Although account-to-account (A2A) payments is not a new concept (bank transfers are already commonly used for payments), it is the addition of real-time payments (RTP) which, combined with open banking, provide A2A with a genuine opportunity to become a credible rival to the card payment rail for everyday transactions.
Financial services are undergoing a digital transformation that has seen banks move from legacy infrastructure to modern cloud-based technology, but payment rails, although evolving, largely rely on traditional card networks. The introduction of open banking allows third parties to initiate payments on behalf of consumers as a registered payment initiation service provider (PISP) and make payments directly from a bank account, potentially reducing fees for merchants, banks, and the consumer.
The future of banking services will occur at the checkout phase; for example, rather than taking out a personal loan to afford a holiday before purchasing, consumers will be offered finance options, insurance, and so on at the point-of-sale during the checkout process. We have already seen from the explosion of the “buy now, pay later” trend, fronted by the likes of Klarna and Afterpay, that consumer demand is high and there is no reason why banks can’t pivot their business model to cater for this type of overlay service.
Issuer banks are understandably reluctant to encourage consumers to adopt alternative payment methods because of the commercial interest in maintaining card revenue. However, it is clear that the legacy technology is not going to meet the needs and demands of the consumer in the future. Traditional card networks are already taking the threat of A2A seriously and have taken significant steps to reduce overreliance on card payments as a source of revenue by diversifying their payment rails with a series of strategic product launches and acquisitions (i.e., Mastercard’s purchase of Nets A2A payment business and American Express launching “Pay by Bank Transfer” in the UK).
There are signs that banks are planning for a world that no longer relies on the card network duopoly of Visa/Mastercard, with the Eurozone’s major banks starting an initiative known as PEPSI (Pan-European Payment System Initiative) which looks to implement a standalone digital payments scheme. A2A payments is one of many alternative payment methods that will rise in popularity as the shift away from card payment dominance gathers pace.
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