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Explainer: account-to-account (A2A) and open banking payments

We take a look at the specifics of what an A2A payment is and what an open banking payment is.

A2A payments and open banking payments - what is the difference?

Account-to-account, or “A2A” payments is a term that is occasionally used interchangeably with open banking payments.

The reality is a little more complex.

A2A payments is an umbrella term for any payment which moves funds directly from the payer's bank to a merchant or service provider's bank. Examples include bank transfers, direct debits, and yes, open banking payments.

This is distinct from card, BNPL and wallet payments, which have intermediaries (such as card schemes or BNPL/wallet providers) involved in the payment flow.

So while open banking payments are indeed an A2A payment, not all A2A payments are open banking payments.

Therefore, if you are a business or merchant discussing A2A payments with a payments technology partner, it is worth clarifying what type or A2A payment your provider is specifically referring to.

The advantages of open banking payments

Now that we have clarified what an A2A payment is, here are some key advantages of open banking payments for businesses.

1. Save tens of thousands in transaction fees per month

Since there is no third party in the payment flow that needs to take a cut in the way credit card companies or other payment methods do, the cost per transaction of an open banking payment can be up to 90% lower than card, BNPL, or other payment method. At scale this, adds up to compelling cost savings – according to research from Yolt, for SME online retailers over £19,000 a month in transaction fees.

SME online retailers can save over €22,500 or £19,000 a month in transaction fees.

Yolt research

2. Provide a seamless, secure payment flow for your customers

With a shopping cart abandonment rate still nudging 70%, improving clunky payments experiences represents a significant opportunity to convert sales. Furthermore, Strong Customer Authentication (SCA) mandates have the potential to negatively impact conversion, due to more steps at the checkout.

Open banking payments redirect customers to their trusted bank environment, where they pay in their usual way with a fingerprint or facial recognition, with all payment details pre-filled for quick and easy approval. Since the customer authenticates with their bank credentials it is extremely difficult for fraudsters.

3. Sell across the EU and UK

Open banking payments is a pan-European payment method. As the barriers to trading across borders become ever lower, this payment method has the potential to become a standard across all EU and UK markets. This can potentially be of great benefit especially to smaller businesses as they look to expand with minimum investment.

4. Benefit from faster cash flow

With open banking payments, funds can be validated and transferred almost instantly anywhere in the EU or UK, no matter whether the transaction is cross-border or domestic.

Instant settlement is a huge advantage for almost any business, but especially for those with physical goods such as retailers, as it is in effect payment in advance for the goods the customer will receive.

5. Set and forget with (variable) recurring payments

If you are a utility, leasing or lending company, or a subscription-based service provider, and require your customers to pay a set or variable amount each month, a percentage will forget to pay or be unable to pay when they want to. But with open banking payments, you have the possibility to offer recurring payments – enabling your customers to automatically pay the required amount on the same day each month. This improves conversion, but also the customer experience, as it is one less task that your customers need to take care of.

Open banking payments could be the catalyst for mass adoption of A2A payments

Historically, different countries and regions operate their own A2A payment rails, with varying rules and regulations. Some of these – such as iDEAL in the Netherlands – have worked well in domestic markets but not well across borders, which is a significant problem in a rapidly globalising world. Furthermore, some A2A payment options have been slow and not authorised or guaranteed upfront. Speed and reach are critical for merchants, and many have been willing to pay the higher costs of cards and wallets because they have provided these advantages.

But open banking payments changes this narrative across the EU and UK. Customer experience, speed, reliability, reach, security, AND cost effectiveness are now within grasp. In the UK, for example, successful payments made using Open Banking providers increased from 280,000 in July 2020, to 1.8 million in June 2021 – and by many accounts, this trend of open banking payments mass adoption set to accelerate in coming years.

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