChatGPT in September 2024 alone. Those users are already getting, using and integrating GenAI into their everyday experiences, including voice-activated features and prompts to write better-sounding emails.

That means that Apple’s version of GenAI will have to be a real knock-your-socks-off experience beyond the much hyped Genmoji feature to get users to shell out $1,100 for a new phone or even to show the world that Apple is a player in GenAI. Despite the investments so far, some still say that Siri isn’t any smarter than she is now and lags GPT in accuracy. [Cue the Genmoji sad face.]

Then there is the potential of the yet unknown Gen-AI powered device that lots of entrepreneurs are surely thinking about.

Jony Ive and OpenAI’s Sam Altman have raised $1 billion to fund the development of a device and operating system that they say will be as disruptive to the personal computing space as the iPhone was in 2007. Ive ought to know — he was among the iPhone’s early masterminds.

Although there’s no time yet slated for its release, it looms as a longer-term potential threat to Apple, along with all the under-the-radar ventures that are almost certainly trying to disrupt the smartphone model.

Those risks are especially concerning given that iPhone upgrade cycles, always an Apple tailwind, average about three years. And Apple’s success beyond its core hardware products (iPhone, MacBook, Air Pods, and the Apple Watch) has been fleeting. The Home Pod was a dud, and Vision Pro is a cool headset in search of an audience beyond fanboys. Apple’s self-driving car, Project Titan, was driven to the junk yard in February after a decade of work and $10 billion of investment.

That sort of makes the iPhone Apple’s biggest, and most enduring, one-hit wonder.

It’s also been 17 years since we’ve seen a new form factor and operating system appear in the everyday smartphone/smart device category. Based on interviews with Altman and Ive, it seems their device won’t be a phone but something different, connected and GenAI powered. It’s entirely possible that Apple’s early adopter fanboys (and girls) could be persuaded to find a new favorite.

In the more immediate term, GenAI phones by Google, Samsung, Xiaomi and Huawei are hitting the smartphone market. IDC forecasts that the sales of GenAI powered smartphones will increase 364% year over year in 2024, and 73% in 2025. These are all Android devices, presumably powered by Google AI. Google is light years ahead of Apple in AI and its application to use cases with a demonstrable impact on business and society. The Nobel Foundation thinks so too, awarding two 2024 Nobel prizes to now or recent Google employees for their AI achievements.

Bottom line: Consumers with curiosity right now have different hardware options to connect them to ecosystems that are accessed using GenAI tools and operating systems. And for the moment, they aren’t iPhones.

Threat Number Two: App Store Business Model Pressure

The Epic Apple antitrust case was the starting gun for the unraveling of Apple’s hold on its App Store business model, the primary driver of Apple’s Services revenue and its profits.

Apple was forced by EU regulators this year to open its App ecosystem to rival processors. It was also found in violation of the Digital Markets Act in June 2024 over fees that are “beyond what is absolutely necessary,” and fined $1.8 billion. Apple now allows developers free rein to process payments outside of the App Store, but not because they decided it was the nice thing to do.

According to Reuters, in August, Apple also reduced its developer commissions, putting in place a structure that includes an initial 5% acquisition fee for new users and a 10% store services fee for any sales made by app users on any platform within a year of the app installation.

In the U.S., Apple made the magnanimous concession to reduce developer commissions from 30% to 27% in year one while also allowing developers to process payments outside of the App Store. Now there is a dynamic in play where the judge in the Apple/Epic case could force Apple to lower its fees and be more open. And a larger, more serious antitrust case is just getting started, where the DOJ — following its huge win against Google Search — is targeting Apple and its App Store business model.

It’s not possible for developers to sidestep Apple App Store fees now, but that could change quickly and likely will globally.

Threat Number Three: Searching to Keep the Google Search Exclusivity Windfall

Then there’s not often cited, but massive, threat to margin and revenue from the potential loss of the exclusive Google search revenue deal.

