AI & Payments: Reshaping Business Models in Finance

In the annals of American history, the feud between the Hatfields of West Virginia and the McCoys of Kentucky stands as a poignant symbol of protracted conflict, ignited by a seemingly trivial pig theft in 1878. This saga, spanning over a century, involved legal battles reaching the U.S. Supreme Court and captured national attention, embodying a cycle of retaliation that obscured its original cause. It took 140 years, until 2003, for descendants to formalize a peace treaty, transitioning their shared history into a narrative of reconciliation and demonstrating the profound value of building anew over clinging to past grievances.

Parallel to this historical narrative, the payments industry has recently witnessed its own prolonged "feud"—the Visa-Mastercard merchant settlement. After two decades of litigation, multiple rejected proposals, and hundreds of millions in legal fees, this settlement is now nearing final court approval. Merchants have secured concessions, including lower interchange rates, modified acceptance requirements, and expanded surcharge rights. This legal battle, which commenced in 2005, predates the ubiquitous iPhone, digital wallets, biometric authentication, tokenized credentials, one-click checkouts, and embedded payments. These innovations have rendered payments invisible while simultaneously elevating the critical importance of the underlying infrastructure that fuels global commerce.

Assuming this protracted chapter in payments history concludes shortly, a crucial question arises: what will the payments ecosystem build next? Crucially, while legal teams were entangled in past disputes, the future of commerce has already arrived. This necessitates a collaborative effort across the ecosystem to reimagine the role of payments and their foundational business models, enabling scale and igniting a future vastly different from that of 2005.

A Commerce Future Reshaped by AI

We stand at the precipice of the most significant transformation in commerce since the inception of the general-purpose credit card 67 years ago. This is not merely a new channel or device but a fundamental restructuring of consumer shopping and purchasing behaviors. This paradigm shift can be termed "The Prompt Economy," a realm where consumers and merchants are on the verge of losing direct contact. Instead, consumers, via prompts, will dictate the 'what,' 'why,' and 'how' of their shopping and payment experiences.

"Agentic commerce" is not a distant prospect but an unfolding reality. Major technology companies and platforms are actively developing AI agents designed to mediate interactions between consumers and merchants. These agents will rapidly evaluate options, compare total costs, assess merchant reliability, analyze return policies, and complete purchases—all within milliseconds and with minimal, if any, human intervention beyond the initial prompt.

Consumer adoption of these AI-driven tools is significant. PYMNTS Intelligence data indicates that nearly 70% of consumers are keen to utilize AI agents to streamline shopping tasks, with 41% specifically desiring agents to secure the best deals. A third of consumers trust an agent to select a merchant, and almost half of Gen Z and millennials anticipate AI making purchasing decisions for them within the next five years. Currently, 30 million U.S. consumers, dubbed "Pros," leverage Generative AI and agentic commerce for 45 out of 75 routine tasks tracked monthly. Despite the nascent and sometimes clunky nature of early agentic commerce experiences, these figures strongly foreshadow mainstream shifts in consumer intent. When this transition fully materializes, the entire landscape of commerce will be irrevocably altered.

Sales will increasingly be made to algorithms that, in milliseconds, determine which merchant best fulfills a consumer’s instructions. Brands, having invested decades in cultivating loyalty, will compete not for direct consumer attention but for the agent's favorable evaluation, unless they are explicitly part of the initial prompt. The greater the complexity of a purchase, the more indispensable these agents and their facilitated experiences become for consumers.

Building the Modern Payments Ecosystem

The foundational idea of a modern payments ecosystem took root in 1958 with Bank Americard's introduction of the general-purpose credit card, evolving into the Visa four-party network model within eight years. Over six decades, this Californian innovation transformed into an infrastructure that processes trillions of dollars annually in the U.S. alone, seamlessly connecting consumers and merchants across diverse commerce channels.

However, the seeming simplicity of a checkout transaction belies its intricate operational complexity. It demands sophisticated coordination among institutions with often divergent incentives, continuous and substantial investments in security and fraud prevention, global interoperability, and the instantaneous authorization, clearing, and settlement of billions of transactions. Interchange fees emerged as the crucial mechanism aligning these incentives, funding the rewards, protections, and capabilities that have made credit cards a preferred payment method for consumers and a widely accepted option for merchants.

