But when it comes to improving engagement across business-to-consumer (B2C) or business-to-business (B2B) use cases, execution often falls short of ambition.
Part of the problem, according to McCarthy, lies with the fact that the payments landscape is “still the Balkans. Depending on where you sit in the ecosystem, everyone’s trying to solve a problem differently.”
The growth in endpoints, cards, virtual cards, platforms and the emergence of faster payments all have given rise to thousands of companies — a veritable city of third-party providers — jockeying for position as companies seek to embed payments into their customers’ journeys.
“Consumers don’t care about the rails,” McCarthy said, but “just want to understand how they can solve real-world problems.”
Through the past several decades, insurance companies, online travel agencies, airlines and any number of forward-thinking firms have used legacy platforms and rails to connect to end users, McCarthy said. Physical cards that were the cutting edge of innovation have now given way to virtual cards and digital wallets, which have allowed billions of endpoints to flourish across the globe.
The wallets themselves offer a store of value, where an airline, for example, can “push” a voucher to a user’s wallet to compensate for the inconvenience of a late or canceled flight. Likewise, gig economy platforms also have a need to digitize and simplify payment disbursements on a project-by-project basis to workers. Trade finance can be embedded into interactions between buyers and suppliers.
But, McCarthy said, such efficiencies have been slow to materialize no matter if the transactions are between consumers and merchants or between businesses themselves.
“Instead of moving forward continuously, it always feels as if we are moving one step forward, two steps back,” McCarthy said.
The roadmap to successful payments innovation lies not with just improving the legacy tech stack but in reconfiguring tech processes, too, McCarthy added. Partners such as Thredd, guided by an API-first approach, can help bring virtual card capabilities and robust fraud and risk capabilities to brands that are rethinking how they serve their employees and customer bases, he said.
“With successfully executed innovation, you can provide value to your clients, and your clients’ customers, too,” he said.
Making money move seamlessly and securely, McCarthy said, is also essential. Improving the experience as payments move faster entails beefing up authentication and authorization to beat back the fraudsters without deterring users with an intolerable level of friction.
Passkeys and industry initiatives — such as the FIDO alliance — have made strides in striking the necessary balance needed to improve online commerce and make it safer. Payments credentials and tokens have helped, and will continue to help, he said.
We’re going to see regulators take a more active approach in shaping those real-time rails, McCarthy predicted, with checks and balances, and even the guardrails of smaller dollar limits as hallmarks.
“Based on what we are seeing at Thredd and what many of us have experience in the payments industry over the last 20-plus years,” McCarthy said, the fragmentation of the payments landscape will eventually give way to consolidation.
“There will be a bunch of rollups,” he said, as consumers gravitate toward neobanks and as traditional financial institutions are squeezed by that pivot and a more onerous regulatory environment. The digital upstarts will face pressure too.
“The world doesn’t like Balkanization, and no one’s going to live with 40 or 50 apps all competing for the same consumers,” he said.
In the meantime, regarding ensuring that faster payments are reliable and safe across a broad range of use cases, “Visa and Mastercard are well situated” to modernize B2B payments, McCarthy said, “given their global acceptance.”
The card networks, he said, have the advantage in the fact that merchant acquirers had the role of onboarding and taking the risk for the individuals and businesses they brought to the network.
Moving through 2024 and into 2025, McCarthy expressed confidence that “user demand will push payers toward more seamless and secure flows for B2B and B2C transactions”