Account-to-account (A2A) Payments: More Than Peer-to-peer

What is a payment anyway? In the most basic sense, a payment is the transfer of money from someone to someone else.

With cash, that’s easy. But it gets a little trickier in the digital world where cash or cards aren’t physically present in the transaction. Card-not-present (CNP) payments can be complex and expensive, which is why so many banks and financial institutions (FIs) look for ways to simplify them. 

One way to do that is through A2A payments. This article is all about how they work, use cases, benefits, and how they fit into Open Banking. Keep reading to learn more!

What are A2A Payments?

The meaning of A2A payments: transactions between two bank accounts, bypassing credit card companies and third-party payment processors.

These digital payments are simple and streamlined.

When you make a traditional card payment, the business receiving the payment has to pay an interchange fee, also known as a swipe fee.

Interchange fees average between 2% and 5% per transaction and can add up for merchants. But if businesses use A2A payments, the cost of payment acceptance is significantly lower since swipe fees aren't included.

Both businesses and consumers are shifting their expectations around payment services. Whether they're sending money or looking for a bank transfer, A2A payments are better equipped to meet the needs of everyone. 

Types of A2A Payments

There are a few different ways to use the account-to-account payment system.

P2P

The rise of these instant payments has become popular for casual money movement. Peer-to-peer, or P2P, is simply when friends use payment platforms to exchange money quickly. Platforms like Venmo, Cash App, and Zelle have become household names, revolutionizing the way individuals exchange money. 

Payer-to-Payer

Sometimes called “me-to-me” payments, payer-to-payer transactions refer to moving money between your own accounts. This also applies to businesses who move money between two accounts at two different institutions under their business umbrella. Individuals can also move money from an account at one financial institution to another at a different bank. 

C2B

Consumer-to-business (C2B) payments are when a customer buys a product or service online. For example, when someone signs up for a Netflix account or makes an online purchase, they're making a C2B payment.

B2C

Business-to-consumer (B2C) payments happen when companies pay consumers directly. For example, auto-depositing staff payroll or sending customer refunds.

B2B

Business-to-business (B2B) payments happen when one business pays another for services or products. This is common for B2B businesses that only market and sell products and services to other businesses. So, if a company buys software from another business, that's a B2B transaction.

How Do A2A Payments Work?

They can vary depending on which company is doing it, but the principle is the same. The payer will authorize the payment and agree to share secure financial data, and the money is moved. There are two ways an A2A payment can begin: “push” and “pull” payments. 

Push payments are initiated by the sender, who “pushes” funds directly into the recipient's account. For example, when a customer makes an e-commerce purchase during checkout, they’re making a push payment. Push payments happen in P2P transactions, where immediacy and control are essential. 

In comparison, pull payments are transactions where the receiver “pulls” funds from the sender’s account with their permission. Examples of pull payments include recurring payments or billing transactions.

The “push” and “pull” categories apply to every type of A2A payment. So a company can make a B2B pulling payment, or an individual can make a push P2P payment.

The Benefits of A2A Payments

The massive growth of A2A payments can be attributed to the many benefits of using A2A.

• Heightened security. The direct nature of A2A transactions significantly reduces the exposure to fraudulent activities, a concern that often plagues traditional payment methods involving multiple intermediaries. A2A uses strong customer authentication (SCA) methods like multi-factor authentication (MFA). This helps increase security for payments. 
• More payment options. A2A payment technology offers a broader spectrum of payment options, giving buyers the power of choice at checkout. Focusing on the user experience, A2A payment options allow more variety of apps and services to fit any situation.
• Convenience. A2A payments simplify the transaction process because they happen in real time without cards or cumbersome payment steps. The only requirement is a bank account. Customers simply log in via online banking and authorize the payment.
• Cost-effective. By eliminating card networks, transaction fees disappear, saving businesses money with their POS systems. Businesses can even share the cost savings with their customers to create a great user experience.‍
• Rapid processing. The rapid reconciliation and payment processing of instant payments ensures streamlined operations. Funds can reach a merchant in seconds because money doesn’t go through intermediaries. Even if it’s not instant, payments are still reconciled quicker than the traditional card process.

Open Banking & A2A Payments

A2A banking wasn't always so popular—it used to be cumbersome to use A2A payments with bank authorization. Traditional A2A payments ran on legacy bank rails, and the UX was tedious, manual, and slow. 

What changed? Open Banking. Open Banking is built on data sharing. Bank account holders give their permission to third-party fintech companies to access their account data. It's that simple.

A2A payments are a benefit of the Open Banking framework. The APIs (bank connectors) connect banks and third-party providers.

This means that buyers can pay for products/services using A2A instead of cards. It offers speed and convenience without excessive data entry or intermediaries stacking up transaction costs.

Are A2A Payments Safe? 

Understandably, one of the biggest concerns with digital wallets and payments is security. After all, if a business isn’t secure and financial information is stolen, that can harm its reputation.

