Within five years, account-to-account (A2A) payments will no longer be an ‘alternative’ payment method, as Open Banking helps to move these payments into the mainstream.
With A2A payments eliminating the need for intermediaries, given that payment moves directly from a consumer’s bank to a merchant bank over a national clearing system, they have the potential to reduce friction and lower costs. Merchants have been willing to pay the high cost of cards and wallets because of the unmatched reach and conversion they provide.
A2A payments, in the form of Online Bank ePayments (OBEPs), have for some time been the favoured payment method of consumers in select countries, like iDEAL in the Netherlands or Giropay in Germany. Historically, wider uptake of A2A payments in Europe and beyond was hindered by fragmented national clearing systems, meaning that it has been considered a niche alternative method. However, Open Banking APIs have helped A2A payments achieve greater reach and accessibility.
APIs now make it easy to consistently access the bank clearing systems on a regional – and eventually a global – basis, therefore they make it really easy to embed an A2A payment at the checkout. Within five years, we’re no longer going to be referring to A2A payments as an alternative payment method. We’re simply going to refer to them as a broader form of digital payments.
Andrew Steadman in the Gartner report, The Rise of Real-Time Payments said, ‘Real-time payments threaten Traditional Payment Methods’, and ‘the role of Open Banking initiatives has to be considered too, as nonbanking providers are able to initiate payments that are frequently combined as part of an offering that addresses a customer need’.
I would like to point out that there has been much hype and expectation surrounding account-to-account payments and I will cite several reports which forecast their move into the mainstream.
According to the Worldpay Global Payments Report 2020, account-to-account payments are predicted to account for 20% of all ecommerce payments in Europe, surpassing both credit and debit cards by 2023. In the McKinsey & Co Global Payments Report 2019, it stated that account-to-account payments will eventually ‘threaten cards’ position as the main source of non-cash retail payments’.
A2A payments will absolutely become mainstream as the costs, cash flow, and security benefits are so compelling for merchants, and the user experience is so good for consumers.
Looking ahead, I anticipate widespread adoption, in part because there are real advantages for merchants: not just cost savings, but unrivalled reach by covering anyone with a bank account, smoother onboarding processes, and superb bank-grade security with regulatory checks seamlessly baked in. Token’s own average transaction value of over EUR 400 is evidence that merchants with high average transaction values have been among the first to realise such benefits.
Ultimately, consumer appetite for convenience, clarity, and familiarity is also fuelling A2A payments’ move to the mainstream. Over three million UK people and businesses are using Open Banking as of the beginning of 2021, and recent research conducted by the Open Banking Implementation Entity (OBIE) revealed that over half of Britons (54%) now use Open Banking-powered apps regularly.
I predict that the proliferation of fintechs that need consumers to fund their accounts – such as challenger banks and trading accounts – will be a major catalyst for adoption. Going forward, the primary method for funding accounts could become A2A payments.
Open Banking will not only create a consistent, ubiquitous method for A2A payments in Europe but in theory globally, which would further threaten cards.
About Todd Clyde
Todd Clyde is the CEO of Token and an established operator of Silicon Valley software companies. He has a twenty-year track record of bringing groundbreaking technologies to market, including e-learning, internet banking, mobile banking, and now Open API Banking. Token is Todd’s fifth technology startup and he has navigated his previous four to successful exits including one USD 2 billion exit. Todd joined Token in 2016 to modernise payments and drive a shift from traditional payment methods to account-to-account payments.
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