Within five years, account-to-account (A2A) payments will no longer be an “alternative” payment method, as Open Banking helps to move these payments into the mainstream, according to Token CEO Todd Clyde.
With A2A payments eliminating the need for intermediaries, given that payment moves directly from the payer’s bank to a merchant bank over a national clearing system, they have the potential to reduce friction and lower costs, he added.
Historically, wider uptake of A2A payments has been hindered by fragmented national clearing systems, meaning that it has been considered a niche alternative method.
“Merchants have been willing to pay the high cost of cards and wallets because of the unmatched reach and conversion they provide,” Clyde said.
However, Open Banking has helped A2A payments achieve greater reach.
Clyde explained: “The answer is Open Banking and the APIs that have come along with Open Banking, as these have removed the barrier of access to accounts. APIs now make it easy to consistently access the bank clearing systems on a regional – and maybe eventually a global – basis, therefore they make it really easy to embed an A2A payment at the checkout.
“Within five years, we’re no longer going to be referring to A2A payments as an alternative payment method and we’re simply going to refer to them as a broader form of digital payments.”
Andrew Steadman in the Gartner report, The Rise of Real-Time Payments said, “Real-time payments threaten Traditional Payment Methods”, and “the role of open banking initiatives has to be considered too, as nonbanking providers are able to initiate payments that are frequently combined as part of an offering that addresses a customer need.”
He added that request-to-pay initiatives in the UK and Europe will further accelerate the shift from cards to bank transfers.
Token’s Clyde added that there has been much hype and expectation surrounding account-to-account payments, and cited several reports which forecast their move into the mainstream.
According to the Worldpay Global Payments Report 2020, account-to-account payments are predicted to account for 20% of all ecommerce payments in Europe, surpassing both credit and debit cards by 2023.
In the McKinsey & Co Global Payments Report 2019, it stated that account-to-account transfer will eventually “threaten cards’ position as the main source of non-cash retail payments”.
“A2A payments will absolutely become mainstream as the costs, cash flow, and security benefits are so compelling for merchants,” Clyde added.
“Open Banking will not only create a consistent, ubiquitous method for A2A payments in Europe, but in theory globally, which would further threaten cards.”
Token has reported that its payments volume doubled every month from March through December 2020 and that this year, transaction volumes have grown 30% month over month.
Its average transaction value is over €400, which Clyde said is evidence that early adopters of these payments are merchants with high average transaction values.