Name
Global FinTech Guide
Country _ Name
United States
SectionTitle
Payment services
Body
FinTechs belonging to this category offer alternative payment services which are supposed to provide a faster and cheaper way for national, European, and international payments for private and business customers by using new technologies.

For example, payment service providers hereby offer solutions to easily integrate several payment services in online shops.

Some FinTechs furthermore provide real cash register systems and online-reservation solutions for restaurants and shops providing their own payment services or making use of the payment services of FinTechs described above.

Introduction

Attitude of the country towards modern payment services

The social and political climate for modern payment services has generally been favorable, with American consumers, especially younger generations, enthusiastically embracing the conveniences offered by the latest payment innovations. Interest in virtual currencies continues to rise. Both state and federal policymakers are increasingly focused on regulating the modern payment industry, particularly regarding the prevention of money laundering, terrorist financing, and ensuring consumer protection.

Americans are becoming progressively more comfortable with digital payment systems. According to a 2024 cash payment transactions decreased in favor of credit and debit cards, but overall cash use has remained stable as consumers continued to hold more cash than they did before 2020 as both a store-of-value (up 53%) and in their pockets, purses or wallets as a backup payment instrument (up 23%). However, indicative of upcoming cash transaction decrease trends, is the generational divide shown among those using cash versus digital payments. For instance, consumers engaging in payment transaction below age 55 used cash for just 12% of payments in 2023, compared to 22% for those age 55 and older. This was also the first time in the report’s history that cash was not the primary instrument for smaller-value payments of $25 or less.

Legal affairs

Obligations and requirements to provide payment services or ancillary services described above

In the United States, payment services are regulated at both state and federal levels. At the federal level, entities providing payment services may need to register with the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Treasury Department responsible for enforcing regulations on money service businesses (MSBs) or may be regulated by one of the many federal regulators of banks and credit unions. MSBs cater to a significant portion of the 'unbanked' or 'self-banked' population, offering services such as check cashing, money transfers, prepaid stored value cards, money orders, and travelers’ checks. FinCEN oversees MSBs under the Bank Secrecy Act (BSA), which includes elements of the USA Patriot Act and other legislation. The main federal regulatory requirements are for MSBs to implement and enforce anti-money laundering (AML) and know-your-customer (KYC) policies to support FinCEN’s efforts in detecting criminal activity.
Payment services are also regulated by various federal and state authorities. Key federal regulators include the Consumer Financial Protection Bureau (CFPB), the Federal Reserve, and state banking agencies. The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) supervise banks federally and impact the payment service landscape by processing payments and issuing payment cards. Specific payment methods, such as electronic funds transfers, are governed by regulations like the Electronic Fund Transfer Act (EFTA) and CFPB Regulation E, which address error resolution and transfer requirements. In addition to federal regulations, industry standards set by associations such as Visa, MasterCard, American Express, and the Payment Card Industry Security Standards Council, apply to payment services.

Under federal law, non-bank financial institutions engaged in “money transmission” are classified as MSBs. Unless otherwise exempt, these institutions must register with the (FinCEN) and obtain licenses in the states where they operate. “Money transmission” involves accepting and transmitting currency or its substitutes by any means. These institutions are required to conduct risk assessments, implement anti-money laundering (AML) programs, and adhere to recordkeeping, reporting, and transaction monitoring requirements. This includes filing Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs). If transactions qualify as “transmittal of funds” under FinCEN’s regulations and are subject to the BSA, institutions must also comply with the 'Funds Transfer Rule' and the “‘Funds Travel Rule.”’ Additionally, money transmitters must meet net worth and disclosure requirements and, in some states, undergo criminal background checks.

Federal law provides an exemption from FinCEN registration for payment processors, provided that the payment processor (i) facilitates the purchase of goods or services or the payment of bills for goods or services (excluding money transmission itself); (ii) operates through clearance and settlement systems that admit only BSA-regulated financial institutions; (iii) provides its services pursuant to a formal agreement; and (iv) has an agreement with the seller or creditor that provides the goods or services and receives the funds.

At the state level, almost all states require funds transfer businesses, including for international transfers, to obtain a money transmitter license. The specific compliance requirements vary significantly from state to state. The regulatory restrictions applicable to MSBs depend on the relevant state statutes and the business plan submitted to regulators outlining anticipated operations. Most state money transmitter laws feature a broad statutory definition of money transmission, though this is often narrowed by specific exceptions. Therefore, despite differences between federal and state laws, money transmission could encompass almost any commercial activity involving the transfer of money from one person or place to another. Consequently, a business that may be exempt from money transmitter regulations in one state could still be required to obtain a license in another. Additionally, most states mandate a surety bond, with amounts ranging from as low as $25,000 to over $1,000,000.

In the United States, there is no federal mandate requiring universal provision of payment services, and many payment service companies operate under self-regulation. Non-bank payment service providers currently face limited KYC and AML obligations compared to traditional financial institutions. However, as regulators adapt to the growth of a cashless economy and increasing concerns about financial crimes, it is expected that KYC and AML requirements for non-bank payment service providers, such as FinTechs may become more stringent in the future as they obtain increasing market share.



Additional comments regarding the legal situation for payment services or what FinTech’s must be aware of in this business area

Although there is no federal law requiring businesses to accept cash, certain states and cities have enacted local regulations to address the needs of populations without access to electronic payment methods. For example, New York City, San Francisco, and New Jersey have implemented rules that generally require businesses to accept cash. This is partly due to the fact that approximately 5% of American households are unbanked, and about 30% do not have credit cards. While there is ongoing discussion about cash acceptance, the level of regulatory pressure is variable and depends on domestic regional policies rather than a broad national trend.



Economic conditions

Market size for payment services and biggest payment service providers

As of the latest data, the global digital payments market has seen substantial growth. For 2023, the total transaction value in the Digital Payments segment is projected to exceed $2.5 trillion. This figure encompasses a broad spectrum of payment methods, including credit cards, debit cards, and digital wallets. In the U.S., digital commerce remains dominated by card networks and wallets, but direct account-to-account rails via RTP and FedNow are increasingly relevant. Stripe has become a leading infrastructure provider, while Buy Now Pay Later (BNPL) providers and neobanks are reshaping consumer credit. Stablecoin rails are also emerging in business-to-business (B2B) settlement.

Digital commerce payments, which include transactions processed through credit card networks and alternative digital payment methods, represent a significant portion of this market. Major players in the payment services industry include Visa, Mastercard, PayPal, and Square. These companies are at the forefront of facilitating digital transactions and have seen increasing adoption of their services worldwide.

Additionally, the rise of mobile payment platforms and digital wallets, such as Apple Pay, Google Pay, and Samsung Pay, has further expanded the market, contributing to the growth in overall transaction volumes.
As the payment landscape continues to evolve, driven by technological advancements and changing consumer preferences, these key players are likely to remain influential in shaping the future of digital payments.



Additional comments regarding the economic situation for payment services or what FinTech’s must be aware of in this business area
In the United States, while major players like Visa, Mastercard, PayPal, and bank-owned Venmo continue to dominate the payment services market, there is a noticeable increase in competition from new FinTech entrants. These emerging companies are innovating with technologies such as mobile payments, digital wallets, and blockchain-based solutions, aiming to capture a share of the market traditionally held by established giants.
The rise of FinTech firms is driving advancements in payment processing efficiency, security, and user experience. Innovations such as real-time payments and advanced fraud detection are becoming increasingly important. All the while, BNPL services like Affirm and Klarna continue to reshape consumer payment options.

Authors

Close

Choose country