As part of the Google antitrust proceedings, court documents disclosed that Google’s payment of $20 billion in 2022 to Apple to power search on Safari accounted for 36% of Safari’s revenue. More importantly, it accounted for 17.5% of Apple’s operating income, based on 2022 results. And largely pure profit to Apple.

Depending on the final ruling on remedies by the court in the DOJ lawsuit, that payment could be gone forever, or severely reduced. That’s a lot of revenue, and margin, to replace when the case is finally settled.

Threat Number Four: Cracking Open the Chip

Opening Apple’s NFC chip to rivals is now possible with the release of iOS 18.1. Now any wallet that is an app on the iPhone can be used to pay at the physical point of sale.

That creates new competition for Apple Pay at the in-store point of sale. There are early signs that PayPal, with its cross-platform digital wallet as an app on the iPhone, may be getting some in-store traction. Anyone with an iPhone and a PayPal app can now pay at the point of sale and online — just about anywhere they shop now — using it. PayPal counts 278 million users in the U.S. who have PayPal wallets now that they can use on and offline to shop and pay.

According to PYMNTS Intelligence, we already see the share of consumers with any phone using PayPal to pay at the physical point of sale increase by 31% year over year. Once a distant second, the gap between Apple Pay and PayPal in-store is only 18%. We’ll see if that gap shrinks further over the next 12 months.

In addition to creating wallet competition in-store, access to the iPhone NFC SE creates an advantage for apps and wallets that are cross-platform and cross-channel. This is particularly important for the growing number of Click-and-Mortar shoppers who want the same experience shopping in-store as they do online. That includes shopping history and order history, regardless of whether a purchase was made in a store, in an app or on a web site. That’s a barrier for Apple Pay right now, and these shoppers now account for more in-store shopping and mobile wallet use.

PYMNTS Intelligence found that between 2020 and 2023, the share of U.S. consumers shopping in-store grew by 28%, largely due to a rise in the share of Click-and-Mortar shoppers. From 2022 to 2024, the share of consumers who use mobile wallets for in-store transactions rose 33%, indicating mobile wallet use in-store is going up with Click-and-Mortar shopping. Providers with apps that cross platforms pose an even greater threat to Apple Pay, particularly from the digital-first Click-and-Mortar Shopper whose ranks are the parents, high income and younger consumers who spend a lot today and will continue to spend in the future.

And growing competition for Apple and Apple Pay, whose payment options are limited outside of the Apple ecosystem.

Filling the Cracks

As Apple looks ahead to 2025 and the rest of the decade, the big drivers of Apple’s revenue and profit engine face intense pressure. That has implications for what Apple may want — or need — Apple Pay to deliver.

In China, its presence is likely short-lived given intense competition from good smartphone makers that have optimized for the WeChat ecosystem and political pressures favoring domestic manufacturers. At the same time, the population of younger consumers there is shrinking, and the economy is in free fall. Both reduce the pool of potential Chinese iPhone customers.

In Apple’s second-largest market, the EU, where the regulators have Apple and Apple Pay squarely in their sights, the current crackdown seems more like a warm-up act than the grand finale. In the U.S., political, regulatory and legislative pressure will continue to force change voluntarily or via mandates. Apple’s business model will continue to be the subject of intense and ongoing scrutiny, along with every other Big Tech business model.

At the same time, Apple’s competition is using new technology to reimagine the relationship that consumers have with devices and the digital economy. GenAI is both a massive source of innovation and disruption. For Apple, at least so far, it has been the latter and not the former.

When it comes to payments, one of the remarkable innovations that emerged from Apple Pay is the tokenization of credentials, which streamlines the payments and commerce experience for online and in-app transactions. But Apple with Apple Pay doesn’t have a lock on that tech.

As tokenization evolves beyond secure and stored account credentials to digital identity and shopper preferences, form factors and the commerce experience will evolve, too. Tokenized credentials become digital commerce passports and form-factor agnostic. Like the iPhone in 2007, we won’t really know it until we see it. And just like what happened to the ubiquitous Blackberry that no one ever said they could live without, if the experience is amazing enough, it won’t take long for fanboys to become fans of the next big thing. And for new business models to emerge that encourage adoption and usage.

