WhiteSight

2023 Roundup: Transforming Transactions with A2A Payments

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No More Hoops: A2A Payments Unleashed with Open Banking

“Hi, you’ve reached our customer service, please wait while we connect you to an available executive”.

“It looks like your query is handled by another department at our firm. Please wait while we transfer your call to the concerned department”.

“Sorry, it looks like we’re going to have to transfer your call to our supervisor so that they can resolve your issue”.

Yeah, we’ve all been there – having felt the frustration of calling customer service, only to be shuffled around like a deck of cards between support teams before reaching the desired person. Now imagine the same thing happening with your transactions, where multiple intermediaries like payment gateways, orchestrators, processors, and networks are involved each time you swipe your card at a merchant outlet, website, or app. Although these intermediaries ensure the process is seamless and instant for consumers, they not only charge merchants a fee for their services but also often cause a delay in funds settlements.  

This is where account-to-account (A2A) payments come in, enabling a financial world where your money doesn’t have to endure such bureaucratic back-and-forth. Simply put, A2A payments (or bank-to-bank payments) are used to directly transfer money from one bank account to another bank account without the friction of any additional payment intermediaries. No more detours, no more elevator music while you’re on hold – just a seamless, direct connection for instant and low-cost payments. 

A2A payments have been the backbone of our economy for decades, especially essential in sidestepping the hassles of the payment card system. Traditional A2A systems used legacy banking rails leading to prolonged transaction processing times. They also required consumers to jump several hoops such as logging in, manually entering beneficiary details, and enduring a cooling-off period before transactions could be initiated. So, what’s different now?

Two words: Open Banking.

Open banking has significantly propelled the growth of A2A payments, acting as a strong driving force. It has revolutionised A2A payments, making them more user-friendly (allowing consumers to initiate payments through third-party apps with Strong Customer Authentication) and merchant-friendly (enabling seamless embedding of payments into merchant and checkout platforms). Open banking-powered A2A payments have also been given new monikers. In the UK/EU, they are most commonly known as Payment Initiation Services, while in the US, they are referred to as Pay-by-Bank.

Powerhouse Moves in Open Banking A2A Payments

When payers opt for Payment Initiation Services or ‘Pay-by-Bank’, they leverage the services of regulated payment initiation platforms that are authorised to initiate payments on consumers’ behalf. The payment process involves authentication by the payer’s bank, using credentials like biometrics or two-factor authentication. According to Juniper Research, the total number of open banking-enabled A2A payments is anticipated to soar to over 6.5 billion payments valued at over $334B in 2027.

Initially popular for more business-to-business (B2B) or peer-to-peer (P2P) use cases, today A2A payments are gaining traction among consumer-to-business (C2B) models. In 2023, the fintech landscape witnessed a surge in Pay-by-Bank initiatives and advancements in A2A payments via open banking. Key players making waves included payment processors, networks, merchant platforms embedding A2A payments, and a handful of neobanks and infrastructure players joining the fray:

  • Adyen teamed up with Plaid to announce its Pay-by-Bank services in North America, ensuring a seamless and cost-efficient solution for businesses and end-consumers alike.
  • Arab Financial Services appointed Brankas to create direct bank integrations to allow for account-to-account payments in the MENA region. (P.S. We recently collaborated with this dynamic duo to demystify how open banking is reshaping finance in the Middle East region. Check out the full report here).
  • J.P. Morgan rolled out its Mastercard-powered pay-by-bank solution, providing billers with the ability to allow their customers to pay bills directly from their bank account.
  • Shopify partnered with Volt to allow merchants in Europe, the UK, and Brazil to offer Volt’s Pay by Bank solution at checkout, letting customers initiate real-time A2A payments.
  • Waave collaborated with Gr4vy to initiate their Pay by Bank solution across major retail outlets throughout Australia, elevating the payment experience for consumers while also helping retailers optimise transaction costs and enhance payment security.

The adoption of open banking-enabled A2A payments benefits various stakeholders involved in the payment chain. Consumers enjoy auto-fill onboarding forms and instant biometric authentication via seamless app-to-app redirection. Businesses experience near-instant settlements, improved cash flow, and cost-effective reconciliation. Banks, too, find new revenue streams, gain a unified view for credit assessments, and strengthen relationships with consumers and corporates, offering more value-add services.

The VIPs of A2A Payments: Variable Recurring Payments

🎵 Can you pay my bills? Can you pay my telephone bills? 🎵

🎵 Can you pay my bills? Can you pay my telephone bills? 🎵

Well, Variable Recurring Payments (VRPs) said yes.

A2A aren’t the only three letters heating up the open finance and payments scene, we’ve got VRPs creating quite the buzz in the industry. Popular in the UK and the EU, these payments bring in the era of long-lasting consent, reducing the hassle of constant approvals. What makes them stand out? While your funds move across the existing A2A infrastructure, you grant ongoing consent for variable amounts initiated over time.

While VRPs have begun to garner significant attention from banks, merchants, payment service providers, and infrastructure players worldwide, 2023 saw a majority of the collaborative movement for the initiative in the EU and UK:

  • Tink joined the UK’s Joint Regulatory Oversight Committee (JROC)’s new working groups on VRP, with the goal of creating a framework that fosters a faster and smoother partnership between banks.
  • Plend partnered with GoCardless to offer VRPs via the latter’s Instant Bank Pay feature, aiming to provide customers with increased flexibility over loan repayments.
  • Lendable implemented variable recurring payments by integrating TrueLayer’s Account Information Services (AIS) and VRP products into its financial ecosystem, specifically focusing on making personal loans more accessible. TrueLayer also reached the milestone of processing 1 million VRP transactions in a single month.

VRPs are making waves in the fintech world because they offer a safer and cheaper alternative to direct debits and card payments. The key? No need for businesses to handle or store sensitive card data, making them less susceptible to data breaches. Plus, businesses also avoid compliance hassles as they don’t store sensitive card information.

Open Banking's Next Act in Crafting Futuristic Financial Experiences

In 2023, collaborations in the open banking world boomed, pushing VRP and Pay-by-Bank into the limelight. However, regulatory mandates elsewhere except the UK currently lack a clear directive for banks to embrace VRPs. Now, the spotlight shifts to how banks and the industry at large navigate evolving regulations and monetisation opportunities, particularly in VRPs. The real excitement lies in leveraging open banking to pioneer groundbreaking financial products and services for consumers and merchants. For the year ahead, the stage is set for creating brand-new digital payment experiences, leveraging modern authentication tech, and instant payment rails.

Authors

Senior Branding Associate

Kshitija is a senior branding associate at WhiteSight, crafting branding strategies and fintech content. When she's not conjuring up new ideas for the company, you can find her dabbling in new hobbies and documenting her experiences through writing and short films.

Founder & CEO | sanjeev@whitesight.net

Sanjeev is a fintech aficionado who loves to explore the depths of the industry as much as he loves to explore the depths of the ocean in his scuba gear. He is the founder and CEO at WhiteSight, bringing a wealth of research and advisory experience to the fintech world.

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