A2A payments in Europe are expected to surpass credit and debit cards by 2023 to represent one fifth of all ecommerce payments. What factors are driving this trend?
Feasible alternatives to credit cards, regulatory tailwinds of PSD2, and exciting new developments in innovation and technology are driving this trend of A2A payments.
A2A payments happen by bank transfer, and they are extremely beneficial for merchants as they eliminate ties to card monopolies and involve lower chargebacks. Integration into banking infrastructure means lower costs per transaction. Moreover, A2A payments provide seamless customer experiences and secure authentication.
PSD2 is encouraging innovation around A2A payments in Europe but here, in the US, the government has yet to step in, so innovation is happening in the private sector. A2A transfers in Europe account for around 13% of checkouts, while in the US that figure stands at about 6%. I am confident that the US will accelerate the current share and surpass Europe.
What type of bank-based payments methods are there and what are the key differences between them?
Discussions on this topic typically revolve around mono-banking and multi-bank schemes. Amex is an example of a mono-bank scheme in the US, as it is not only the card issuer but also the payment processor. E-wallets can be considered mono-bank schemes as they share this closed-loop infrastructure.
However, most payment rails in the US are multi-bank schemes. Facilitating payments is embedded within each of the 11,000 banks and credit unions in the country. The most relevant examples include Automated Clearing House, a traditional multi-day settlement, The Clearing House – a bank-owned entity that processes ACH payments, and FedNow, which is supported by the Federal Reserve. Additionally, there’s Zelle, a P2P payment platform moving into the B2C space that will most likely also move into ecommerce payments to rival credit and debit cards.
Excitingly, multiple payment technology providers are supporting the Open Banking movement in the US and facilitating multiple connections into each of those schemes. Trustly is at the forefront of this wave.
The US ecommerce payments landscape has traditionally been dominated by credit and debit cards. Do you think that A2A payments will one day become the preferred choice in the US?
There are several reasons why A2A payments have a lot of potential to gain traction in this area. The first is that consumers have started to attribute greater value to non-card payments because they are easy to use and consumers have more control over their data. Another is that they are safer, as higher approval rates are needed because we are talking about real-time access to consumer accounts. They also provide lower processing costs, and fewer-to-no chargebacks.
The 11,000 banks and credit unions in the US are now beginning to understand that their business models are changing, and they need to account for the reduction in interchange fees. They are also investing in Open Banking strategies because they see value in extending their relationship with customers outside of their own digital asset. Traditionally, US banks have encouraged consumers to use their mobile banking apps or online banking services, but they now recognise that Open Banking offers the potential to facilitate payments and data sharing outside of those walls securely.
Please elaborate on the FedNow initiative. What is its purpose and what is Trustly’s involvement?
Essentially, FedNow is a real-time payment rail leveraging A2A transfers to facilitate settlements and clearing within seconds. The official take-off was pulled into 2023, but they also have pilots planned for 2021, so that shows a lot of momentum.
Trustly has been engaged with the FedNow programme, and we will go live with them once the initiative becomes operational. Trustly has been looking at it strategically and will be the front running technology provider to integrate early, reduce friction, and consolidate the offering by providing a solid proof of concept with a cohesive RTP strategy.
Trustly in the US has been providing online banking payments, leveraging banks’ APIs, for 10 years. Trustly has joined the FDX and its membership comes at a crucial time, as the new administration has indicated strong interest in regulating Open Finance. Also, Canada is scheduled to make decisions to regulate Open Banking by the end of 2021.
What’s important to understand about the US payments industry is that FedNow provides optionality for banks, so their technology processors could integrate with whomever player they deem suitable. It can be said that increased competition in the US will only enhance innovation and drive higher adoption of real-time payments.
Trustly’s role is to revolutionise Open Banking globally by helping all key partners in this ecosystem unleash their true potential, so watch this space!
About Craig McDonald
Craig is a financial technology veteran with over 17 years of experience working to solve the payments challenges for companies of every size and vertical. Prior to Trustly, Craig spent three years with MoneyGram supporting its 2,700 financial institution clients, a USD 2 billion portfolio, and the company’s digital distribution. Craig was COO and managed worldwide expansion with customers such as AT&T, Verizon, AOL, General Motors, British Telecom, France Telecom, NTT DOCOMO, at Vallista (Intel).
About Trustly
Founded in 2008, Trustly is the global leader in digital account-account payments. Able to handle the entire payment journey, Trustly is unique from the competition. In 2020, Trustly processed over USD 21 billion in transaction volume across its global network. Trustly has over 600 employees across Europe and the Americas.
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