For decades, credit and debit cards have dominated transactions for both consumers and businesses. Other options, such as Account-to-Account (A2A) payments, have been considered alternatives because they simply haven’t been anyone’s first choice. Cards have so much market saturation that merchants have been encouraged to support card payments above all others; their high conversion rates and consumer reach make sense for the bottom line. By comparison, A2A payments haven’t been able to compete.
Until now, that is.
Businesses are increasingly opting to incorporate A2A payments into the checkout experience, with the hopes that consumer adoption will accelerate alongside. After all, A2A transactions are familiar territory for many, both for direct debit payments and through peer-to-peer mobile apps. In fact, eMarketer predicts that nearly 30% of the US population this year, will use the A2A payment app Venmo. Further, the same report predicts that by the end of 2023, mobile peer-to-peer A2A apps will process $1.152 trillion in transactions.
These payments have been slowly growing in popularity as more consumers adopt smartphones and consequently mobile banking. However, the recent digital acceleration prompted by the pandemic has seen the A2A market also rapidly expand. As card transaction fees increase and consumers look for more contactless ways to pay, A2A payments could be the answer everyone is looking for.
The Gap that A2A Payments Fill
A2A payments are not a replacement for credit cards, which have evolved to keep pace with the modern consumer. New contactless cards enable shoppers to purchase from a distance at checkout or even upload their cards to a mobile wallet, for a convenient experience. The process is not quite as seamless on the merchant end, however.
Merchants pay transaction fees to the card company, which cover handling costs, fraud, and bad debt costs. These fees can add up over time. For years, merchants have been at the mercy of card companies simply because there has not been a sufficient alternative.This is beginning to change.
Both Mastercard and Visa announced substantial increases in transaction fees on payments between the UK and EU, following Brexit. In response, Amazon announced that it would no longer be accepting Visa card payments through its UK platform from January 19, 2022. While Amazon does not yet currently allow for A2A checkout, this has created exactly the kind of market gap that A2A payments could fill.
This is because A2A payments allow both consumers and merchants to skip third-party processing and save money in the process. Some merchants have absorbed those costs in the past, while others have passed them on to the consumer. With A2A payments, this decision disappears altogether. There is also no delay in the process, as these transactions can be verified by the consumer directly within their mobile banking app; the familiarity is already there.
Open Banking’s Role in A2A Payments
Consumers may have been using A2A payments for years, but this new dawn is tied closely to another development in the financial marketplace — open banking. Previously, embedding an A2A transaction process into the checkout has been a real challenge. Fragmented banking rails and outdated clearing systems have complicated what should be an easy process. Even with the successful integration of national payment schemes and clearinghouses, these are restricted within a country’s borders — a huge inhibitor for merchants with international customers.
Open banking is overhauling the system. API technology makes it possible for merchants to embed A2A payments within their interface, with no need for a second sign-up or account login. Instead, any consumers with a bank account can access the payment portal and authenticate the transaction through their banking app.
The Final Hurdle: Customer Adoption
The stage is set for a rapid rise in the A2A market share. The final step is for consumers to adopt this new technology, but this could prove to be the most challenging part. Current use is still comparatively low; bank transfers only accounted for 8% of global E-commerce payment methods in 2020, according to Worldpay’s 2021 Global Payments Report. This is in comparison to digital wallets at 44.5% and credit cards at 22.8%.
To help consumers make a move from these more traditional methods to A2A payments, merchants need to make the benefits clear. Perhaps the money saved on transaction processing fees could be passed onto the consumer if they opt to pay that way; once they have grown familiar with the convenience of paying through A2A, they may not need future financial incentives.
There is also likely to be a simple progression towards A2A as more merchants make the method available and more consumers learn of its benefits. Between the improved efficiency and reduced risk of fraud, the benefits of paying through A2A will be clear for both businesses and consumers.
