Voice of the Industry

The death of cards: why 2021 is a tipping point for Account-to-Account, and how it'll change the payments landscape forever

Friday 20 August 2021 07:22 CET | Editor: Anda Kania | Voice of the industry

Siamac Rezaiezadeh, Director of Product Marketing at GoCardless: The rise of A2A payments is great news for merchants. On the back end, it’s more efficient than cards, with fewer intermediaries, lower costs, and fewer points of failure

When credit cards were first introduced, Elvis Presley and Dean Martin dominated the charts. Alfred Hitchcock just released Vertigo, and the European Economic Community was newly formed. It’s a far cry from the streaming-on-demand, social media-oriented, globally connected one-click economy we’re in today, with an increasing share of life lived through our phones – or, at least, mediated through a screen. 

Yet despite drastic changes in society and technology, payment methods such as credit cards have barely evolved from their 1950s predecessor. Barring the creation of a digital card, the core principles of this payment type – such as revolving credit, the ‘five-party model’, and limited validity in the dreaded form of the ‘expiration date’ – still exist.

With the advent of Account-to-Account payments (A2A), however, we may finally start to see a viable challenge to the dominance of cards. With its ability to cater for payer preference, optimise the checkout experience, and increase conversion, we believe A2A is going to be a game-changer. 

Cards? No thanks!

The death of the card will be tied directly to the birth of the subscription economy. Over the past few years, we’ve seen an explosion in this type of business model, with everything from tyres to printer cartridges available on subscription. 

For businesses, subscriptions capture more customer lifetime value by design. For consumers, they are convenient and easy. Shoppers have embraced ‘usership’ instead of ownership; indeed, Zuora’s Subscription Economy Index indicates subscription companies grew six times faster than the S&P 500 over the past nine years. 

Cards are not always suitable for these new business models; instead, A2A is growing in popularity. Research from GoCardless reveals bank debit is the most favoured way to pay by consumers in the UK, France, and Germany for both digital and traditional subscriptions, and even in the US, it’s second only to cards and ahead of digital wallets like PayPal.

Why are consumers moving towards A2A? It fits what they’re looking for: across Europe, consumers say the top attributes they value in an online payment method are security, plus speed and simplicity. 

Other factors which are commonly associated with cards, such as rewards and benefits, are becoming less desirable. It’s no wonder that in many markets when a viable A2A option is presented, uptake is high. For instance, in the Netherlands, A2A payment system iDEAL is now used for over half of all ecommerce transactions.

Finally, the next wave of consumers is done with debt. A Bank of America report revealed Gen Z buyers would rather use cash than pay by credit card, and credit cards didn’t even make it into their top three preferred ways to pay.

Bringing this all together, macro trends are pointing to the rise of A2A. People care about security and convenience, and they’re starting to shun credit. So, where A2A payments are available, we’ll likely see more payers trying this method.

What this means for businesses

The rise of A2A payments is great news for merchants. On the back end, it’s more efficient than cards, with fewer intermediaries, lower costs, and fewer points of failure. But it also represents an opportunity to improve checkout effectiveness and therefore conversion.

One example to highlight is payment security. This is top of mind for both consumers and regulators, with the introduction of Strong Customer Authentication (SCA) to reduce card fraud. 

This, however, introduces more friction into the payment process with real revenue implications. We surveyed 1,900 C-level decision makers at the end of 2020 and found that 75% of businesses globally had already implemented SCA. Of those, 56% reported a decrease in conversion as a result.

A2A payments, such as those driven by Open Banking, are often SCA compliant by design. When the consumer or business initiates a one-off payment, they will be asked to log into their online banking platform to complete the transaction, providing authentication with just a few clicks. By building checkout experiences that enable consumers to pay via their mobile banking app, you get the best of both worlds – security and convenience, which ultimately increase conversion. 

Existing customers that make recurring payments also benefit from A2A. GoCardless recently introduced Instant Bank Pay, enabling merchants to take one-off, immediate payments using Open Banking, whilst still collecting recurring payments with bank debit – retaining the associated benefits including lower cost, reduced churn, and better cash flow. 

Broadband provider Cuckoo used Instant Bank Pay as part of an early access programme to collect first and ad hoc payments for new and existing customers. During the pilot, two-thirds (66%) of customers who experienced a failed payment were able to benefit from using Instant Bank Pay. Of those, 86% were able to make a payment within 48 hours, minimising disruption to their service.

All aboard the A2A train

With consumer and business trends shifting rapidly, yesterday’s payment methods are no longer suitable for today, never mind tomorrow. Increasingly, shoppers and enterprises alike are waking up to the possibility of a better customer experience, lower transaction costs, and increased efficiencies. As A2A matures both in terms of technology and widespread adoption across the world, it may well be curtains for cards.

This editorial was firstly published in our Payment Methods Report 2021 – Latest Trends in Payment Preferences, which depicts an overview of the payment methods in scope for 2021, as well as best practices for checkout optimisation and customer conversion by addressing digital transformation, security, and localisation.

About Siamac Rezaiezadeh 

Siamac is Director of Product Marketing at GoCardless, leading go-to-market activities, value proposition development, market research, and frontline sales enablement. Prior to GoCardless, Siamac launched and ran a travel marketplace, wrote a book on sales strategy and spent seven years at a SaaS startup through successful acquisition and subsequent growth as part of an NYSE-listed enterprise. 

About GoCardless

GoCardless is a global leader in Account-to-Account payments – making it easy to collect both recurring and one-off payments directly from customers’ bank accounts. We take the pain out of getting paid for 60,000+ businesses worldwide. Each year GoCardless processes over USD 20 billion of payments across more than 30 countries. GoCardless is headquartered in the UK, with additional offices in Australia, France, Germany, and the United States.

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Keywords: account-to-account payment, instant payments, money transfer, payment methods
Categories: Payments & Commerce
Countries: World
This article is part of category

Payments & Commerce