Account-to-account payments have been around for a long time, traditionally used to schedule recurring bills. However, Open Banking has brought about new opportunities that are reshaping the potential of A2A, and making it more popular than ever. Whether you have heard about A2A payments before or are new to this designation, it is worth knowing a little bit about this payment type. In this article, we explain what are A2A payments, the different types of A2A payments, their benefits and how they have changed in the last few years.
Account-to-account (A2A) payments are payments sent directly from the payer’s to the payee’s account through instant payment networks. This type of payment doesn’t require intermediaries or payment instruments such as bank cards. Traditionally, these are considered bank-to-bank payments and have been around for a long time. However, the term A2A now includes not only transfers between bank accounts, but also between digital wallets.
There are two main types of A2A payments: Push and Pull. Their differences are based on who triggers the payment. Let’s check:
Push payments are one-off payments sent directly from the payer. The payer is “pushing” money from their bank account to another account, so the action is triggered by the payer. This could be a bank transfer, invoice payment or instant payment. It is typically used for Peer-to-Peer (P2P) transactions (sending money between friends), but it can also be used for customers to pay directly to a company, or even for companies to pay payroll direct deposits to their employees.
In pull payments, the payee “pulls” the money out of the payer’s account. These are typically recurring payments and are common for businesses with subscription models. Customers agree to be charged on an ongoing, recurring basis until they decide to end the contract. Once the agreement has been made, customer don’t need to manually send any payments- the money is automatically pulled from their accounts on the agreed date.
Open Banking refers to a series of reforms in the banking industry that promote interoperability between financial services institutions and other third-parties. It involves the sharing of data between different companies via APIs (Application Programme Interfaces). These APIs enable software applications to connect to each other and exchange data, making it easier for companies to access information and improve user experience.
When applied to A2A payments, Open Banking enables consumers to pay to other accounts at the point of purchase, much like card payments. Because customers can make an A2A payment through the banking app they already use, they won’t need to insert extra information, making the process seamless and fast. Aside from their banking app, customers can also use their digital wallets to make A2A payments. Digital wallets have become increasingly popular across the globe, mostly for being more convenient than traditional cards. Customers can also use A2A payments for any regular subscription, bill or purchase.
Powered by Open Banking and the numerous opportunities it raises, A2A have great advantages for both customers and merchants. Here are some of these advantages:
Customer can make a A2A payment without needing to add extra personal information or card details. A2A payments are also direct and require no intermediaries, making it much faster and easier to transfer money. This translates into a frictionless payment experience for customers, who are already expecting a fast and effective experience when paying out.
A2A payments are processed through national clearing systems, such as the BACS system in the UK. Because there are no other players involved in the payment processing, such as gateways and PSPs, A2A payments incur less fees than, for example, card payments. The inexpensiveness of A2A payments are a great advantage for merchants, who can lower their costs and keep a higher percentage of their sales.
Customer demand has shifted towards more convenient alternatives. In the UK, over two-thirds of adults used online banking for their regular banking activities in 2020 (UK Finance report). Not only are customers looking for less time-consuming and simpler ways to pay, they are also increasingly concerned with security. The versatility and ease of A2A payments could meet a lot of what customers are looking for.
Imburse is a cloud-based middleware connecting large enterprises to the payments ecosystem, regardless of their existing IT infrastructure. Through a single connection to Imburse, enterprises can collect or pay out using a variety of payment technologies and providers around the globe.
In a world where consumers payment preferences and technologies are ever-evolving, Imburse works with insurers to future-proof their payment requirements. Regardless of the business area, market, or requirements, Imburse will connect you to your choice of technology and provider.
Reach out to our team below should you want to discuss how Imburse can help you. Our team is happy to show you what our platform can do for your business and offer you a free demo.