The Next 10 Years

For Apple, over the next five to 10 years, the test will be whether it can really walk the talk as a Services-first business that just happens to produce handsets that people like and use. It seems an unlikely pivot for a business that is all about closed ecosystems and getting more and more people to live within them. And to  monetize that engagement while there.

What is likely is that Apple will look to where the big pools of transacting happen on their platform and decide to monetize the apps that drive it.

For example, Apple could expand its App Store fee to services platforms like Uber, DoorDash and Airbnb. Or decide that any sales made from shopping apps, of which there are almost 80,000, are subject to an App Store fee, too.

Apple could also decide to double down on Apple Pay as the Services monetization engine. It  could decide that any app stored inside the Apple Pay wallet gets monetized when onboarded, accessed, and/or used. It could decide to take a small cut of sales made by any merchant that an Apple Pay user initiates from the Apple Wallet. It could white-label the Discover Network and make Apple Pay a payments new rail.

Regardless, Apple’s options and decisions will be closely watched by courts, regulators and legislators who increasingly see Apple as uncooperative in following their decisions.

A final thought.

Tim Cook was quoted in a Wall Street Journal article yesterday saying that Apple’s mission isn’t to “be first, but best.”

Except the iPhone really was the first and the best.

Apple AI (Siri) was one of the first and now one of the worst, and its EV wasn’t first and is now dead. Whether “first not best” is the Apple mission today or just how things have turned out is subject to debate.

But it seems the anthesis of what made Apple great and delivered innovations like the iPod, iTunes and the iPhone that changed the world and the consumer’s access to the digital economy. And that made everyone rush headfirst into the market to replicate.

The post Apple Pay’s 10-Year Journey and Its Next Decade of Decisions appeared first on PYMNTS.com.

Big headlines about big companies — especially concerning DOJ allegations of anticompetitive behaviors and lawsuits to signal they really mean it — bring everyone and anyone out of the woodwork. Social media gives everyone and anyone a platform to say anything they want.

Facts seem to be an inconvenient detail.

But between a comment made on one of the morning news shows about Visa (as in, Visa directly) passing $7B in debit interchange onto consumers — which went unchallenged by the show’s hosts — and the unsolicited pitches and public commentary by FinTechs who’ve built their businesses on top of Visa’s rails and are now piling on, it’s time to get a few basic facts on the table.

Facts, specifically, about the claims in the complaint concerning the lack of payments innovation in the U.S. based on Visa’s “moat” and the inability for FinTechs to be successful in developing and scaling alternatives to Visa’s debit network because of that “moat.”

It’s a head scratcher, as anyone who knows this business knows.

Both claims ignore the well-documented explosion of payments innovation in the U.S. over the last decade and a half, including the success of FinTechs who have ridden that wave and those rails to massive valuations and spectacular exits.

It’s as if the world has been suddenly taken over by a bunch of Rip Van Winkles who’ve been asleep for the last fifteen years — and think we’re still mainly paying with dollars and coins. Overlooking the fact that the Durbin Amendment, passed in July of 2010, fixed debit interchange fees and required debit card issuers to offer a choice of two unaffiliated processing networks for merchants to route debit transactions.

I’m sure some readers are already about ready to pounce on how payments in Europe are sooo much more innovative. Except they aren’t. Cash is king, especially in some of the big economies such as Germany and Italy.

A recent ECB report put it this way: “But to be clear: cash remains the most frequently used means of payment. More than half of all day-to-day transactions in shops, restaurants, etc. are made using coins and banknotes.”

Time to Wake Up and Smell How Payments Networks Work

There are several claims made in the DOJ lawsuit. I hope you take the time to read it thoroughly — and not the ChatGPT version of it. Much of what is written relates to details about negotiations and contracts about which I have no knowledge, so can’t and won’t address.

