Account-to-Account (A2A) payments are growing in popularity worldwide. The biggest draw is that payments can be initiated from a customer’s bank account and sent to a merchant’s bank account, making it a seamless experience for the customer and a cost-effective method for the merchant.
In his latest report, “Global A2A Retail Payment Systems: Lessons for the U.S.” Craig Lancaster, Analyst and Content Specialist at Javelin Strategy & Research, discusses what A2A payments look like between consumers and merchants, how India and Brazil have achieved mass adoption of merchant A2A payments, and the barriers that could keep the U.S. from following suit.
What Are A2A Payments?
A2A payments, also known as direct account payments or bank-to-bank payments, are a form of payment where funds are transferred from one bank account to another, without the need for payment intermediaries.
They can be performed in two ways, as a push payment, made by the initiator of the payment, or as a pull payment, performed by the party collecting the payment.
A Closer Look at A2A Payment Transactions Between Merchants and Consumers
For merchants, A2A payments, especially along instant payment rails, can enable faster access to funds, lower fees, and more liquidity.
For consumers, A2A payments mean that the payment would clear faster in their bank account.
However, the question that looms is, although merchants can benefit from lower transaction fees and a higher profit margin, what other advantages can be had by consumers in order to drive adoption rates?
Lancaster pointed out that the drivers that motivate merchants to adopt A2A payments are not necessarily the same for consumers. Consumers by and large don’t make it a point to think about what would benefit a merchant most when they are shopping and paying for their goods and services, he said.
“Consumers need to see something in those transactions that benefit them,” Lancaster said. “A really cool interface that’s super easy to use could do that. You know, for someone who just wants faster payments, period, that would be appealing.
“It’s going be hard sledding because, at least in this country, payment habits are so ingrained. Cards rule the roost right now. And so anything new is probably going to have to chip away at the margins and try to gain a foothold.”
How India and Brazil Solidified Adoption of A2A Payments
Efforts to boost banking penetration in India have picked up speed in recent years. Lancaster noted that Indian government initiatives ensured that everyone had a bank account, basic insurance, and a smartphone. The demonetization of legal tender was another measure that the Indian government took to tackle some unsavory practices such as money laundering and drug trafficking.
Another key solution that has broadened financial inclusion in India was the creation of the Unified Payments Interface (UPI), by the National Payments Corporation of India (NPCI). It is revered as one of the most successful payment systems in the world and a tech triumph in India.
The joining of a financial-inclusion campaign, mobile numbers, and digital identities—known as the JAM trinity—helped carry out large-scale direct-benefit transfers in India. This was especially helpful during the pandemic as the Indian government pushed out assistance. The system offers access to financial services, collects demographic data on its residents, and stores resident’s mobile phone numbers for communication and performing digital transactions.
Brazil was another country that had a largely unbanked population. An instant payment platform, Pix, was created to speed up payments and transfers and boost financial inclusion.
“In Brazil with Pix, you’ve got the central Bank of Brazil that’s making a hard push,” Lancaster said. “Again, you had a really large, unbanked population that could be pulled into financial inclusion. There are definitely lessons to take from that.
“But they’re starting from a different place. They’re starting from a place that’s far less fragmented than the payments landscape in the United States.”
Sticking Points to A2A Adoption in the U.S
What are the U.S. barriers to replicating the successful mass adoption of A2A merchant payments in India and Brazil?
“In the report, we looked at in-store payment methods and online payment methods, and far and away, like by 15 percentage points and 19 percentage points, it was a swiped or chip card in stores and entered cards online.”
He also cited government mandates, such as those in India, that would meet with resistance in the United States.
“There’s some distrust of centralization. If anybody suggested demonetization of cash, it would be ugly. The Prime Minister of India said, ‘You know, there’s a shadow economy and we’re demonetizing.’ It’s hard to imagine that happening here.”
Where Do A2A Payments Go From Here?
To move the U.S. needle for A2A adoption of merchant payments, something has to be done to convince consumers that there are significant benefits to be had, Lancaster said.
“A2A payments are going to need to take some percentage points out of the columns of well-entrenched methods that are already there,” he said. “However, the report also makes it clear that there is room for this method to run, especially if it’s a simple, compelling way to pay.”
Lancaster noted that there are consumers who want faster payments, and there are payment processors who are seeing interest from merchants in deploying A2A methods. It bears watching to see how things play out, he said.
Learn more about how A2A payments could address payment issues and the barriers tied to implementing this solution within the U.S.