This model thrived because every stakeholder derived value from participation, crucially driven by merchants’ desire to eliminate any friction that might impede a sale. Yet, consumer shopping and purchasing behaviors have profoundly evolved. The path to purchase no longer originates solely in physical stores or merchant websites; it now unfolds across diverse ecosystems, platforms, applications, embedded experiences, and, increasingly, algorithmic recommendations. PYMNTS Intelligence data reveals that 83% of consumers shop digitally across at least four channels monthly, with over half commencing product discovery on platforms not controlled by merchants. Furthermore, 58% expect seamless cross-device purchases without re-entering information.

Consequently, the payments ecosystem, which has underpinned commerce for decades, must now adapt to a world where consumers will rely progressively on virtual assistants. These assistants will eliminate friction, surfacing the optimal combination of convenience, price, payment choice, and value for every purchase. Consumers will increasingly rely on virtual assistants to strip out friction and surface the best combination of convenience, price, payments choice and value every time they buy.

The Shift from Merchant-Designed to Consumer-Directed Acceptance

For nearly seventy years, a fundamental principle has governed the merchant-consumer relationship: merchants support payment methods desired by a critical mass of their customers, recognizing its intrinsic benefit for their business. Traditionally, if a consumer’s preferred payment method was accepted in-store or online, a sale would occur. If not, the consumer faced a choice: use an alternative payment, abandon the purchase, or simply not return to that merchant. This dynamic has historically dictated the arduous journey of every new payment method seeking widespread merchant acceptance—the "holy grail" for driving sales, margin, and scale, essentially the oxygen for any payment method to thrive.

In the epoch of AI and agentic commerce, acceptance remains paramount, yet its dynamics will undergo a subtle yet profound transformation. Consumers will still prioritize using their preferred payment methods, but instead of deciding at checkout, they will articulate these preferences once through an agent acting on their behalf at the prompt. In The Prompt Economy, these instructions become the governing rules for which merchants an agent considers. If a merchant fails to accept the credential specified by the consumer’s agent, the agent simply proceeds to another merchant who does. Merchants may, unknowingly, miss sales as a direct consequence. The dynamics of acceptance will shift in a way that is both subtle and profound.

Consumers are already demonstrating the intensity with which payment preference shapes behavior. PYMNTS Intelligence reveals that 72% of cardholders report rewards influencing their payment choice, with over half (58%) strategically selecting cards to maximize these rewards. One in four actively rotates between cards to extract the highest possible value across different categories. Consumers are already scripting their payment behavior today; soon, they will literally script it through their agents.

This monumental shift carries significant implications for all stakeholders. Consumers gain enhanced control with reduced friction, bypassing manual navigation of checkout flows or toggling between digital wallets. Payment, even more so than today, recedes into the background. For merchants, the stakes are altered; friction is no longer merely an annoyance but a filter determining their visibility. A merchant restricting acceptance or imposing fees may forfeit the opportunity to guide consumers toward more economical payment methods. Conversely, merchants who proactively support a consumer’s directed preferences, irrespective of the agent’s interaction point, position themselves for increased selection.

For issuers, the expectation shifts towards flexibility and intelligence. Consumers demand credentials that function universally, apply rules consistently across all contexts, and adapt to their liquidity requirements. Two out of three consumers prioritize matching payment to cash flow over reward size, a demand particularly high among affluent consumers with the broadest range of payment options.

Emerging Business Models in Payments

The true significance of the proposed merchant settlement lies not in what it concludes, but in the opportunities it initiates. Commerce is entering a phase where the value of a consumer and a transaction can be monetized in unprecedented ways, far beyond payment simply serving as a means to complete a sale. As consumers traverse digital ecosystems, as agents mediate purchasing decisions, and as transactions become the outcome of a richer, broader behavioral context, the imperative is to fundamentally rethink how payment credentials anchor value for every participant across the payments ecosystem. The opportunity is to rethink how payment credentials anchor value for every participant across the payments ecosystem.

