Walk through checkout today — online or in a store — and you'll notice two things happening that didn't used to happen. First, you're more likely than ever to be offered a one-tap wallet: Apple Pay, Paze, Google Pay, PayPal. Second, you're more likely than ever to see a line item you didn't expect: a 2-4% "card processing fee" or "convenience surcharge" tacked onto your total.
These are not two separate trends. They are the front end and the back end of the same fight — over who controls the payment moment, and who pays for it.
The Wallet Race: Apple Pay's Head Start, Paze's Bank-Backed Bet
Apple Pay is the incumbent by a wide margin. It now has 785 million users worldwide, an estimated 65.6 million active U.S. users, and a 92% share of the U.S. mobile wallet market. It's accepted at more than 90% of U.S. retailers across 95 countries, and it processed roughly $8.5 trillion in payments globally in 2024. U.S. consumers alone spent over $450 billion via Apple Pay in-store in the past year, up from $268 billion the year before — a near doubling.
But the more interesting number is what Apple Pay *hasn't* captured. According to PYMNTS Intelligence's "Apple Pay @11" study, the wallet still processes only about 10% of eligible in-store transactions and under 5% of transactions overall. Ninety percent of the transactions Apple Pay is technically eligible for still go to a physical card, cash, or another wallet. That gap is the market everyone else is fighting over.
And the fight is intensifying. Google Pay usage more than doubled year over year. PayPal and Cash App nearly doubled their in-store usage. Millennials are leading adoption broadly — nearly half now use a mobile wallet weekly, up 112% from a year ago — while Baby Boomers, historically the most card-loyal generation, grew wallet usage 147% in the same period, even if their absolute usage remains low. Digital cash balances are also emerging as a funding source in their own right, nearly quadrupling their share of wallet-funded purchases since 2023.
Into this crowded, fast-growing field steps Paze — the bank-led digital wallet from Early Warning Services, the same consortium (Bank of America, Capital One, Chase, PNC, Truist, U.S. Bank, and Wells Fargo, among others) that built Zelle into the dominant P2P network in the U.S. Paze now has more than 165 million eligible credit and debit cards in its network, and it just landed two significant wins: Citi — one of the largest U.S. card issuers — and Domino's, alongside processor integrations with Fiserv, Nuvei, Worldpay, and ACI Worldwide.
Paze's pitch is explicitly not "faster than Apple Pay." It's "more trusted than Apple Pay." Early Warning's own research found that 82% of consumers trust their bank's security over third-party payment options, and 72% value the efficiency digital wallets bring to online checkout. Eric Hoffman, Early Warning's chief partnerships officer and a former Apple Pay executive himself, has been candid about the strategy: Paze isn't trying to pull share from Apple Pay's existing users. It's targeting the large population still using guest checkout — people who haven't adopted any wallet yet — and betting that bank trust, not tech polish, is the wedge that converts them.
Whether that thesis holds is an open question. As one industry analyst told American Banker, "with as many as 10 digital wallet solutions in the marketplace today, do we need another one?" Paze's answer depends on whether banks are willing to do something they've historically been reluctant to do: actively incentivize customers to use it, the way they've long incentivized credit card spend with points and cash back.
The Cost Squeeze: Why a Third of Merchants Now Surcharge
While wallets fight for the front-of-checkout experience, a quieter and arguably more consequential shift is happening on the cost side.
U.S. card processing fees hit a record $198.25 billion in 2025 — interchange (swipe fees) alone accounted for roughly $119 billion, nearly four times what it was 15 years ago. Those fees, the National Retail Federation notes, typically run 2% to 4% of a transaction's value. For over a decade, merchants mostly absorbed that cost or baked it into prices. That's changing.
A J.D. Power survey of 3,841 U.S. small businesses found that 34% now add a surcharge specifically for credit card payments — the first year the survey even asked the question. That's a third of small businesses, in a single year, choosing to make the cost of card acceptance visible and explicit to the customer at the point of sale, rather than quietly folding it into the price of everything.