Customers don’t trust companies who don’t use secure payment methods. So, are A2A payments safe? The short answer is that they are, but here are three reasons they’re secure: 

• Bank-grade security measures. A2A transactions are routed to a customer’s bank account. Ultimately, that means that the bank is handling the transaction, not the company or individual. 
• SCA. A2A payments use Strong Customer Authentication (SCA) and require authorization. Card payments require authorization, but they’re part of the transaction, which slows down the payment process. A2A SCA happens through the banking app.
• Greater control. With account-to-account payments, information is secured and protected. This allows for greater control of where the information is and who can access it. 

These three factors help make A2A payments secure, which allows businesses and consumers to feel confident when making payments.

Why A2A Payments Are Growing

A2A payments are popular — and only continuing to become more prevalent. The burgeoning popularity of A2A payments reflects the evolving demands of the financial services landscape. There’s a strong growing preference for integrated and user-centric financial solutions, and A2A payments fit the bill.

A2A also provides merchants more flexibility with Open Banking standards. By using Automated Clearing House (ACH) for payments, businesses can save money without compromising customer satisfaction.

A2A is gaining popularity in financial transactions. It can be used in many different situations, from talking with friends to making business deals.

Essentially, A2A eliminates the hassle of traditional card payments, offers more options to customers, and streamlines the payment process. Plus, there are no interchange fees. It’s no surprise that A2A payments are one of the most popular payment methods. 

The growth of A2A payments also indicates a larger trend towards digital transformation in the financial sector. More businesses and consumers are turning to digital-first solutions. A2A payments offer a modern, efficient, and secure way to handle transactions. 

The increase in mobile devices and internet connectivity propels this shift. Everyone has instant access to more online stores and their online banking information, which makes A2A payments convenient. Everyone has a phone and a bank, so everyone can make Venmo payments. A2A enables instant and accessible financial transactions for a broad demographic.

FinTech innovations have made A2A payments more popular. They provide easy-to-use platforms that fit well with users' daily routines and money management.

The Future of A2A Payments and Its Use Cases

A2A payments technology is predicted to play a significant role in the evolving financial landscape. This is because new ideas and a focus on making financial services easy to use have become important.

The technology is expected to be a crucial component in the transformation of the financial industry. It will be driven by a shift towards user-friendly solutions. In 2022, global e-commerce A2A payments reached $525 billion, showing a 13% increase from the previous year's $463 billion. This data is from the FIS Global Payments Report 2023.

In the future, consumers may not have to enter their card information. Instead, they will be directed to their banking app to approve a payment to a merchant. 

The integration of A2A payment technology with Open Banking means more personalized, secure, and efficient financial services. Merchants can process payments faster with A2A payment rails such as ACH, FedNow, or Real-Time Payment rails.

The Federal Reserve has invested in these programs to speed up the process. This will allow merchants to handle payments more efficiently. These programs have been sped up by investments from the Federal Reserve.

Open Banking Data pairing makes bank payments more secure. Merchants can quickly approve or decline global payments in real-time. This helps make transactions safer.

A2A payments have a bright future for companies in various industries, offering promise for growth and innovation. A2A payments are increasingly used in different industries. These include e-commerce, peer-to-peer transfers, government disbursements, insurance claims, and business invoice financing.

Government Disbursements

Governments send money directly to people's bank accounts using account-based payments for things like tax refunds. This eliminates the need to cut physical checks or load prepaid cards. 

Not only will the addition of A2A payments make governments more efficient, but it’s also helpful for citizens. For example, people without credit can access funds quicker than ever, thanks to A2A payment technology.

Insurance Claim Payouts

Insurers have also started utilizing A2A to pay out insurance claims proceeds. Digital payments make it easy for policyholders to get their compensation fast and securely in their bank account. This means they don't have to wait a long time for checks to arrive in the mail.

Business Invoice Financing

A2A technology is not just about convenience. It also opens up new and attractive working capital financing options for businesses, such as invoice factoring. Companies can now get paid faster by selling their unpaid invoices to a lender instead of waiting 30-90 days for payment. 

The lender gives the business a cash loan by transferring a portion of the invoice value directly into their account. Once the client pays the invoice, the lender collects the remainder. This approach can significantly improve cash flow and reduce payment cycles for businesses.

How Can You Set Up A2A Payments for Your Online Business?

Online businesses can improve conversion rates and customer experience by providing A2A transfers as a payment option.

To set up A2A payments for your business, you need a specific solution to make the transactions happen. We’ll show you how you can set up A2A payments for your business with Trustly.

Start Leveraging A2A Payment Technology with Trustly

Overall, A2A payment technology represents a significant leap forward in the realm of financial transactions. The growth of digitalization and efficiency in financial services is reflected in its development. This shows a future where financial exchanges are safer, easier to use, and more connected. 

Want to start leveraging A2A payment technology in your business? Schedule a demo to get started.