What Are A2A (Account-to-Account) Payments?

Paying straight from one bank account to another is known as Account-to-Account (A2A) payments. There are no middlemen or payment devices like credit cards involved in this type of transaction.

Instant payment networks all around the globe are being used to transfer funds from the payer’s bank account to the payee’s bank account.  The settlement networks are real-time (as in Australia) or net-based (as in the UK). A2A payments are low-cost, push-only credit transactions that finish in seconds for both consumers and companies.

A2A payments allow corporations to transfer money directly from their bank accounts to the bank accounts of their receivers, eliminating the need to print, mail, receive, deposit, and wait for the cash to settle with the recipient’s bank account. This can help vendors that want to get paid quickly and secure their cash flow. The RTP system, wires, normal ACH, and same-day ACH are all options for sending A2A payments.

Wire transfers can be pricey; therefore, they’re typically only used when sending money internationally to sellers or suppliers.  Additionally, they can be effective in situations where big internal payments must be delivered within 24 hours, such as real estate enterprises or bulk shipping deals that need to satisfy payment deadlines.

Types of A2A Payments

There are two types of A2A payments.

1. Push payments: Buyers must manually transmit money to you to use this form of payment for sending one-off amounts. Some fintech companies use an ‘Instant Bank Pay’ as an example of this type of transaction. Sending customers messages or prompts via APIs can also prompt this type of push payment.

2. Pull Payments: Here, customers’ money is withdrawn, or “pulled,” from their accounts by businesses. Customers must give their approval before businesses use this type of payment method, which is commonly utilized by organizations with recurring payment structures such as subscriptions and membership billings. A direct debit mandate is one example of this.

The discussion on A2A payments has increased because it’s possible that A2A payments could replace card payments as the chosen mode of payment for both customers and companies in the future, thanks to a shift in consumer behavior following the COVID-19 pandemic and developments in novel and current payment rails. Companies like Visa and Mastercard know their days are numbered.

The Benefits of Using A2A Payments

The different benefits of A2A payments make it a preferred development in payment trends. Businesses and Individuals alike can benefit in the following ways:

Excellent Customer Service

By merging A2A payments with open banking technologies, enterprises can now provide a frictionless payment experience to their clients. There are no middlemen and no need to enter credit card information numerous times for every payment. Rather than that, APIs have permitted the development of a financial structure capable of accepting both one-time payments and recurring payments via mobile or desktop browsers and applications.

Compliance with the SCA

Strong Customer Authentication (SCA) was introduced in 2021 as a new European statutory obligation aimed at reducing fraudulent online transactions above €50. Consumers must now establish their identity by proving two of the three following factors:

• Knowledge: the consumer’s knowledge of their pin or password

• Possession: the customer must show he has access to a registered mobile device that is his own and in his possession.

• Inherence: a user’s characteristic, such as biometrics or fingerprint identity.

When A2A payments are merged with the new open digital banking, they automatically comply with multifactor authentication requirements for users. As a result, business owners that use A2A will be able to comply and more inclined to see a decrease in fraud and refunds losses, but without sacrificing the customer’s checkout experience.

Consistently Meet the Evolving Needs of Consumers

Consumer habits and preferences change over time, and the pandemic of COVID-19 has expedited the shift away from traditional banking and mode of payment. Rather than that, buyers are looking for simpler and time-saving options, with the OBIE reporting that more than half of Britons now frequently use Open Banking-powered applications. Additional research from Fintech apps like GoCardless indicated that bank debit is the preferred way of payment for subscriptions in the United Kingdom, Germany, and France.

Shoppers are demonstrating that, while they desire faster payment methods, they still desire ease, reliability, and safety. With   Card payments, there is yet to be seen the same or higher level of innovation or advancement as A2A payment and other payment trails, and due to this, card payments have become obsolete and unpopular with consumers.  Bank of America recently discovered that Gen Z, who will dominate more than a quarter of the world’s accounts in 2031, is fiscally and financially savvy and avoids payment options that they fear would result in debt, like credit card payments, and this is a good sign.

Global Pandemic and A2A Payments Trend

The global pandemic’s devastating economic effects from its wake in the last quarter of 2019 opened people’s eyes to the special challenges of traditional payment methods. Even businesses realized they could ditch paper-based processes in favor of digital payments. Consumers stopped seeing the need for card maintenance fees and intermediaries in their financial transactions.

As a result of the pandemic, the number of contactless payments in the UK climbed by 12 percent to 9.6 billion in 2020. It was also observed that more people shifted from using physical cash for payments

Over a quarter of all transactions in the United Kingdom were made through contactless payment, according to the most recent data from UK Finance. Since 2012, the percentage of payments made via tap-and-go has increased from 7% to 27%.

