AI

A to A payments growth

Source: Panagiotis KriarisPanagiotis

Leadership | FinTech | Payments | Banking | Innovation |Leadership | FinTech | Payments | Banking | Innovation |

It’s an oxymoron, but in the era of AI moving funds from one account to another has been signaled as one of the major payments’ trends. Where’s the catch? Let’s take a look.

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Transferring funds between accounts is not a novelty, but rather one of the oldest and more basic payments’ use cases. And yet if you look at today’s increasingly complicated payments landscape, there is an entire debate going on, hooked on the principle that Account-to-Account (A2A) payments can lead the next wave of payments hashtag#innovation.

The numbers from the 2024 Global Payments Report are telling:

— A2A was in 2023 the leading hashtag#ecommerce payment method in Finland, Malaysia, The Netherlands, Nigeria, Norway, Poland, Sweden and Thailand

— In established card markets (Australia, Canada, UK, USA) A2A growth has been considerably slower

— In emerging markets (i.e. India, Brazil) A2A schemes have risen mainly due to strong government support as a means to achieve financial inclusion and promote digital payments, whereas in more advanced markets the use of A2A schemes is driven by collaborative initiatives between banks

Despite their differences, A2A schemes across the globe have one common denominator: they are all local. Interoperability is almost non-existent (Alipay+ is an exception), reflecting a plethora of challenges: different geographies, local consumer preferences, infrastructure, regulation, etc.

The rise of A2A hashtag#payments is driven by:

  1. The proliferation of real-time rails that bring novel use-cases
  2. The growth of Open Banking schemes (OB payments are by default A2A Payments)
  3. Major actors (merchants, payments players) in an increasingly digital and mobile-first FS ecosystem looking for reliable, efficient and price-competitive payment alternatives
  4. Regulation – the recently adopted Instant Payments Regulation (IPR) in Europe is a primary example

Despite all the above and the attractiveness of the model, there are 2 main challenges holding back hashtag#A2A payments and schemes from dominating, especially in card markets:

— The lack of all the bits and pieces adding value around simple payments’ transactions: chargebacks, disputes, exceptions and fraud protection. These are areas where the big schemes (i.e. Visa, Mastercard) have a competitive advantage, having spent decades optimizing them

— Loyalty schemes and premium perks (i.e. hotel credits, airline miles, discounts) funded from card interchange fees (that don’t exist in A2A set-ups) that drive card adoption

These challenges notwithstanding a significant part of the payments’ innovation is heading back to where it started from: the bank account. It’s not therefore by accident that the card networks have bought their way into the space (i.e. Mastercard has bought Finicity and Aiia and Visa has acquired Tink)