Account to account (A2A) payments are becoming a favourite method for merchants to collect payments. According to McKinsey, A2A payments will reach US $200 billion in volume by 2027, with a compounded annual growth rate of 19%. This excludes bill payments like utilities and mortgages.
As the digital payments landscape evolves, A2A payments are becoming more important for merchants. They help optimise payment strategies and meet changing consumer preferences. This growth is driven by improved technology, changing regulations and the demand for faster, cost-effective payment solutions.
In this article, we'll explore the basics of account to account payments, how they work and their benefits for merchants. We'll also compare them to traditional payment methods and examine global trends and industry-specific use cases for merchants.
What are A2A payments?
A2A payments, also known as bank transfers (Open Banking), are direct transfers between bank accounts without an intermediary like a card network. This method of moving funds directly from the buyer's account to the merchant's is also possible with Open Banking, offering a streamlined and efficient process.
Account to account payment methods do not require sharing card details with merchants, reducing fraud liability. A2A transfers are gaining popularity due to modern payment technology like Open Banking. It uses the Open Banking API to facilitate transfers, which makes it a quick and cost-effective payment method.
A2A payments differ from other payment methods in several ways such as:
- Instant transfer: Unlike card payments, which involve the cardholder, merchant, acquirer, issuing bank and card network. A2A payments are instant.
- Transaction fees: Interchange fees do not apply to A2A payments as there are no card schemes involved in the payment flow. Hence merchants can generate more revenue for business growth by offering A2A payment to consumers.
- Enhanced security: By reducing the need to share sensitive data with merchants such as card details, A2A transfers offer improved security and reduce fraud risk when collecting payments from consumers. It also eliminates human errors which could lead to declined payments if a consumer inputs wrong details on the payment page.
How do Account to account payments work?
Account to account payments operate through a series of steps that enable the secure and efficient transfer of funds. This transaction process is facilitated by technologies and systems like Open Banking APIs, Automated Clearing House (ACH) networks and Faster Payments Systems. Here is a detailed breakdown of how the transaction process works.
- The customer navigates to the checkout page and opts for the Pay by Bank payment option.
- They're then redirected to a new screen where they must choose their banking institution (e.g. Barclays, HSBC, Monzo).
- Next, the customer is taken to their bank's online platform to verify the transaction. This involves confirming the payment amount within their banking app and completing the Strong Customer Authentication process (SCA).
- The customer authorises the purchase and the settlement phase begins. The exact timing of the settlement depends on the arrangement between the merchant and their payment service provider.
Types of A2A payments
Like all payment methods, A2A payments fall into two primary categories: push payments and pull payments. Each category serves diverse needs and scenarios for merchants and consumers.
Push Payments: In push payments, the customer initiates funds transfer to the recipient’s account. The payer actively 'pushes' the money from their account. Some common examples include:
- Person to person (P2P) Transfers: Individuals sending money to friends or family.
- Consumer-to-business (C2B) payments: Customers pay a merchant for goods or services.
- Business to business (B2B) transactions: Companies paying suppliers or contractors.
Pull payments: For pull payments, the recipient (merchant) requests and 'pulls' funds from the payer’s account with prior authorisation. Typical examples include:
- Business to consumer (B2C) transactions: Companies issuing salaries or refunds to customers.
- Subscription payments: These are regular transactions such as subscriptions, where the merchant initiates the payment.
A2A payments offer benefits such as speed, security and cost-effectiveness, making them increasingly popular across various transaction types, industries and regions. For example, a Statista report found that the number of open banking Application Programming Interface (API) calls is forecast to grow from 102 billion in 2023 to 580 billion in 2027. Furthermore, the value of open banking transactions is expected to grow sharply as well and reach 330 billion U.S. dollars in 2027.
Global trends driving Account to account payments
Focus on real-time or near-real-time payments
The demand for faster settlements from consumers and businesses drives the development of instant payment infrastructures around the world. The UK’s Faster Payments Service (FPS), India’s Unified Payments Interface (UPI) and Brazil’s PIX are successful real-time payment systems. They set benchmarks for other nations to move away from card-driven transactions.
As real-time payment systems gain traction, they are increasingly paving the way for a global shift towards A2A payments. This trend could encourage more countries to upgrade their payment infrastructures to unlock the benefits of account to account payments for consumers. While the momentum towards Open Banking and real-time payments is undeniable, it’s essential to acknowledge that not all economies are equally ready to embrace these advancements.
Growing adoption of Open Banking technology
There is a growing adoption of the Open Banking technology for payments among consumers and merchants. According to Open Banking Limited (OBL), there was significant growth in Open Banking penetration in the second half of 2023 in the UK. By January 2024, the proportion of digitally active consumers using Open Banking increased to 13% among consumers and reached 18% for small businesses.
How merchants are using A2A payments in different industries
A2A payments are being adopted across various industries, with merchants finding innovative ways to leverage this technology to improve their payment processes. Let's look at how different sectors and their use case for A2A payments.
e-Commerce and retail
e-Commerce and retail merchants integrate A2A payment options into their checkout process. This offers customers a fast and secure alternative to card payments. They also use A2A for refund processing, enabling more efficiency and quicker refunds, thus 44% of UK consumers stated they trusted it for online retail purchases.
Travel and hospitality
Travel and hospitality are one of the top 5 use cases of Open Banking among UK consumers according to our recent report. The report found that 30% of consumers have primarily used it for airline tickets and 34% for hotel bookings. The findings from our report show that there's a use case for Open Banking in payments in this sector. Early adopters stand to gain from offering this payment option that is preferred by consumers.
