Banks face fallout as 40% of small and mid-sized merchant businesses eye shift to PayTechs

Core Insights - The Capgemini Research Institute's World Payments Report 2026 indicates that banks are under pressure to modernize their merchant services due to competition from agile PayTechs, with low satisfaction levels among small (15%) and mid-sized merchants (22%) [2][3] - Despite the challenges, 66% of merchants still prefer traditional providers for financial services, presenting a significant opportunity for banks [2] Merchant Services and Competition - Banks have deprioritized merchant services, leading to a gap that PayTechs are filling, with 70% of merchants valuing high payment success rates and reliable infrastructure, while only 19% of banks feel confident in delivering these services [3][4] - The onboarding process for banks can take up to seven days and cost up to $496, whereas PayTechs can onboard merchants in under 60 minutes for as little as $214, highlighting inefficiencies in banks' processes [4][5] Innovation and Technology Adoption - PayTechs are outpacing banks in innovation, with 70% of PayTechs deploying payment orchestration compared to 47% of banks, and 60% of PayTechs adopting Generative AI versus 41% of banks [6][8] - Gaps in fraud prevention and payment processing are evident, with only 26% of bank executives confident in offering advanced fraud prevention, leading to merchants reporting losses of about 2% of total revenue to payment fraud [7][8] Market Trends and Projections - Global non-cash transactions are projected to reach 3.5 trillion by 2029, with significant growth in the Asia-Pacific region, which recorded nearly 800 billion digital transactions in 2024 [9][11] - Instant payments and digital wallets are gaining influence, rising from 13% in 2020 to 25% in 2024, while the share of cards is expected to decline from 65% to 52% during the same period [10] Opportunities for Banks - The rise in transaction volumes in e-commerce presents an opportunity for banks to deepen ties with merchants, leveraging their strong brand reputation (78%) and perceived stability (49%) compared to PayTechs [12][13] - Merchants are willing to switch back to traditional providers if banks can offer embedded, industry-specific value-added services, with eight in ten merchants considering switching if banks can match PayTech offerings at the same cost [13]