The world of payments is changing – and it’s changing fast. In recent years, we’ve watched new payment methods arrive on the scene, and quickly alter how we purchase goods both online and in-store. From the growth of in-store contactless systems to the advent of ‘Buy Now, Pay Later’ (BNPL), new payment methods and even new payment categories have achieved significant traction, underlining the immense appetite for innovative solutions that offer greater flexibility and convenience.
Steadily growing in popularity, but with their full potential yet to be unlocked, are A2A payments. Named as a ‘global payments megatrend’ by Worldline in 2022, A2A payments offer wide-ranging benefits to merchants and consumers alike.
Put simply, A2A payments entail a payment moving directly from the payer’s bank to a merchant or a service provider’s bank account. Basic A2A payments have actually been around for some time, but solutions have now significantly matured thanks to Open Banking. Faster, more convenient, secure ways to complete both payments and payouts are made possible with next-generation A2A solutions.
Although the use cases for A2A could benefit a myriad of sectors, they are still considered by many as an alternative payment method. However, a growing number of merchants are starting to recognise A2A payments as a viable alternative to card payments, which remain globally dominant and can boast huge reach. It is the ubiquity of card payments that make them attractive to merchants, despite the costs that are significantly higher than typical A2A payments.
Reducing reliance upon intermediaries, A2A payments create potential for payments at a much lower cost, with reduced friction, and a significant boost in efficiency.
With businesses currently stretched thin, dealing with difficult macroeconomic pressures, there’s never been a better time for A2A payments to become much more than simply an alternative option. Greater recognition and awareness of how A2A payments work and how they can benefit businesses is one area that needs to be addressed for A2A to truly reach scale.
PSPs help merchants to accept the relevant payment methods in each market where they operate – especially important when expanding cross-border, which is a well-established growth path for European e-commerce merchants. And it’s widely acknowledged that a comprehensive alternative payment method offering is key to PSPs’ own success. But given the high proportion of merchants that rely on PSPs for their payment services, if a payment method is not available via the PSP, then it makes it much more difficult for merchants to offer it to their customers. And neither will realise the benefits.
But what’s in it for the PSP? Firstly, as A2A payments and the associated benefits become more widely known, PSPs have an opportunity to become “first movers” and support payments that address some of the merchants biggest pain points; reducing card fraud and chargebacks, managing operational costs, and ensuring predictability around cashflow. For PSPs that are focused on merchants’ needs and tackling these challenges, A2A payments are a logical choice. Time is a precious commodity for merchants, and by making payments a smoother process, businesses can win back valuable time.
As we’ve seen with BNPL over the past few years, the impact of game-changing payment solutions can be significant when PSPs buy in. Similar to BNPL, offering A2A payments may not massively increase the market sizes of different industries where they become established, but they will fundamentally alter how consumers make payments in these sectors, streamlining the process for consumers and merchants alike.
To this end, PSPs are important aggregators for both merchants and payment providers alike, and key allies for today’s A2A payment providers. Their unique role in the ecosystem makes them an important part of the puzzle for introducing a new category of payments to market. Unlike the aforementioned BNPL, where some clear leaders have emerged, the more notable A2A payments providers are not yet universally available across the larger PSPs in Europe.
It has been widely predicted that A2A payments could change the status quo of payments. In 2020, FIS’ Global Payments Report predicted that A2A payments could account for 20% of all ecommerce payments, surpassing credit and debit cards, by the end of 2023. Similarly, a McKinsey & Co Global Payments Report from 2019 found that A2A payments would eventually ‘threaten cards’ leadership in non-cash retail payments.
We are witnessing an uptick in the use of A2A payments in a growing number of markets within Europe, as A2A starts to gain traction. The emergence of Open Banking-based A2A payments, together with enablement via PSPs, should act as a catalyst for growth.
There are a number of rapidly-evolving sectors where A2A payments are a particularly good fit, such as marketplaces and the gig economy. While we do expect to see a growth of A2A across the board, we may well find that A2A payments take hold faster within those sectors with the strongest specific use cases – akin to BNPL in the retail fashion sector.
PSPs should therefore be attuned to the needs of their merchants within specific sectors. As the world around us continues to change, so too do the methods in which we make payments. If the past decade has proved anything, it’s that customers are unafraid to change how they pay for goods, especially if there’s something on offer in return for them. A2A payments fit that description to a tee.
PSPs can’t afford to miss out on the A2A payments revolution. Merchants stand to benefit from greater security, exceptional know-your-customer and know-your-business checks, and a seamless customer journey. A new era of payments is waiting to light into action, it’s time for PSPs to strike the match.
For more information about Brite, please visit: https://britepayments.com/
About Lena Hackelöer
Lena Hackelöer is the founder and CEO of Brite Payments, and a recognised leader in the fintech industry, with diverse experience built in businesses including Klarna and Qliro. Lena’s experience makes her uniquely placed to speak knowledgeably about Open Banking and its impact on the wider European payments landscape.
About Brite Payments
Brite Payments is an instant payments provider leveraging Open Banking technology to process A2A payments in real-time between consumers and online merchants. With Brite, consumers authenticate themselves using their bank’s usual identification method. Brite operates across 21 markets in Europe and is connected to more than 3,800 banks within the EU.
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