For more on this topic, check out “Shopping Smarter: The Future of Payments with AI and Agentic Commerce” from The Hub and Spoke Podcast.
By Jeffrey I. Shinder and Ellison A. Snider
It is often said that the best way to eliminate entrenched monopoly power is to invent a new mousetrap that changes the nature of competition. The past century of American capitalism is littered with examples of technological change undoing once-unshakable monopolies. Think Western Union’s telegraph monopoly eviscerated by the telephone; Kodak’s monopoly in film collapsing with the rise of digital photography; IBM’s grip on mainframe computing giving way to the PC; or Blockbuster’s movie rental empire falling with the advent of online streaming. Each of these examples shows, in different ways, how a new technology can come along and change everything from the nature of the market itself to who can exercise power in that market.
The payments industry has been impervious to these forces, at least up until now. In the 21st century, we have seen technological change wash over the payments industry. Chip cards have supplanted the magnetic stripe, and chip readers proliferate at every corner of American commerce, as they do around the world. Contactless cards and transactions boom as tap to pay, using a mobile device or a traditional payment card, has quickly become consumers’ favorite way to pay. Embedded payments in digital commerce have emerged, with consumers storing their card information into applications, such as Uber or Netflix, and paying for services without even thinking about the act of paying. And we have seen the arrival of the digital wallet, with firms like PayPal, Apple, Google, and Samsung jockeying for consumers. None of this technology was a prominent feature in the U.S. payments industry at the dawn of the century. And yet, its widespread adoption has not remotely changed the paradigm in payments, which is still dominated by Visa and Mastercard, the banks that issue Visa and Mastercard branded credit and debit cards, and the interchange structure that keeps those banks loyal to Visa and Mastercard.
We are now experiencing another major technological shift in payments with the rise of AI-driven shopping, commonly known as agentic commerce. Agentic commerce is shopping powered by AI agents that shop on a consumer’s behalf, managing the entire purchasing process—from product discovery and comparison to checkout and payment. Consumers store their payment credentials within the agentic commerce platform, allowing for the seamless execution of purchases across merchants by AI agents. As they anticipate needs and execute purchases, AI agents not only increasingly shape consumer preferences but are also redefining the relationships among consumers, platforms, and merchants.
Agentic commerce is already gaining traction, becoming the primary and preferred source of online searching for 44 percent of consumers who have tried it. It is projected that, by 2030, agentic commerce could generate up to $1 trillion in the U.S. business-to-consumer retail market alone. Leading platforms like Perplexity, Google Gemini, and ChatGPT are helping to drive the agentic commerce boom. Perplexity launched its “Buy with Pro” function, allowing users to browse select merchants and, aided by PayPal, make streamlined purchases. Google now offers personal shopping through Gemini, including product search and comparison, merchant communications, and the handling of transactions. And Stripe and PayPal have adopted OpenAI’s Agentic Commerce Protocol to allow consumers using ChatGPT to make single-item purchases “work across platforms, payment processors, and business types.”
So will agentic commerce be the disruptive force that challenges the interchange driven paradigm in payments? The short answer is, probably not. While agentic commerce is understandably focused on providing consumers richer and more seamless shopping experiences, the notion that it could drive new forms of competition in payments has not materialized. That reflects a fundamental truism of the payment industry—the market will not change until competition opens up on the consumer side of the industry. And that won’t happen until the banks are forced to provide access to consumers’ accounts, or alternative forms of consumer funding of payments emerge. Until then, any new technology attempting to facilitate payments will face immediate pressure to accommodate its business model to the current paradigm. And that empowers Visa and Mastercard, the managers of the entrenched paradigm, to leverage their central position in the ecosystem to write the rules and organize the transition to the new technology in a way that most benefits them. We saw this dynamic play out with chip cards, contactless payments, and digital wallets. We can expect it to happen again with agentic commerce.
Even if agentic commerce fails to disintermediate the dominant networks or their member banks, it likely will have significant implications for merchants as they grapple with a bot making purchases instead of human consumers. For starters, AI agents will likely create something never seen before—a basket of goods from multiple merchants. Consider the following example, a consumer buying furniture asks an AI agent to help it compile options and the agent returns options from different stores. That entirely new phenomena could introduce friction into the purchasing experience if one merchant approves the transaction and another does not because of their different approaches to risk. What happens if the merchants have different card acceptance practices? How this friction will impact merchants and consumers merits close consideration as agentic commerce evolves.
Other issues may arise depending on how AI shopping solutions are implemented. At present, broadly speaking there are two methods of facilitating payments through AI. One method involves a direct API-driven linkage between a merchant and the AI platform where the payment credentials can be transmitted directly to the merchant, likely in tokenized form where a proxy number is passed instead of the actual account number. Such direct linkages will require a degree of technical sophistication only possessed at this time by the largest merchants, leaving an open question as to how this channel will evolve for the rest of the merchant industry. Platforms that specialize in the processing of digital payments, such as Stripe and Ayden (among others), are stepping in to help solve this problem.
There are other solutions, however, that have used AI commerce to generate a higher interchange transaction for the merchant. Under that model, no matter what payment method the consumer uses to fund the transaction, the AI platform will replace that payment form with a one-time virtual commercial card that traffics at a higher interchange rate. It is unclear whether this model has or will flourish but if it does, it will generate many high interchange commercial card transactions (including possibly commercial debit transactions that are not subject to any form of regulatory constraint). Whether the networks will tolerate this outcome if it proliferates, or give merchants the tools to combat it, remains to be seen.
Stay tuned because this development, like everything AI, will move at lightning speed.