I will address the broader context around which those claims are made. Starting with how networks ignite.

Please don’t roll your eyes.

At least four people on a well-known morning show didn’t have a clue. I imagine they are not the only ones. So don’t skip this part. Unless you know it by heart, you’re starting from a fact base that is probably rickety at best.

Because there’s always a middleman. And they never work for free.

It Takes Four (Parties) to Tango

The four-party model has existed for more than fifty years in payments. It’s the model that makes it possible for banks to issue a single card that can be used to pay for something at any merchant that runs over network rails. Acquirers onboard and vet merchants and connect them to terminals and gateways that allow those merchants to accept those cards and be paid for sales made using them.

The innovation, first introduced in the mid-1960s by the predecessors of Mastercard and Visa, was to operate the clearing and settlement rails that kept track of all credit card transactions (and later debit) flowing between all those issuers and merchants each day.

The resulting payments innovation jumpstarted a massive wave of commerce because consumers could use a single card to shop at many merchants. That unlocked a lot of pent-up purchase demand. Merchants benefited because they no longer had to issue and manage their own cards to give consumers an option to use credit to pay for their purchases.

The four-party network model also made it easier for merchants and issuers to monetize those payments at scale. Merchants could plug into an acceptance network that expanded the reach of their own customer base to any consumer carrying a card from an issuer with the Visa logo on the front of it. Merchants and issuers could do that without having to build and operate their own clearing and settlement systems to manage those flows. Mastercard followed Visa eight years later and launched in November 1966.

These acceptance networks remain incredibly valuable to consumers — and to innovators who want to connect their product to merchants with the broadest reach.

But no one does anything for free.

Let’s focus on credit cards, which was the whole game until the mid-1990s.

Getting to Ignition

Getting any network off the ground — and then scaling it safely, securely and profitability — is one of the hardest things to do in the business world.  Even people inside of successful platforms, and who weren’t there at the start of them, don’t appreciate the complexity. It just works, and it looks so easy.

The classic platform dilemma always is deciding which side of the platform pays (or subsidizes) the other side of the platform deemed essential for “ignition.” Ignition is a word that we use to mean getting enough momentum to assemble the critical mass that triggers the network effects and scale. It’s never a straightforward answer, and there are always trade-offs.

Interchange is the business model that greases the flywheel of the four-party system. Visa (and Mastercard) don’t have direct consumer relationships. They’re B2B brands that provide connectivity across issuers, acquirers and merchants to keep commerce running smoothly. They don’t, and wouldn’t know how, to send an interchange fee payment to anyone.

So, when people claim it is “Visa” that passes the cost of interchange fees to the consumer, they are dead wrong on two counts.

One: Visa isn’t touching the interchange fee, which goes right to the issuer.

And two: The interchange fee isn’t a cost to the consumer. The issuers get the fees and generally pass them along to consumers in the form of rewards and other benefits.

Why does this matter?

Because anyone with the ambition of creating a new payments network needs to figure this part out. Someone has to pay to get the other side to engage and to operate the network.

The middleman you may love to hate today could end up being replaced by a middleman you may learn to hate even more.

And who may end up delivering less.

The Debit Interchange Rope-A-Dope

Now, for the issue at hand, which is debit.

Visa was the first network to introduce the debit card. The year was 1975, and it was called the Check Card. It was intended to solve the massive friction merchants experienced from accepting checks as payment at the point of sale, including fraud and the time it took for checks to clear and settle and funds to hit their account.

It was a big flop.

Consumers didn’t understand why cards were better than checks. They didn’t trust them and didn’t understand how they worked. Twenty years later, in 1995, debit transactions represented only 2% of retail noncash transactions according to the Kansas City Fed. By 2000, it had jumped to 11% and was finally on the verge of taking off.

Debit was Visa’s 25-year overnight success.

