Why A2A Payments Are Gaining Momentum and Catching Attention of Merchants
Finding more cost-effective and beneficial payment methods has always been a priority for many governments and private companies. While payment cards like Visa and Mastercard are very convenient and widely used globally, this payment method has a significant drawback — the cost, which increases every year and forces merchants to pay more for the same service.
Cryptocurrency has indeed become a real alternative to card payments recently, but not everyone has adapted to this new technology yet. Moreover, it is not always applicable in daily payments as it is not accepted everywhere. Many countries outright prohibit its use as a payment method. The second cost-effective and efficient option is Account-to-Account (A2A) payments — direct transfers between accounts in traditional currencies. Although this is not a new payment method — quite the opposite, it is very old — modern technologies have now given it the potential to become the number one choice again.
Let's understand what A2A payments are and how they are already changing payment habits right before our eyes.
How A2A Payments Work
Account-to-Account (A2A) payments are direct transfers of funds between two bank accounts without intermediaries. Payment systems and card brands are not involved in this process.
A2A payments (also known as Pay by Bank) can be considered as actual fund transfer operations. This includes both domestic and international payments made through local or international payment systems. It is important to note that A2A payments are not the same as open banking, which we have previously discussed on our blog, but they are closely related.
Open banking is a set of regulatory requirements (such as Payment Services Directive PSD2 in Europe) and technologies that allow banks and other financial institutions to securely share customers' financial data (with their explicit consent) with licensed third-party service providers (Third-Party Providers, TPPs). Thus, an open banking payment always involves several parties: payment initiation services, services storing customer data (the TPPs), customers, and technical companies. Together, they enable the processing of payments and provide a more pleasant payment experience for the customer. This is why we have all come to love open banking.
Well, open banking technology has essentially given new life to A2A payments. Since open banking introduced the infrastructure and set of rules that allow for the secure exchange of financial data and the initiation of actions (including payments, but not limited to them) in real-time. In turn, A2A payments have become those very actions, a specific type of payment that can be carried out according to the rules of this technology.
There are two types of A2A payments:
- Push Payments: Used for one-time transfers of specific amounts, as they require customers to manually send money. An example of this is a bank transfer or instant payment. APIs can also be used to initiate push payments by sending notifications or prompts to customers.
- Pull Payments: This process involves merchants withdrawing or "pulling" money from customers' accounts. This type of payment is usually used by companies with subscription services and requires prior consent from the customer for recurring payments.
So why is everyone talking about A2A payments today, and more importantly, why should you know about them? Thanks to investments in new and existing payment systems, open banking, and changes in consumer behavior post-pandemic, there has been a literal revival of A2A payments. This gives them the potential to displace card payments as the preferred payment method for consumers.
In the past, A2A payments struggled to compete with other payment methods because of their complexity. Manual bank transfers required payers to log into online banking for each payment, and recurring payments meant having to fill out a long payment form again. Errors in payment details also often took place during this process, turning the payment experience into negative event. There was also a fragmented user experience, as all banking applications had their own features and requirements for customers to make successful payments. Overall, such manual payments did not offer any significant advantages over using cards, and as a result, businesses had to put up with high card processing fees and delays in the settlement of accumulated funds. Since customers chose the more convenient method — card acquiring.
However, open banking has helped breathe new life and new technologies into A2A payments. We are sure you have heard about open banking many times and may even process payments with this method. Over the past few years, many companies providing services in this area have emerged, such as Noda, Volt, Yaspa, and others. All this has become possible thanks to significant updates in technology and the automation of many procedures that previously seemed too complex and cumbersome.
Advantages of A2A Payments and Open Banking
A2A payments through open banking provide several key advantages for businesses and customers. We have already touched on some of them, but let's delve into this point in more detail.
Among them:
- Cost: A2A payments through open banking are usually cheaper than credit cards. Since they operate independently of expensive card networks like Visa and Mastercard. Direct savings on fees allow payment systems to sell such solutions cheaper, and merchants, of course, save on processing costs.
- Customer Control: With A2A payments, customers have more control as they can see their authorizations in their online banking dashboard or mobile app and can stop automatic payments at any time. Compared to cards and non-open (manual) bank payments, open banking provides faster and smoother AML checks, giving customers an easy and hassle-free experience.
- Speed: Transfers happen almost in real-time, thanks to separate payment rails created for this payment method. Additionally, merchants can access funds immediately, which helps maintain cash flow, whereas with card processing, funds will reach merchant's bank account weeks after the transaction date. Here, payments are tracked immediately, and there is no need to wait and reconcile them later.
- Security: This payment method reduces the risk of fraud through strict customer authentication, as payer authorization is always required. It is important to note that A2A payments do not store user credentials or passwords, providing a more secure and reliable experience. Customers simply provide one-time access to their data to make a payment. Additionally, there is a lower risk of chargebacks, which is always present in card payments. Thanks to a quality and widely accepted identity verification system, all parties can be fully confident that the customer is making the payment and agrees to it.
Considering all these advantages, we can say that open banking and new A2A payments are beneficial for all participants in payment process: both customers and merchants. For customers, it is convenient, fast, and high-quality, and for merchants, it is cheaper and provides instant access to funds.
The main examples of successful implementation of open banking and A2A payments include UPI in India, PIX in Brazil, PayShap in South Africa, and even BLIK in Poland. Adaptation of this technology in the world is constantly growing, and it only confirms its real market value and the prospect of displacing cards from customer baskets. Card payments are constantly becoming more expensive, causing growing concern among many market participants. In the EU and the USA, there have been attempts for several years to regulate this market. Governments are trying to pressure monopolistic payment systems Visa and Mastercard to prevent them from raising fees and taking advantage of their favorable position. In the meantime, the market is striving to create competition for traditional card systems, and thanks to open banking, this is really happening.
Monoup has significant experience in connecting payment systems to various businesses, and if you are looking for open banking or even card payments for your project, we are ready to help you with the launch. Contact us for consultation and our services using email or Telegram.
