Amid an uncertain regulatory environment, technology that continues to grow, and shifting consumer demands, the merchant payments landscape is undergoing significant changes. Three important trends at the forefront right now are widely expected to keep evolving in 2026: artificial intelligence, embedded payments, and merchant surcharging.
The 2026 Merchant Payments Trends report from Javelin Strategy & Research looks at where these three trends stand now and where they may be headed in the coming year. “The story is still unfolding,” said Don Apgar, Director of the Merchant Payments Practice at Javelin and the author of the report. “There’s so much that can still be written on these three topics. They might still be in the trends report next year. You never know.”
Where Is AI Headed?
While people talk about how AI could change the payment process, it has not had much of an impact yet, except in the back office, where it is starting to make real contributions. So much of the back-office efficiency is rules-based: If one thing happens, then a second thing needs to happen as well.
And that is what AI does best. It excels at digesting large amounts of data into nuggets in a very brief amount of time, in some cases in real time. Payment processors face such situations in several areas.
One obvious case is fraud and risk. The more data an entity can analyze from different vectors and different points, the better risk decisions it can make. Another is transaction routing involving different countries and different card and payment types.
“You’re always balancing the cost of the transaction, how long it takes to get a response, and what your approval rate is,” Apgar said. “So you’ve got AI decisioning in those realms.”
Maybe the most visible use of AI thus far has been in customer service, where many websites ask their customers to converse with a chatbot. What the consumer may not realize is that type of interaction has gone up the supply chain as well.
“Businesses that sell payments are being serviced by their upstream processors and PSPs in an AI fashion, which offers processes of predictability tools,” Apgar said. “When is a merchant likely to attrite? These are the characters or the conditions that cause merchants to attrite. How early can we predict them?”
It’s vital that processors understand these risks before they happen. Once a merchant announces that it is switching service to somewhere else, it’s too late. To prevent a customer from canceling requires anticipating their problem. That’s what AI is capable of now.
Small Businesses Can Keep Up
AI is, at this point, hugely expensive, but small businesses are not in danger of losing to the giant multinational retailers in this area. Apgar compares the situation to small businesses that sell through e-commerce. Even though their access to cutting-edge technology lags behind that of their larger competitors, long gone are the days when the business owner has to do everything himself, like build his own website and mail his own packages.
Merchants are buying those services from organizations that aggregate all those products. Those same merchants will likely end up consuming some AI services from whoever is providing their web services.
The Long-Term Outlook for Embedded Payments
Another important trend is the rapid growth in embedded payments, which Javelin expects to accelerate significantly in 2026. Just as embedded payments have grown in the market through various distribution models, savvy technology providers are adding value for their business customers by bundling a wide range of financial services offerings directly into their software.
Fiserv has found that small to medium-sized businesses spend an average of 18 hours per week on banking and financial matters. Most of that time is spent reconciling data from multiple applications and platforms, often by importing to a financial app.
That makes embedded payments very appealing. The problem is that, although embedded payments promise long-term reductions in expenses, they also incur higher costs over the short term.
“The merchant has to go out and buy a terminal, or a payment device that supports tap to pay,” Apgar said. “Assuming it’s a small shop, he’s got one POS device at the counter. It’ll cost him $400 or $500 for a terminal that supports tap-to-pay. That’s a higher cost over the short term, but then over the long term, tapping is so much faster than sticking the chip in the terminal.
“The whole contactless revolution was driven by the pandemic. Contactless and tap-to-pay were the first payment acceptance feature that has not been pushed on merchants by regulation or rules. It’s strictly consumer-driven. The consumers like being able to tap-to-pay.”
The Unsolved Problem of Cash Discounting
Merchants have begun to use cash discounting as a response to the higher interchange fees imposed by card companies, offering a reduced price for cash as opposed to credit. But more and more consumers are starting to look at their receipts, and say, “I’m not paying that.”
The merchant is supposed to have a sign explaining the surcharge. Before the customer even pulls out their wallet and decides to pay with cash or card, they should know that it is going to cost more to pay with card. But many merchants don’t put up the sign. At the same time, consumers who use a credit card for the rewards points are starting to catch on to this and ask if there is a surcharge.
“You don’t have to be a genius to figure out, well, I’m getting 2% cash back on my Capital One card, but it’s going to cost me 3% to use the card,” Apgar said. “It’s very much a not-solved problem right now.”
Al of these trends are still in development, and it’s anyone’s guess where they will end up. One important key to a successful payments innovation seems to be presenting customers with something they want to use.
“Especially in the fintech space, we have to stop talking about: Can we build it?” Apgar said. “The engineers are always asking if we can build something that does X. The real question is: Should we build something that does X? The side of the road is littered with companies that figured out too late that nobody wants this thing that they built.”
The post The 3 Key Trends That Will Shape Merchant Payments in 2026 appeared first on PaymentsJournal.
