Navigating the U.S. Payment Market: Opportunities and Challenges for International Companies

The size of the U.S. payment market has made it a valuable target for international companies looking to expand their offerings. North America is the second-largest payment market in the world. McKinsey & Company expects revenues to expand by approximately $200 billion between 2022 and 2027 despite market maturity stabilising growth. This revenue growth is a direct reflection of increasing volumes across various channels, with e-commerce alone set to grow at an annual rate more than double that of in-person payments, as found by Worldpay.

The Attraction of the U.S. Market

Companies looking for a rapid path to scale want to capitalise on this growth, especially if they operate in saturated markets or have reached a critical mass of users in their home countries. For example, Céline Dufétel, president of UK-based Checkout.com, mentioned the extensive, untapped opportunities for growth in the U.S. market. However, breaking into the U.S. payment market isn't straightforward. To succeed, providers must understand the market's nuances, payment habits, regulatory requirements, and innovation trends.

Understanding U.S. Payment Trends

In the United States, cards dominate consumer payments. According to the Federal Reserve, in 2022, the average consumer used a credit, debit, or prepaid card for over two-thirds of their monthly purchases. Cards accounted for more than 60 per cent of purchases in terms of value despite other digital payment methods being more popular for high-ticket transactions. Physical currency, while not disappearing, is no longer a powerhouse, making up less than a fifth of the average consumer's payments and is predominantly used for small-dollar transactions.

New payment methods have been slower in gaining traction. In 2021, only two-thirds of users made mobile payments monthly, and their usage remained infrequent. Although mobile wallets have become more popular online, just 7.8 per cent of eligible in-store transactions used Apple Pay in 2023, according to PYMNTS. The percentage of consumers using mobile payments on a monthly basis also declined in 2022, indicating a reversion to pre-pandemic payment habits as the world reopened.

These payment habits differ drastically from those in other markets. In Asia-Pacific (APAC), digital wallets dominate, holding a 70-percent share of e-commerce and a half share of point-of-sale (POS) transactions, according to Worldpay. In Europe, debit cards continue to reign supreme at the POS, even as digital wallets have grown online, and cash remains top-of-wallet in several countries. In Latin America (LATAM), digital wallets such as PIX are surging for in-person transactions, threatening the dominance of card providers in the region. Understanding these differences and catering to the top U.S. consumer payment methods is critical for a successful market entry.

Navigating the U.S. Licensing Environment

The U.S. licensing and regulatory environment is complex. Unlike many other countries, the U.S. lacks a national mechanism for payment processing approval. Instead, companies often need to apply for individual state licenses—sometimes up to 50 different ones. Companies like PayPal, Block, and Circle, as well as X (formerly Twitter), have taken this approach. While there is more multistate cooperation than in the past, the system remains complex and resource-intensive.

An alternative is to become a bank, as banks dominate the market's payment ecosystem. However, the annual grant of only a few charters makes this path challenging. Major global fintechs such as Monzo and N26 have withdrawn from efforts to launch in the U.S. due to licensing issues and market competition.

Most providers looking to enter the U.S. market initially do so through partnerships, often with banks. The average bank has 9.4 fintech partnerships, according to Gartner, showing a willingness to collaborate with fintechs to enhance their offerings. These partnerships can provide a foothold in the market and help navigate regulatory complexities.

Understanding U.S. Regulatory Rulemaking

The U.S. has national legislation governing payments, including the Electronic Fund Transfer Act (EFTA) and the Durbin Amendment to the Dodd-Frank Act. Various bodies, including the Federal Reserve, Consumer Financial Protection Bureau (CFPB), Office of the Comptroller of the Currency (OCC), Federal Trade Commission (FTC), and Department of Justice (DOJ), regulate the payment industry. These bodies' activities can vary between administrations, but currently, they are highly active. The CFPB, for instance, is exploring rulemaking in areas such as late fees, Big Tech, and data competition.

While the U.S. is stringent in its regulatory stance towards innovation, it is less strict in other areas, such as data privacy. The U.K. and Australia's buy now, pay later (BNPL) regulations are much more stringent than similar efforts in the United States. Although some state laws, like the California Consumer Privacy Act (CCPA), reflect aspects of the E.U.'s General Data Protection Regulation (GDPR), a comprehensive national approach has yet to take hold. Adapting to these discrepancies and introducing features required for compliance in other markets can help navigate the U.S. regulatory environment.

Conclusion

International providers can successfully launch their services in the U.S. market by understanding consumer and business behaviours, leveraging partnerships, and navigating complex regulatory rulemaking. Companies such as Alipay+ (China), Afterpay (Australia), Klarna (Sweden), and Shopify (Canada) have successfully adapted to the U.S. market. International companies can thrive in the U.S. payment market by embracing these strategies, ensuring compliance and operational efficiency while capturing significant growth opportunities.