Early indicators of this creative rebuild are already apparent. The debit card, traditionally a direct conduit to available funds, is evolving into a programmable financial instrument. Consumers increasingly desire credentials that adapt to their dynamic cash flow and lifestyles. PYMNTS Intelligence research indicates that 14% of all consumers have utilized BNPL in the last three months, with adoption highest among high-income earners—the same demographic that strategically maximizes rewards and expects payment flexibility. This highlights a convergence of demands for adaptable financial tools.

Retail media networks exemplify another transformative shift, where the moment of purchase becomes a pivotal moment of value creation. Platforms like Amazon, Walmart, Klarna, Affirm, and Chase have demonstrated that merchants are willing to invest significantly to reach high-intent consumers at the critical point of decision. Innovators such as FIS with Smart Basket, Bilt with Banyan, SKUx, and Lynx are powering retail media ecosystems that establish novel brand-merchant-consumer economics. These systems leverage personalized rewards and promotions, funded directly by brands, to deliver immediate, targeted savings to consumers instead of delayed rewards. This creates measurable value for merchants, enhancing conversion rates and funding promotions from brands seeking access to their customer base. In turn, new revenue models emerge for participating issuers and platforms within this evolving path to purchase.

Concurrently, new ecosystems are forming around "intelligent credentials." Banks and networks are actively experimenting with payment instruments that are far more dynamic than static sixteen-digit numbers. These credentials possess the ability to carry consumer preferences across various contexts, automatically apply rules, dynamically authorize and route transactions, and provide the transparency that consumers increasingly expect. Item-level and category-level purchase data enable merchant-funded offers with surgical precision. Critically, these emerging ecosystems are not reliant on traditional funding structures; their growth stems from their ability to address consumer needs that legacy models were not designed to fulfill.

Underpinning these developments is a fresh set of hypotheses and assumptions: that the next phase of commerce will reward participants who create value throughout the entire consumer journey, extending beyond just the moment of payment. A smart credential is poised to become the connective tissue linking discovery, decision-making, fulfillment, and loyalty. The sale, therefore, evolves into the strategic outcome of an intricate ecosystem where merchants, issuers, networks, platforms, and now agents all play integral roles in shaping and delivering consumer value. What we are seeing across these developments is a form of creative destruction in real time.

This period represents a real-time "creative destruction." The business models that sustained merchants, issuers, and networks for decades are being unbundled and reconstructed under new economic paradigms. Traditional subsidy structures supporting rewards programs are shifting. Merchant acquisition models are transforming as platforms and retail media networks exert greater influence over product discovery. Issuer economics face pressure from novel forms of competition for consumer preference. Even networks, historically anchored by universal acceptance, must navigate a world where acceptance is no longer solely a merchant's decision but a consumer directive executed by intelligent agents.

This dynamic represents a profound opportunity for reinvention. Obsolete components of the system, those no longer aligned with contemporary consumer shopping behaviors, are being stripped away. Simultaneously, elements that continue to generate value are forming the bedrock for what comes next in the payments landscape.

The Path Forward in Payments

The eventual resolution of the Hatfield-McCoy feud did not erase its history but paved the way for a new era of cooperation. Similarly, the impending merchant settlement presents the payments ecosystem with a comparable opportunity. The creative destruction already reshaping the business models of merchants, issuers, and networks is merely one facet of a much grander transformation. As AI and intelligent agents fundamentally alter how consumers shop and how industries operate, the imperative is to rethink value creation when discovery, choice, and payment adhere to an entirely different logic. Every player across the ecosystem shares a compelling incentive to rethink, reimagine, and rebuild their strategies.

This broader transformation will be a central theme for industry discussions, helping to define the future trajectory of commerce and payments. What lies ahead is the dawn of a new era in commerce—one mediated by agents, shaped by algorithms, and executed by systems that behave in ways distinct from human interaction. The settlement will close the longest chapter in payments history, but the subsequent chapter will determine whether the ecosystem effectively adapts to the emerging world or remains tethered to the one that is rapidly fading. Indeed, the real work, the true innovation, is just beginning.