It took that long because there was so much investment and blocking and tackling required to ignite the network. And funny TV commercials. Even though they were starting from a position of strength with merchant connectivity, and issuers with consumers and checking accounts who could be converted to “check cards.”

But that was then and this is now, you might say.

Yep. It’s also a lesson in how hard it is to start and scale a new network. Getting consumers to change how they pay is hard, even if the alternative is better, faster and easier and comes from a brand that consumers already know and trust.

In 2010, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, debit interchange fees became regulated for all but the smallest financial institutions. Merchants insisted that high debit interchange rates forced them to raise prices to the consumer. That a lower interchange rate would allow them to offer consumers relief.

Today, the DOJ seems to think that if debit card fees came down, merchants would just lower prices to consumers. Anyone who has ventured into the physical world of paying merchants should have their doubts. Past is also prologue.

It is well documented that after the debit card interchange fees were slashed, merchants didn’t pass much of the savings back to consumers. And that banks which had used debit card interchange fees to keep depository accounts costs low eliminated free checking accounts and raised fees. Not a win for consumers. But that’s old news.

Here’s the irony of the DOJ complaint.

As part of the Durbin Amendment to Dodd-Frank, merchants were given the option to route debit transactions across any PIN debit network. There are ten of them, including Visa’s Interlink and Mastercard’s Maestro. The DOJ complaint alleges that alternative debit networks, including Mastercard’s Maestro, are unable to compete successfully given Visa’s debit share.

That seems odd, since it is solely in the hands of the merchants to decide how they want debit transactions to be processed.

The lack of volume over alternatives could have something to do with the lack of confidence merchants have in transactions running over those networks. Maybe they aren’t confident that those transactions won’t be falsely declined or have the same level of fraud protection. Many domestic debit networks are unable to process network tokens, an innovation that has increased conversion and reduced fraud for merchants.

When consumers are presented with the option at the point of sale to pick Visa versus an unaffiliated debit network, they are (a) mostly wondering why they need to pick one and (b) most likely choose Visa since it seems safer. Maybe even less sketchy.

Visa innovated the notion of tokenized credentials when creating the virtual card provisioning requirements for Apple Pay a decade ago. Tokenized credentials were an important digital payments breakthrough that ignited mobile wallets and online commerce by making checkout and recurring payments more secure and seamless. That innovation was provided free to merchants who used Visa’s rails to process transactions.

It’s possible that merchants recognize that when it comes to debit processing, you may sort of get what you pay for. That they take a risk in alienating a customer over a false decline or opening themselves up to fraud, so they stick with what works, even though they could switch. Even when the cost of doing so is cheaper.

Alternative debit processing networks need to innovate — and invest — to make their rails more attractive to merchants. If they really want to compete, they shouldn’t wait for some other entity to make it happen and then complain once they do.

Now Playing in Payments: The Woe is Me Soundtrack

In 1973, Stephen Sondheim wrote the soundtrack for the musical A Little Night Music. The hit song from that musical was “Send in the Clowns.” That song begins with the lyrics, “Isn’t it rich,” intended as an ironic commentary on the life and fortune of the main character, which was anything but.

“Isn’t it rich” was my reaction after reading the several references to PayPal, Square and Apple as aggrieved parties in the DOJ complaint. Those references allege that, in different ways, each has been prevented from creating their own alternative networks and blame Visa for getting in their way.

Take PayPal.

The DOJ complaint references their 2016 deal with Visa to more easily enable PayPal users to register a Visa card in the wallet.

Let’s step back.

In 2015, PayPal’s market cap was about $38 billion. Although consumers could register a credit card to their PayPal wallet, PayPal strongly encouraged consumers to connect and pay using their bank account credentials. They were interested in monetizing the spread between collecting fees charged to the merchant and the cost of processing an ACH payment. Once a consumer reached a $10,000 spending limit using their PayPal account, it was bank account or bust.

In 2016, Visa and PayPal agreed that it would be easier and more visible for PayPal users to attach their Visa card to the wallet in exchange for access to Visa’s tokenization capabilities. That turned out to be pretty important, even though PayPal’s margins would be lower. An agreement with Mastercard soon followed. Consumer usage of the PayPal account took off.

