06 October 2022, 7:39 (CEST)

PAYMENT TREND ACCOUNT-TO-ACCOUNT PAYMENTS

A deep dive into the new world of payments

Payments are becoming increasingly cashless and cardless. Given the role digitisation plays in the financial lives of more and more of the world’s population, electronic payments are at the epicentre of this transformation. PWC¹ considers this reshaping to involve two parallel trends: an evolution of the front- and back-end parts of the payment system (instant payments, account-to-account payments), and a revolution involving huge structural changes to the payments ecosystem (emergence of cryptocurrencies and BNPL offerings).
This leaves many merchants trying to figure out which payment methods are right for them. Our latest guide provides a deep dive into account-to-account payments, including the benefits and why this trend is evolving.

What are account-to-account payments?

Account-to-account (A2A) payments directly transfer money from one account to another. They are not new. Certain types, such as direct debits, are a familiar, long-established and widely trusted method of account-to-account payments. Yet today, Open Banking and real-time payment networks have turned this method into a fully-fledged rival to debit and credit cards. To set up account-to-account payments, merchants can either use a Payment Service Provider (PSP) or go directly to an account-to-account payment provider.
There are two types of A2A payments - push payments and pull payments:

PUSH PAYMENTS	PULL PAYMENTS
Normally used to transfer one-off payments - they require customers to manually send or ‘push’ payments to you (e.g. bank transfers).	Normally used when businesses withdraw or ‘pull’ money from customers’ accounts.
APIs can also be used to trigger push payments by sending customers notification prompts.	This type of payment is often used by businesses with recurring payment models (e.g. subscriptions, insurance, etc.).

There are big advantages of account-to-account payments. But what are the benefits for both merchants, consumers, and PSPs? Read on and we’ll explain.

The benefits of A2A payments

#1: Benefits for merchants

Merchant costs are rising. Credit card fees are much higher than they once were – an issue not set to resolve itself anytime soon. That’s why account-based payments are very attractive to merchants. They can enjoy lower costs and faster, irrevocable settlement that removes the need for card networks.
In addition, they significantly reduce the amount of manual work required. And they improve cash flow. One of the keys to speeding up growth in an expanding business is making sure you are on top of your cash flow. Speed is important when you need to bring cash in and account-to-account payments are much quicker to receive.

#2: Benefits for consumers

An account-to-account payment solution helps consumers with ease and simplicity, hence why nine in 10 consumers² use direct debits to pay for some or all of their regular bills.Not only are A2A payments convenient, but they are also faster and safer. Customers will easily switch their allegiance to a new company if it is easier to deal with and gives them the functionality, speed, and convenience they need.

#3: Benefits for PSPs

Partnering with an A2A provider enables PSPs to add another revenue stream to their existing services. Easily implemented via APIs, PSPs can use a white-label account-to-account payments service to offer their customers this growing payment method. Also, the cost-effectiveness of A2A payments compared to cards and other alternative payment methods will help drive a more significant margin for PSPs – especially as they bring value-added services on top, like reconciliation and reporting.

What’s actually behind the trend?

Until recently, merchants had little choice but to put up with the high intermediary fees of card providers. But a tipping point occurred in November 2021, when Amazon first considered not accepting certain credit cards – a year after the cost of card payments for merchants increased globally by 18% to £1.3 billion.³ Not only are account-to-account payments good for merchants. Consumers value them too.
A recent survey found⁴ that more than half of consumers would be willing to pay account-to-account if given the choice. The same survey also noted that a third of consumers said that a trusted brand would encourage them to use A2A instead of cards. Interestingly, industry peers such as payments giant Worldline also flagged A2A as one of its “megatrends” for the coming year.
Similarly, PWC says that the parallel trends of evolution in payment systems (e.g. account-to-account payments) and structural changes in the payments ecosystems. Respected industry leaders also point in this direction.⁵ Anders la Cour, the CEO of Banking Circle, says that alternative payment mechanisms could actually revolutionise the way payments are done in Europe and we think he is spot on.

Implications for merchants and PSPs

If we are reaching the peak of credit cards, we believe the rise of account to account is only just starting. Understanding this new trend is crucial for merchants, PSPs, InsureTech and other businesses to be able to future-proof payment processes. These businesses need to work with account-to-account payment providers to help them deal with a world in which digital payments are proliferating. Merchants and PSPs might need to consider white-label A2A offerings that position them more effectively as a trusted provider.

Wrap-up

The rise of alternative payment methods, such as account-to-account payments are putting plastic cards’ dominance at risk. The fact is, card payments were never really made for today’s digital world. They’re great as a point-of-sale payment method and have been reworked for the online space. There’s a move by merchants to accept alternative payment methods because it’s cheaper for them. Merchants are often paying anything up to 3% of transactions, not to mention the costs of chargebacks and other contingent costs of accepting cards. Account-to-account payments are cheaper and easier for merchants. That’s really going to help merchants both big and small with today’s cash flow challenges.
To find out more about account-to-account payments, get in touch today.

¹PwC Global. Payments 2025 & beyond: Navigating the payments matrix. Charting a course amid evolution and revolution. [online]
https://www.pwc.com/gx/en/industries/financial-services/publications/financial-services-in-2025/payments-in-2025.html [12.08.2022]

²British Retail Consortium (BRC): Cards now account for more than four in every five pounds spent. [online]
https://brc.org.uk/news/corporate-affairs/cards-now-account-for-more-than-four-in-every-five-pounds-spent/ [12.08.2022]

³Open Banking Excellence – Hanrahan, Brian: Open Banking is transforming retail. [online]
https://www.openbankingexcellence.org/blog/open-banking-is-transforming-retail/ [12.08.2022]

⁴UK Finance : UK Payment Markets Summary 2021. [online]
https://www.ukfinance.org.uk/sites/default/files/uploads/SUMMARY-UK-Payment-Markets-2021-FINAL.pdf [12.08.2022]

⁵PwC Global. Payments 2025 & beyond: Navigating the payments matrix. Charting a course amid evolution and revolution. [online]
https://www.pwc.com/gx/en/industries/financial-services/publications/financial [12.08.2022]

PAYMENT TREND ACCOUNT-TO-ACCOUNT PAYMENTS

A deep dive into the new world of payments

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What are account-to-account payments?