Account to account payments are set for explosive growth, writes Tim Corke, Chief Customer and Strategy Officer, Token.
Before the implementation of Open Banking, the payments landscape was firmly dominated by cards and wallets. Merchants were willing to pay the comparatively high costs associated with these methods due to their unparalleled reach and conversion rates.
The APIs that have come into play alongside Open Banking have shook things up and will change the game. They’ve unshackled the potential of account-to-account (A2A) payments, where the payment moves directly from the payer’s bank to a merchant’s bank, by removing the barriers put up by fragmented banking rails and making it easier to access bank clearing systems and embed an A2A payment at the point of purchase.
This means that merchants and service providers can now have it all. A2A payments offer unrivalled reach by covering anyone with a bank account, great conversion rates thanks to zero data entry and a smooth user journey, superb bank-grade security with regulatory checks seamlessly baked in, and, crucially, the absolute lowest cost option as there are no intermediaries.
Whilst A2A payments have already travelled a long way, what really excites me is that the momentum that’s propelling them to the mainstream is now simply unstoppable. Gartner predicts, “By 2023, over 50 per cent of B2B transactions will be performed via real-time APIs rather than traditional approaches.” So what are the forces behind this shift?
From bricks to clicks
History tells us that technology is a major driving force when it comes to guiding consumer adoption. In general, payment solutions make the journey from bricks and mortar to web-enabled services, to mobile-first solutions, and then to APIs. The API revolution has not only levelled the playing field for innovation, but has closed the gap between user expectations and reality. Only when products and services can connect and talk to each other can we deliver services that flow as easily as consumers expect them to.
Some 15 years ago, I was working at the forefront of developments in Mobile Point of Sale (now mPOS), creating solutions to enable embryonic smartphones and other smart devices to act as a ‘cash’ register to help merchants who needed to receive card payments on the go.
This was a time before ‘fintech’ really existed in the UK, and investment in financial technology was far lower than in the US. We had to work hard to convince telcos that we needed to accept payments through a mobile device, and then to try and get a banking product to move as fast as a mobile product. But I saw first-hand the progression from merchant adoption to consumer adoption as people realised the benefits of making payments on the move. Now, look at what the likes of iZettle (now Zettle by PayPal) and Square have gone on to achieve in the mPOS space by leveraging APIs.
Looking at the evolution of A2A payments through this lens, it’s clear they match the intuitive, mobile device-based, data entry-free solution that people now demand. Banking has moved beyond relationship banking, where financial institutions controlled customers in their own channels, to ecosystem banking, where companies need to meet consumers in the apps they prefer to use. A2A payments are the perfect fit.
The pandemic adds fuel to the fire
Whilst technology is the key player, the COVID-19 pandemic has supercharged the need for innovation in the payments industry. It’s made consumers more demanding. When people were locked in their homes, convenience, and instant gratification, became more and more important and this has not reduced when restrictions have eased.
Research from OBIE, for example, found that one in five Britons began using Open Banking-powered apps during lockdown, while over half (54%) now say they use them regularly. People are more willing than ever to share their bank account data in exchange for a valuable product or service. It’s fair to say that with limited face-to-face interaction, and a greater need to manage finances, the pandemic has made us very familiar with completing transactions digitally – and this includes payments.
Money is the most sensitive aspect of daily life for most people, and it, therefore, follows that they will welcome a new payment method that reduces the human interaction they may find awkward or embarrassing. Debt repayments are one of Token’s fastest-growing use cases for A2A payments, which tells us that consumers have an appetite for the security and familiarity they offer – and it’s interesting to note that in the UK, one in four credit cards can now be paid off using an A2A payment.
As consumer familiarity and confidence with Open Banking payments grows, I expect the wider fintech explosion to also fuel the unstoppable momentum of A2A payments. With people increasingly turning to challenger banks and other fintech providers, or trading stocks and crypto, they need to first load their accounts and I believe the primary method will be an Open Banking-enabled A2A payment, thanks to its ease and convenience. We’ve seen this with Rewire, which provides cross-border banking solutions and ensures migrants’ financial inclusion, and which uses Token to fund the first leg of its customers’ remittance payments.
Moving forward, there’s a huge cause for optimism when it comes to A2A payments and a strong sense the momentum will continue to build in line with use cases and consumer appetite. The fact that a single API makes it easy, and fast, to embed bank transfers within a purchase removes friction for consumers, delights merchants and service providers, and presents a credible challenge to the dominance of cards.
Tim Corke, Chief Customer and Strategy Officer, Token. The views and opinions expressed are not necessarily those of AltFi.