• Sabrina Akramova , Editor & Content Manager at Financial IT


• 12.04.2022 10:30 am
#A2A #payments

Account-to-Account (A2A) payments enable the direct transfer of monies between accounts without relying on third-party intermediaries or payment cards. A2A payments have existed for some time but were formerly classified as bank account-specific payments, similar to bill payments via bank transfer or direct debit. However, A2A payments can be used in conjunction with the bank and digital wallet transactions.

The next round of consumer payment battles has begun. In November 2021, Amazon announced that it would discontinue accepting Visa credit cards as payment on January 19, 2022, citing Visa's fees. This triggered lively online debates on Brexit, cross-border interchange, merchant service fees, and co-branding. However, I couldn't help but believe that PSD2, BNPL, rapid payments, and potentially even digital currency are all battling the "traditional" card rails.

A2A payment types 

1. Push payments entail clients manually transferring funds to you, or 'pushing' funds to you. A bank transfer or an instant payment (such as GoCardless' Instant Bank Pay) are two examples. Additionally, APIs can send consumer notifications or prompts to activate push payments. 

2. Pull payments are when businesses deduct funds from their customers' accounts. This payment option is typically used for recurring payments such as subscriptions and requires prior authorization from the customer. A direct debit mandate is an illustration of this.

A2A payments have had a renaissance in recent years, spurred by new and existing payment rail investments, open banking, and a shift in consumer behavior in the aftermath of the COVID-19 outbreak.

iDEAL is a well-established A2A system in the Netherlands. iDEAL got its first billion-dollar payout in mid-2016, a decade after its debut. The second billion iDEAL payments occurred in late 2018, less than two years after the first billion. iDEAL already processes more than a billion transactions each year and is on track to surpass five billion by early 2022. iDEAL is utilized for more than two-thirds of all online payments in the Netherlands. QR codes for iDEAL are becoming more prevalent on invoices, screens, and businesses.

A2A in British Market

The British market appears to be adopting a similar strategy. Consumer-to-business and consumer-to-government transactions are also increasing in popularity. The Payment System Regulator (PSR) just issued it as PSR +0.1 percent. It asserts that the fees associated with receiving card payments are "exorbitant" and that switching between middlemen is inconvenient. Additionally, the regulator discovered that numerous acquirers and point-of-sale terminal contracts restrict retailers' ability to transfer suppliers. 

Additionally, enterprises with annual sales between £15,000 and £50 million have not profited from interchange fee caps, confirming my conclusion that increased competition, rather than increased regulation, is necessary to reduce payment costs. 

According to a November 2021 survey, more over half of UK consumers (and two-thirds of mobile banking users) would accept A2A payments via open banking. Additionally, I note that a third of customers stated that a trusted brand would encourage them to use A2A instead of cards (twice the number who stated loyalty schemes, which I doubt), particularly given that 42% of consumers indicated they would do so for groceries and 39% for flights and vacations. 44% would pay the government in this manner. This is something I already do with my taxes, and it's quite convenient.

A2A point-of-sale rails 

Payment rails are a type of network that enables the movement of funds between accounts. That is to say, the A2A payment rails. There is no such thing as a worldwide payment rail. Rather than that, states must establish their own national payment systems. 

Almost every central bank has renovated or constructed new payment rails in the previous decade. Brazil and Australia, for example, have established regulatory sandboxes to incentivize financial firms to build novel payment rails.

Why do central banks provide funding for payment rails? 

1. Governments must invest in payment infrastructure in order to remain competitive and to keep pace with developing technology and payment demands. 
2. Payments on the spot Without real-time payment options, businesses may go days without notice of missing payments, resulting in delayed reconciliation, debt, and even increased customer churn. 
3. Elimination of fraud Payment card fraud costs over $24 billion per year and is anticipated to increase in the absence of new, more secure payment alternatives.

Open Banking will increase the volume of A2A payments. 

The Open Banking APIs are revolutionary. They've deconstructed fragmented financial railroads, allowing for better access to bank clearing systems and point-of-sale integration of A2A payments. Prepared for Open Banking A2A payments are available to everyone with a bank account. There is no requirement to register. Consumers find authenticating on a financial app to be extremely easy and familiar. 

While the opportunity for adoption growth is significant, a healthy grain of skepticism exists. According to some, the lack of fully functional APIs is impeding Open Banking. Having said that, the Open Banking Implementation Entity (OBIE) has worked diligently to ensure the APIs and user experience are robust and ready in the UK. As Open Banking gathers pace, more A2A payment use cases are emerging. Apart from e-commerce and bill payment, debt repayment is the most rapidly growing use case. In the United Kingdom, A2A can currently be used to pay for one in every four credit cards. 

Between March and December of last year, Token's A2A payments climbed month after month, and are now up 20% this year. Notably, the average transaction value exceeds £400, indicating that early adopters include high-end shops enticed by the cost savings. After selecting 'pay by bank,' a conversion rate of 85-95 percent occurs. In the previous six months, the drop-out rate has reduced as consumers acquire confidence in A2A payments. Additionally, the payment method has a success percentage of greater than 98 percent.

The future of A2A payments 

According to the Worldpay Global Payments Report, A2A purchases will account for 20% of all e-commerce payments in Europe by 2023, surpassing card payments. With nine out of ten Generation Zers living in emerging regions, the expansion of A2A payments will not be limited to Europe. As a result, governments will be eager to capitalize on the habits and demands of this generation.