The consumer reaction is not neutral. LendingTree found 73% of cardholders say they'd use credit cards less often if they had to regularly pay surcharges. And the cost to the merchant relationship is measurable: J.D. Power found customer satisfaction scores were 24 points lower (on a 1,000-point scale) for merchants that surcharge compared with those that don't.
The legal landscape is a patchwork, and it's actively shifting. Surcharging is now legal in 47 states and Washington, D.C. Connecticut, Massachusetts, Maine, and Puerto Rico still enforce outright bans. Bans in California, Texas, and Oklahoma have been struck down by federal courts as unconstitutional restrictions on speech. Some states cap what merchants can charge: Illinois limits surcharges to 1% (and, starting this month, bars interchange from applying to tax and tip amounts entirely), Colorado caps at 2%, and states including New York, New Jersey, Nevada, Nebraska, South Dakota, and Georgia require the surcharge not exceed the merchant's actual cost of acceptance.
Meanwhile, the network side of this fight is also moving. Visa and Mastercard have proposed a settlement — potentially saving merchants more than $200 billion over eight years — that would cut swipe fees by 0.1 percentage points for five years and give merchants more ability to steer customers toward lower-cost cards. Merchant groups have pushed back hard, arguing the deal still gives the networks too much room to set fees going forward. The settlement still needs federal court approval.
Where the Two Trends Collide
Here's the part that doesn't get said often enough: the wallet race and the surcharge trend are pulling on the same thread, and they're going to keep colliding at checkout in ways that matter for anyone building payment products or merchant experiences.
**Wallets don't automatically solve the cost problem.** A tap of Apple Pay or Paze at checkout is still, in most cases, funded by an underlying credit or debit card — interchange still applies. A wallet reduces checkout friction; it doesn't reduce the swipe fee. A merchant surcharging credit cards has to decide whether that surcharge applies when the card is presented via a wallet, which is a genuinely unresolved UX and policy question retailers are still working through.
**Bank-led wallets have a stake in how surcharging evolves.** Paze's entire value proposition rests on trust and on strengthening the bank-customer relationship. If merchants increasingly penalize card-funded payments regardless of channel, that pressure flows back to the issuing banks that built Paze — the same institutions now trying to get more transaction volume onto their rails, not less.
**Consumers are being asked to make a payment-method decision at exactly the moment friction is supposed to disappear.** The entire premise of a one-tap wallet is that you stop thinking about payment mechanics. A surcharge line item forces you to think about it again, right at the moment of commitment. That tension — frictionless checkout experience versus explicit cost pass-through — is going to define a lot of product and pricing decisions over the next two to three years.
**Debit is quietly becoming the pressure valve.** With credit surcharging spreading and debit typically exempt or capped at lower rates, expect wallets, issuers, and merchants alike to nudge consumers toward debit-funded wallet transactions — through UX defaults, rewards structures, or simply the absence of a surcharge. That's a meaningful shift in a market where credit card rewards have trained a generation of consumers to reach for credit by default.
What This Means for Product and Payments Leaders
For anyone building in this space, three things are worth carrying forward:
**Checkout UX now has to account for cost transparency, not just speed.** The wallets and checkout flows that win the next few years won't just be the fastest — they'll be the ones that handle surcharge disclosure, card-type steering, and fee transparency without breaking the frictionless promise that got the customer to tap the button in the first place.
**Trust is a real differentiator, but it has to be earned with incentives, not just claimed.** Paze's bet on bank trust is credible — the data backs it up — but trust alone hasn't historically been enough to shift entrenched payment behavior. The institutions that pair trust with a real reason to switch (rewards, fee avoidance, better terms) will move faster than those relying on brand alone.
**The interchange fight isn't going away, and it will keep reshaping the economics underneath every wallet.** Whether the Visa/Mastercard settlement is approved as proposed, watered down, or replaced by state-level action, the direction is the same: merchants are going to keep pushing costs back toward consumers, and that pressure will keep shaping which payment methods — and which wallets — win the checkout moment.
The checkout screen used to be a formality. It's now a genuine battleground between convenience, cost, and trust — and the businesses that understand all three forces at once will be the ones that win it.