In 2020, the amount of UK cash payments decreased by 35%, resulting in only 17% of all UK payments being done with paper money. “The pandemic ultimately results in some remarkable changes in payments behavior, and while it’s too early to say whether they are permanent changes, we did see an acceleration in some existing trends such as the reduction in cash usage and the growth in contactless and mobile payments,” says David Postings, chief executive of UK Finance.

Over two-thirds of UK individuals now use internet banking, and more than half use mobile banking as a result of more people working from home. The pandemic led to the growth of A2A payments, and now online payments account for 54% of all business-to-business payments. The year-on-year volume increase for the immediate payment train is 21%

With the announcement that they will no longer allow Visa credit cards issued in the United Kingdom as of January 19, 2022, Amazon started their assault on the credit card scheme’s trenches. Recently, there have been several interesting internet discussions regarding Brexit, cross-border interchange, and vendor service charges as a result of that. If you think about it, this is just one of many attacks being waged against “traditional” card wheels by emerging payment options like BNPL, PSD2, instant payments(A2A), and maybe in the future, digital currencies.

The world’s major credit card companies will be keeping a close eye on this dispute. American Express, Visa, CapitalOne, Chase, and Mastercard both have impressive margins EBITDA of 60-70%, which could suggest a market decline, as numerous observers have noted.  When all banks are linked to all retailers and consumers at all times, these 4-party party intermediaries of the 1960s may become history. An example of this Invader may be the account-to-account payments (A2A).

One in four vendors questioned by Omdia stated that embracing new payment methods online has substantially increased in importance due to the pandemic. For example, the FCMG and grocery sector (where 3 in 4 dealers asserted their need to enhance their capabilities for online payment tools usage) has seen such significant growth online. It is clearly incredibly motivated to reduce its costs of processing payments on such frequent transactions.

The Future of A2A Payments

Because of open banking emergence and real-time transactions, the A2A payment option has the potential to become a real credible challenger to the credit card payment rail for daily transactions as well. This is nothing new; bank transfer services have been around for a while and are conventionally used by customers to schedule constant bill payments (i.e., direct deposit).

The Worldpay Global Payments Report predicts that A2A payments will contribute to about 20% of all e-commerce payment transactions in Europe by 2023, overtaking card payments for the first time. Nine out of 10 Gen Zers live in emerging market economies, which means that A2A payment development isn’t just confined to European markets. Governments that want to profit from this generation’s lifestyles and needs will have a significant impact on the purchasing power of this generation.

Despite the digitalization of the banking system, payment rails remain heavily reliant on traditional card networks. Despite the adoption of cloud-based technology, Despite the digitalization of the banking system, payment rails remain heavily reliant on traditional card networks despite the adoption of cloud-based technology by banks. Despite the digitalization of the banking system, payment rails remain heavily reliant on traditional card networks despite the adoption of cloud-based technology by banks.

The spec of A2A payments is that it allows third parties to initiate payments on behalf of consumers and make direct payments from the customer’s bank account to reduce fees for both the banks, merchants, and the customers, all of whom benefit from the advent of open banking.   In light of Mastercard’s announcement that it will raise interchange fees for UK consumers buying from Europe starting from the last quarter of 2021 and rumors that Visa and Mastercard will reintroduce increased traders’ fees which were delayed by the Covid-19 pandemic, A2A has indeed a unique opportunity to take advantage of this and capitalize.

Clearly, A2A payments are still in their infancy, but the Omdia ICT Enterprise Survey (ICTEI) 2020/21 found that payment issuers/acquirers see it as the most promising novel opportunity for open banking.  This is the report from their interview of more than 6,600 CIOs and other high-ranking IT decision-makers between July and September 2020. According to Worldpay’s 2021 Global Payments Report, bank transfers or Automated Clearing House (ACH) payments will account for 8 percent of global digital commerce payments in the coming years.

Final Thoughts

The FinTech industry is strategizing towards a “cardless” future. Due to the business interest in sustaining card revenue, card issuers and networks are understandably unwilling to urge customers to switch to alternative payment methods. Legacy technology, on the other hand, is not going to match future customer wants and aspirations. Because of the adoption of open banking by banks, businesses, and eventually customers, change is unavoidable.

By diversifying their product range with targeted acquisitions and product launches, legacy card networks are signaling to the rest of the market that A2A payments pose a major threat to their existing payment rail business.

As a result, Mastercard bought Vocalink, a UK-based payments system startup, in 2017 and Nets’ A2A payment business in 2019, which was finalized following regulatory approval. American Express launched its Pay by Bank Transfer service in 2019 that allows UK users to make real-time payments for products and services online directly from their bank account leveraging open banking technologies. However, they are not American Express cards. All these are geared towards A2A payments.