In 2015, the average PayPal user had 27 transactions per year, about two a month. Two years into the new contract, that number had increased to 36, or three a month.

In 2018 — just two years after that announcement — PayPal’s market cap had nearly tripled to $102 billion, making it more valuable than Amex at the time. (They were $92 billion).

Then there’s the Square allegations.

Square is a $41 billion market cap company that wouldn’t exist without consumers carrying Visa (or Mastercard) products in their wallets.  As is well known, Square was able to build its network on the back of the card networks because they could spend zero money getting the consumer side on board.  Their innovation was the business model and white plastic dongle that turned a mobile phone into a point-of-sale terminal for merchants who wanted to be paid using the cards consumers already had and liked to use.

Square’s Cash App, an alternative banking product that also runs on the Visa rails, has 57 million active users and generates nearly $15 billion in annual revenue, according to their most recent filings. That means that Square has 57 million users it could convert, if it wanted, to its own account-to-account closed loop network leveraging the merchants on the Square platform. There’s nothing stopping them from creating a new business model — and the incentives needed for consumers to engage and for merchants to accept it. They should do that if they think it is the best thing for their customers, merchants and Square.

Then there’s Apple and Apple Pay.

PYMNTS Intelligence will release data in two weeks as part of our annual update on Apple Pay usage and adoption, so I won’t spoil the surprise.

Let me just say that a decade later, at the physical point of sale, debit and credit cards still rule. But like any other FinTech, Apple could innovate to establish merchant connectivity and merchant acceptance for Apple Pay users in other ways.  They certainly have the money to do it.

Apple also doesn’t strike me as the sort of firm that can be forced into signing agreements that they don’t like, one of the allegations made in the DOJ complaint. Keep in mind this is the same Apple Pay that told the banks to take or leave the transaction fee they levy each time a card provisioned in their wallet is used.

Fun Facts About FinTechs and Innovation

The broader allegations that Visa’s debit share keeps FinTechs from innovating in a way that adds value to the consumer ignores the massive wave of payments innovation that has emerged from FinTechs that ride their rails.

Durbin may have been regulated at the largest banks in the country, but roughly 98% of them are exempt. FinTechs have beaten a path to their doors. They’ve used them to issue debit products that belie the business models that support their business.

Neobanks like Chime, Venmo and SoFi exist because they create mobile accounts that ride those rails. The $30 billion Buy Now, Pay Later sector consists of FinTechs that have seen steady growth because they ride debit rails to process payments from borrowers’ bank accounts. These players also issue “anywhere” cards that can be used to create a Pay Later loan made with purchases anywhere Visa and Mastercard are accepted. Secured credit cards have found a new lease on life, and new use cases for those products, thanks to the card rails that support acceptance anywhere for those credit-building products.

Retailers and businesses can now leverage issuer processors to turn payments into virtual accounts that — you guessed it — ride debit card rails and give consumers a choice in where to use and spend them. And those businesses a new way to create and monetize a new customer relationship.

All of that has supported a massive wave of FinTech investments.

According to a 2024 report by the World Economic Forum and McKinsey, startup funding in the FinTech sector grew from $19.4 billion in 2015 to $33.3 billion in 2020. Deal sizes more than doubled. Publicly-listed FinTechs have an aggregate valuation of $550 billion, and the number of FinTech unicorns increased 7X between 2019 and 2023. There are now 272 firms worth more than $1 billion globally.

Setting aside the 2022 correction, the report projects that FinTechs will grow 15% year over year over the next five years, more than double the growth of banks in the traditional sector.

FinTechs have used the card networks to build their businesses and eliminate the cost and complexity of creating merchant acceptance from a standing start of no or few users. They also have a choice for which card network they partner with to do that. It is competitive. Who they choose is based on their own business case and company economics — and the innovation investments and value-added services inside of the network that help them do more than just clear and settle transactions and connect to merchants.

