Wallets and Interoperability Drive Next Phase of P2P Competition

Interoperability is moving from technical aspiration to what looks to be a defining feature of peer-to-peer payments, as digital wallets evolve from simple payment tools into the infrastructure through which money circulates.

The early promise of wallets rested on speed and convenience.  The work in progress is whether those wallets can speak to one another.

Interoperability as the Constraint on Growth

PYMNTS Intelligence data shows that digital wallets have reached mainstream status in the United States, particularly for cross-border and consumer-to-consumer use cases. Nearly two-thirds of U.S. consumers who send money abroad use digital wallets, reflecting widespread acceptance across income brackets and generations.

Yet adoption does not translate into seamless usage. Fragmentation remains a constraint. Nearly 28% of consumers who do not use digital wallets for cross-border payments cite incompatibility between sender and recipient systems as a primary barrier. For small businesses, the issue appears in a different form. One-third of firms that avoid digital wallets point to the absence of a clear industry standard.

The data indicates that digital wallets succeed within their own environments, but friction emerges at the edges, where ecosystems intersect. Interoperability addresses that friction by allowing funds to move without regard to platform boundaries. In practical terms, it reduces failed transactions, simplifies user decisions and extends reach into cross-border corridors.

From Owning Users to Connecting Networks

Recent PYMNTS reporting on Venmo’s integration into PayPal’s global network offers an example of how the competitive frame is shifting. Venmo users can now send and receive money across PayPal’s global base, expanding access to hundreds of millions of users across dozens of markets. The stated goal is to remove “app fragmentation,” a term that has come to describe the inconvenience of isolated payment ecosystems.

The operational change is straightforward, but its implications are not. By linking two large networks, the companies are not merely adding users. They are increasing the number of viable payment connections. The value lies less in the size of any single wallet and more in the breadth of reach.

This marks a departure from earlier phases of digital wallet competition, which emphasized user acquisition and retention within closed environments. The emerging model places greater weight on connectivity. A wallet that can interact with multiple systems becomes more useful than one that operates at scale but remains isolated.

That shift is reflected in PYMNTS reporting and interviews describing wallets as an interface layered across existing financial rails, rather than a replacement for them. In that framing, interoperability is not an added feature. It is the mechanism that allows wallets to function as infrastructure.

The Next Phase of Competition

The next stage of wallet competition is likely to center on which providers can reduce fragmentation most effectively. Interoperability is the means through which that reduction occurs, particularly in cross-border payments and P2P transfers.

Cross-border activity offers a clear test case. Fourteen percent of U.S. consumers report making cross-border payments in the past year, and digital wallets are already a preferred method among those users . However, usage remains constrained by compatibility concerns and uneven acceptance. Where interoperability expands, usage tends to follow.

For businesses, the stakes are similar. Less than half of U.S. SMBs currently use digital wallets for international transactions. Among those that abstain, concerns about integration complexity, security and lack of standardization remain prevalent. Interoperable systems address each of these concerns by creating predictable, widely accepted pathways for payment.

The competitive question, then, is not simply which wallet gains the most users. It is which platform can position itself as a node within a broader network of interoperable systems. Those that succeed will have access to transaction flows that extend beyond their own user base.