Digital content and gaming
According to Statista, the penetration rate in the 'mobile games' segment of the digital media market is led by North America with 42.8%, followed by South America 28.85%. Account to account payments can help consumers of digital content and gamers to quickly purchase in-game items or upgrades. This enhances the gaming experience by providing immediate access to purchased content and maintaining uninterrupted gameplay.
By adopting A2A payments, merchants across various industries can reduce transaction costs, improve cash flow, and offer their customers a more streamlined payment experience. This versatility of account to account payments make it suitable for a wide range of business needs.
Benefits of offering Account to account payments
There are numerous benefits of A2A payments for merchants across various industries. Here are the key benefits of implementing A2A payments.
Seamless checkouts
For online retailers, offering a smooth checkout process is key to boosting sales. A2A payments simplify this by removing the need for customers to enter payment details manually. This not only speeds up transactions but also improves the overall shopping experience, leading to fewer abandoned carts and happier customers.
Increases transaction success rates
Failed transactions can frustrate both customers and businesses. A2A payments help reduce this issue with success rates over 95%. Since these transactions are processed directly from the customer's account without needing manual input, they're less prone to errors, leading to a smoother payment experience and higher success rates.
Eliminates risk of chargebacks
Chargebacks, where customers reclaim funds due to disputes, can be costly and time-consuming for merchants. A2A payments, which involve real-time bank transfers, effectively eliminate the risk of chargebacks. This not only protects merchants from potential revenue loss but also avoids additional fees and reduces administrative work, making the payment process more efficient.
Faster refund processing
A2A payments enable near-instant refunds, greatly enhancing the customer experience. This real-time processing simplifies reversal transactions for merchants, improving both operational efficiency and customer satisfaction.
Enhanced security measures
A2A payments are built with strong security features, including compliance with regulations like PSD2's Strong Customer Authentication (SCA). This often involves two-factor authentication within the customer's banking environment before completing a transaction. Additionally, A2A payments use secure APIs to encrypt and safely transmit payment data, providing a highly secure method for purchases and reducing fraud risk for both consumers and merchants.
By leveraging these benefits, A2A payments offer merchants a powerful tool to optimise payment strategies, enhance customer experiences, and streamline operations in an increasingly digital marketplace.
Difference between A2A payments and other payment methods
To fully appreciate the impact of A2A payments, it's crucial to compare them with other traditional payment methods.
Credit card payments vs A2A payments
Account-to-account (A2A) payments provide a more immediate or near-immediate transfer for payments even on holidays. This can be especially valuable for business cash flow. Additionally, A2A payments reduce the risk of chargebacks, which are more common with credit card transactions.
Chargebacks can lead to lengthy disputes and potential revenue loss. With A2A payments, funds are transferred directly between bank accounts, reducing the likelihood of fraud and easing the administrative load associated with chargebacks. This increased security and reduced risk make A2A payments a compelling choice for both consumers and businesses.
Wire transfers vs A2A payments
A2A payments are typically much less expensive than wire transfers, particularly for international transactions. Wire transfers often come with high fees, which can add up significantly for businesses that make frequent or large transfers. A2A payments can be a more economical choice for both domestic and international transactions. This cost efficiency is especially valuable for small and medium-sized enterprises that must carefully manage expenses.
Moreover, A2A payments are easier to initiate and manage compared to the often complex process of wire transfers. Wire transfers usually require detailed information and can involve a series of steps that may be cumbersome for users. In contrast, A2A payments can be set up quickly and easily through online banking platforms or mobile apps, making them accessible to a wider audience. While wire transfers are often used for large, one-off payments due to their reliability and speed, A2A payments are suitable for both large and small, regular transactions. This versatility makes A2A payments a practical solution for a variety of financial needs.
Open Banking vs Account to account payments
Open Banking and A2A payments are related but distinct. Open Banking is a regulatory framework that requires banks to share customer data with authorised third-party providers (TPPs) through secure APIs. It aims to foster competition and innovation in financial services by enabling new services and business models. Beyond payments, Open Banking supports a range of financial services, including account aggregation and personalised financial advice.
Conversely, A2A payments refer to a specific application of Open Banking technology, concentrating on the direct transfer of funds between bank accounts. While Open Banking has significantly facilitated the growth of A2A payments, it can also exist independent of Open Banking frameworks. The primary focus of A2A payments is on the payment process itself, rather than the broader data-sharing aspects and framework of Open Banking.
Open Banking provides the technological and regulatory infrastructure that enables A2A payments to function more efficiently and securely. While A2A payments benefit from Open Banking initiatives, they are not exclusively dependent on them.
Accept A2A payments with emerchantpay
Account to account payments represent a significant shift in the payments, offering numerous benefits for both merchants and consumers. As technology evolves and regulatory frameworks adapt, A2A payments are poised to play an increasingly vital role in the future of digital transactions.
As a merchant looking to enhance your payment options and stay competitive, it is crucial to consider the advantages of account to account payments. At emerchantpay, we partner with businesses like yours to configure their A2A payment option to align with your specific requirements and branding. Furthermore, we provide seamless support with a dedicated Account Manager and Risk Analyst. Our expert and personalised technical assistance, ensures your operations run smoothly while proactively managing potential risks. This tailored approach allows you to focus on your core business with confidence.
Ready to increase cash flow with account to account payments option? Contact our team of experts today!