Visa has invested tens of billions into upgrading their network to prevent fraud and cyberattacks, and to keep the network operating at peak resiliency so merchants can provide a safe, reliable payments experience for their customers.  Visa has invested in a slew of value-added services that create better outcomes for merchants and consumers using AI to better manage fraud and risk and provide more payments optionality. Its operating rules are intended to preserve the trust that consumers have when transacting with merchants, including how to manage disputes and chargebacks when there are problems and to protect the consumer if their card credentials are compromised.

All that said, it’s also a very dynamic payments ecosystem.

Those dynamics create headwinds and tailwinds for everyone. New rails are emerging with promises of different economics. New technologies make transactions a lot smarter and more personalized. New players simplify the complexity of connectivity.

The promise of new ecosystems with consumer and merchant critical mass is real and developing. Regulations will force bank account connectivity and pave the path for non-card rails to flourish. Many will take their shot at becoming closed-loop networks operating outside of the card network rails. Some will succeed.

In the U.S. today, everyone from Big Tech, Big Banks, Big Retail, Big Business and Big FinTech all have visions of new network sugarplums dancing in their heads.

When All Else Fails, Send in the Lawyers

There are a lot of players who would like to unseat Visa here in the US and around the world, not to mention the other card networks. They believe that they would be a better middleman. Not only better, but a cheaper middleman, a more secure middleman, a more empathetic middleman. An account-to-account middleman offering the same bells and whistles, one more advantageous to their interests.

This is not a new story, and over the years there have been many failed attempts for one simple reason: consumers aren’t interested in buying what they’re selling. And the business models for getting consumers on board have been weak or non-existent.

As I said, someone has to pay, and nothing is ever free.

Remember MCX? The piece I wrote in 2013, The MCX Fairy Tale, foretold the inevitable collapse of that merchant-retailer-consumer network before it got started. Anything starting with the proposition of reducing merchant fees forgets that it is the consumer who will decide. And consumers don’t care what it costs a merchant to offer them a choice in how they pay.

PayPal, in many respects, is a live case study of the risks of taking something beloved away from a consumer, paying the price, then having to revert to giving consumers back their choices. This DOJ claim against Visa seems like a smokescreen to hide PayPal’s shortcomings in innovating the consumer experience over the years. Of course, these shortcomings have absolutely nothing to do with Visa.

Paze, the bank wallet advertised on TV as the “Dad” wallet, might want to look at that example — and every other example that banks have put forward to ignite a bank-centric network, including P2P. As I wrote recently, it will collapse under its own weight, but not before spending hundreds of millions of the bank’s money in getting there.

Walmart is taking yet another shot at creating a pay by bank option, leveraging Fiserv. We’ll see if the third time is the charm. I was as surprised as anyone that the Walmart Pay app crashed and burned. They could control almost everything that mattered: ubiquity at all Walmart stores, and incentives for consumers to download and use it. In the end, they didn’t. According to recent PYMNTS Intelligence data, the Walmart Pay share of Walmart sales stands at 0.7% nearly ten years post launch.

Even the world’s largest physical retailer with a captive audience couldn’t crack the code which requires getting consumers— the supposed victims in the DOJ-merchant story — to go along.

This is the biggest piece that’s missing in the DOJ complaint. It’s the part about the complexity of getting a network flywheel moving and keeping it at scale. The need to create incentives for consumers to move to something new. Not to create something that is the same, but something that adds incredible value for them. There will be a middleman, and they will charge someone(s) for access. It’s just how platforms and networks work.

The real problem for challengers to Visa in the U.S., and other card networks, is that payments work so well for consumers. In the end, it’s innovation — and consumers — that will decide how people pay and with whom.

But I guess when all else fails, why not send in the lawyers?

The post Missing Pieces: What the Pundits Get Wrong About the DOJ Debit Interchange Lawsuit Against Visa appeared first on PYMNTS.com.