The deployment of Open Banking enables account-to-account payments, based on the usage of the PSD2 banking APIs, to grow in popularity. According to our evaluation, Account-to-Account payments (A2A) are predicted to cover around 30 % of all e-commerce payment in Europe within the next five years. But what benefits does this new payment method offer to consumers and merchants compared to traditional payment methods?
A2A payments are nothing new. Transferring money electronically from one bank account to another has been the backbone of the economy for many years. Merchants and consumers rely daily on SEPA credit transfers or SEPA direct debits to make and accept payments. But: through PSD2 and Instant Payments (SCT Inst), this payment method has a genuine opportunity to become a viable alternative to traditional card payments.
Foremost, both merchants and consumers will need to understand how to take advantage of this new payment method. There are various reasons for A2A to grow in popularity. For both merchants and consumers (or payers and payees), account-to-account payments provide an improved user experience and higher security against fraud compared to traditional physical cards. In addition, merchants can expect significantly lower fees and a faster payment reconciliation than card-based alternatives.
Let’s discover some of these advantages in more detail:
1) Improved Security
Account-to-Account payments are easy to initiate, but this also may result in some security concerns. Using the Open Banking strong customer authentication (SCA) methods, A2A easily fulfills the PSD2 requirements and furthermore uses the well-established SCA method the consumers are familiar with from their online banking. Here, the concept of SCA means that consumers must authenticate themselves by providing 2 of 3 independent authentication factors– knowledge, possession and inherence in order to authorize a payment. Thus, the usage of the consumer’s mobile phone and the known banking app to perform this authentication step (e.g. with biometrical authentication) makes this payment method very secure and convenient. With this approach no payment detail is stored, as was previously the case with the payment card data. This reduces the risk of fraud. Furthermore, this step also proves that the consumer is the owner of the account provided, which was never granted in case of the simple IBAN or PAN provision.
2) Convenient user experience
Merchants accepting Account-to-Account payments enable consumers to pay instantly at the POS (Point of Sale) with secure QR code or in the web shop by using their mobile device. Also the consumer has more control over his/her spending and the availability of funds, because the account balance can be displayed in the merchant app before and after the purchase. Furthermore, the consumer can make use of some additional services provided within a merchant app like product information, loyalty, shopping lists, and special discounts. So the payment becomes just the last step in a seamless shopping experiences for the consumers.
3) Cost reduction
Account-to-Account payments are initiated through PSD2 bank APIs without interchange or scheme fees. Therefore, A2A can be up to 80% cheaper than card payments for merchants (depending on the shopping cart value). Thus, especially merchants with higher shopping cart values will benefit most. The typical A2A processing fees will be a fixed transaction fee, which is independent from the payable amount. Consumers could also benefit from these lower costs, as the merchant may pass some of the savings to the consumer as a kind of kickback or consumer incentive.
4) Faster reconciliation
The combination of Instant Payments and Account-to-Account payments brings another major advantage to the merchants. The funds transferred from the consumer’s account to the merchant’s account will be available immediately. But even in the non-instant SEPA world, the reconciliation can be expected much faster than in the card world. The A2A solution provides additional tools to manage this real time payment confirmation also to support back-office processes like refunds. Here, the merchant will have the possibility to execute real-time refunds even as bulk payments, leveraging the functionality of A2A.
In the future of payments, instant and A2A will definitely play a significant role. However, as great as it sounds, there are also still some challenges for Account-to-Account payments to be solved before it becomes mainstream. In one of our next blogs we will highlight the challenges. Stay tuned!
For more information please visit Account-Based Payments | Worldline