Type “What is an A2A payment” into Google and you’ll find a definition that has existed for a long time.
Put simply, A2A payments move directly from one bank account to another without intermediaries, hence their full name “account-to-account payments”.
Yet recent advances in open banking technology are transforming the A2A payment industry before our eyes, with some experts calling it a potentially huge financial boon for businesses.
But what is an A2A payment in 2024 and how will it become a pivotal banking mechanism for businesses?
Let’s find out.
Want to learn more about how A2A payments can grow revenue for your business? Contact Berkeley Payments today to find out about lucrative B2B payment services.
What is an A2A payment?
We tend to think of A2A payments as bank-specific transactions, such as a direct debit or a transfer of funds from a current account.
This is still valid, but to get a more accurate present definition, we must also include non-banking online payments which include digital wallets, payment gateways, and ERP software (such as SAP, Oracle, and Sage).
A2A payments now include any type of direct payment from one user account to another, whether electronic or digital, banking or non-banking.
The rise of open finance, and open banking, is making this a big talking point in 2024 with many businesses now able to integrate financial services into their business models.
What are examples of A2A payments today?
A2A payments still fall into traditional categories, but these areas are both wider today than in previous years.
Let’s take a look at some of the most prominent examples as of recent.
Push payments
Push payments work by allowing the payer to trigger the A2A transaction. This was signing a bank form in the past, but now it typically just involves a few clicks of a button or taps of a smartphone screen.
An example of an A2A push payment right now is when someone sends a Venmo payment to their friend or pays a subscription via a mobile banking app.
In the B2B world, we are starting to see A2A push payments in areas like supplier payments and payroll processing where businesses can send funds directly to an online banking app or digital wallet.
Recipients can also use APIs (Application Programming Interfaces) to prompt senders into activating the push payments via notifications.
Pull payments
A pull payment is when the recipient, or payee, requests or draws the money from the sender’s account.
In 2013, for example, this was just a direct debit payment that a company set up (with your authorization) but what is an A2A payment debit now?
Well in 2024, it might be a supplier requesting funds via an automated billing system like Quickbooks or Xero, or it might involve a recipient initiating a transaction via a secure online portal or mobile app.
With technological advances, push-and-pull payment options will become more sophisticated and versatile, as will the payment rails that they operate on.
What is an A2A payment rail?
A payment rail is a network that enables the movement of A2A payments between bank accounts.
There’s currently no unified global payment rail, but national networks instead, many of which have been around for decades. The United States has the Automated Clearing House (ACH), for example, while Canada has the Automated Clearing Settlement System (ACSS).
Rapid advances in real-time payments (RTP), primarily via fintech, has prompted many countries to heavily invest in their payment rails to get them up to speed.
FedNow is one example. Launched by the US Federal reserve in July 2023, it allows people and businesses to send instant payments to another account, without the delays traditional banking is famous for. Canada has also set up an equivalent system called the Real-Time Rail.
Both of these rails allow providers to build products on top of their infrastructure, which, with the rise of open banking, Is expected to lead to a new era of digital payments.
Why are A2A payments important in the B2B industry today?
We all know about the benefits of customer-to-customer (C2C) services like Venmo and Zelle where users can send A2A transfers with the tap of a screen, but this has yet to translate fully to the business world.
Yet, this type of A2A payment is set to revolutionize business payment systems over the next few years, thanks to advances in open banking technology.
Open banking allows banks and different financial institutions to share customer data securely (and with consent) with third-party providers via APIs. With this access, providers can create innovative embedded B2B financial services like automated bank transfers and A2A payments.
Now, instead of paying with debit or credit cards, customers and businesses can directly transfer funds into a business’s account.
The knock-on effect of this capability is going to be transformative. Businesses will benefit from:
- Huge savings in merchant fees and card transaction costs
- Instant B2B transfers with no need for payment processing or sending limits
- Streamlined cross-border bank payments which will boost international trade.
Businesses will also be able to use digital wallets to send and receive day-to-day payments, further boosting efficiency and cash flow.
What providers are using A2A payments?
Open banking has opened the door for all kinds of businesses to offer A2A payments, not just financial institutions.
These might include an e-commerce retailer, for example, that offers one-click payments to quicken the checkout process. Another use case could be a business loading funds onto prepaid debit cards as an employee reward for good performance.
This increase in options has led to more service providers that help businesses set up and manage A2A payment services.
Companies like Plaid help non-financial businesses set up in-house A2A payment products, ranging from personal finance apps to crypto wallets. These forms of embedded finance help the company innovate behind its usual limits and expand its product offerings.
Berkeley Payments is another example of a leading A2A provider. Its real-time payment platform is designed to integrate into any type of business, giving it the chance to launch its own instant money transfers and branded card payments. Berkeley’s solutions have helped scores of customers dramatically lower costs and add a long-term revenue stream in most cases.
What will A2A payments look like in five years time?
Businesses around the world are using a greater number of payment methods to pay vendors, employees, and consumers thanks to emerging technologies.
Around half of all businesses globally are already using faster payment rails to make payments, particularly in North America and Europe where RTP and SCT transfers are rising each year.
Mid-to-large North American and European businesses who use RTP and SCT transfers (2023)
Source: BYN Mellon/Datos Insights
This trend is set to continue as we approach 2030 to the point that financial institutions that are not focusing on A2A payments will be at a competitive disadvantage, as will the customers they serve.
Modernization efforts and partnerships will be vital for businesses as real-time A2A payments come to dominate the payments industry.
But what will this new wave of solutions look like?
Instant consumer-to-business (C2B) payments
Kartik Kamat is VP of Payments and Digital Banking Analytics at EQ Bank. He believes customer-to-business A2A payments will be one of the fastest-growing areas as North America and Europe catch up with the likes of Brazil and India in adopting instant payments in day-to-day operations.
“Street vendors in India now prefer to be paid directly to their digital wallets via QR codes that they put up at their stalls, and this is something that will become widespread in more developed economies”, says the CEO, “ FedNow in the US, for example, will fundamentally change the way payments happen”.
The “Amazonification” of personal finance
A surge in open finance, too, will lead to a revolution in how we manage our money.
Michelle Beyo, CEO and founder of advisory firm Finavator, has compared it to how Amazon has transformed the user experience when shopping.
“The ‘Amazon customer experience’ in personal finance is going to give us this holistic view of our finances.” states the entrepreneur. “We’ll have the ability to get a dashboard view of all our banking, savings, and investments accounts, which will save us so much time and hassle. Just think how many hours we spend logging onto different platforms and trying to build a general view of our finances! Open finance lets us have all of these in one place.”
A2A payments, including "me-to-me" transfers, will see a significant increase within this holistic framework as users frequently switch money between their and other people’s accounts.
Businesses offering these A2A payment products stand to benefit immensely from this paradigm shift and will be able to use open data security to offer iron-clad customer authentication and security measures as part of the package.
This next phase already appears to be upon us with many companies already building such products into their operations.
As we move forward, the traditional answer to the question of “what is an A2A payment?” will become increasingly outdated.
Want to know how A2A payments can become a long-term revenue stream for your business? Sign up with Berkeley Payments and find out how we easily integrate our instant payment platform into your daily operations.
