Account-to-account (A2A) payments are emerging as a disruptive force in the global financial ecosystem. As this payment method gains traction worldwide together with open finance and instant payment initiatives, it is essential to understand the evolving trends and their potential impact on various regions, including Latin America.
What if the only thing your user needed to do an online payment was their bank account? That’s the promise of open finance (or open banking) payments, a type of account-to-account (A2A) payment where the funds go directly from the payers’ bank account to the recipient’s bank account, with no intermediaries.
This new model was discussed during one of the panels of Open Views 23, the online event around open finance held by Belvo. Jesper Henriksson, VP of Corp Dev & New Markets at Tink, Andres Suay, VP of Marketing at Trustly and Paiak Vaid, VP of Global Partnerships at Truelayer joined Belvo co-founder, Uri Tintoré, to share their views on why the adoption of this new type of payment is growing worldwide and how it competes with other traditional systems like credit cards.
The benefits of ‘pay with your bank’
“For a payment method to reach real adoption, you need all stores to be aligned”, explained Jesper Henriksson, from Tink. In the case of open banking payments – sometimes referred to as “pay by bank” methods – they bring benefits for the whole ecosystem:
- For end-users, it means having a great payment experience that is fast, reliable and familiar – since it works like a typical transfer that everyone knows.
- For merchants, its low cost, low friction, low fraud, typically instant, and wide coverage, primarily available to every customer that has a bank account.
- For banks, it means the potential to track new customers and revenue streams.
- For central banks and authorities, A2A payments foster financial inclusion and the move from cash to digital payments
The appeal of these new payments has not gone unnoticed for the market: Juniper Research estimates open banking payments transaction values will exceed $330bn globally by 2027—up from the projected $57bn in 2023.
But what are the main drivers for its growth? “Now we have key enablers like technology and regulation coming in place to make these benefits true and alive. And that has accelerated investments in this space in recent years,” added Henriksson.
Key enablers for A2A payments growth
On the one hand, companies building the “underlying pipes” for these payments have grown and received more investment globally, as well as in Latin America. But on the other hand, governments have also put additional efforts into building real-time payment rails that are key for these types of payments to flourish: that’s the case of Pix in Brazil, and also could soon be the case in Colombia, where the government is discussing the creation of a similar system together with its recently approved open finance legislation.
“There’s a conversion of multiple regulation and technology parallel tracks that will lead to the adoption of account to account more more broadly or globally”Andres Suay, VP of Marketing at Trustly
As a consequence of all of this, “companies are now realizing that being in the forefront of driving pay by bank adoption can be a competitive advantage for them,” explained Henriksson.
In the end, according to Paiak Vaid, from Truelayer, the success and adoption of a new payment method for merchants come down to three factors: conversion, settlement times, and protection against fraud. “The faster we can settle a merchant, the more efficient their operations become and therefore the more value they put on it,” he said.
In the case of A2A payments through a payment rail like Pix, open finance allows companies to increase conversion rates, thanks to a flow that reduces the steps to consolidate a payment and includes automatic redirects to the customer’s banking app.
Latin America, an optimal breeding ground for A2A payments
While account-to-account (A2A) payments have long existed in some shape or form, they’re taking off today when executed over real-time payment rails thanks to open banking models.
Globally, A2A e-commerce payments accounted for nearly US$525 billion in transaction volume and they are projected to grow at 13% annual growth rate until 2026. At the same time, the use of credit card payments for e-com is expected to decline globally in the next 3 years, according to a report by FIS.
In Latin America, the share in e-commerce is expected to account for 22% by 2026. And this growth is expected to continue, with account-to-account payments projected to grow regionally at a CAGR of also 22% between 2022 and 2026, almost double compared to the growth rate globally.
What makes Latin America an optimal breeding ground for these new payment methods? As Pablo Viguera, co-CEO and cofounder of Belvo explained during another Open Views 23 panel: “The region has some of the highest interchange fees for credit card payments globally. There are high levels of payment-related fraud and now, there is the existence and availability of real-time payment rails set up by central banks to allow the transfer of funds.”
Looking at the future of A2A payments
So, what can we expect in the next years for the evolution of these payments? The experts agreed that account-to-account payments will continue on the trajectory they are already on, with incremental improvements in the payment experience, payment flows, and increased adoption.
There is also excitement about the potential expansion of account-to-account payments from online to physical point of sale. “The idea of tapping to pay with a bank transfer under the hood has significant potential for high-frequency retailers and public transport,” said Jesper Henriksson.
The evolution of payment methods will also increasingly involve competing with and displacing less efficient payment methods.
“Over time, the alternative payment methods being replaced become harder to displace, and the competition shifts to more advanced payment methods like digital wallets embedded in smartphones (e.g., Apple Pay, Google Wallet)”Paiak Vaid, VP of Global Partnerships at Truelayer
One thing is clear: as the world embraces account-to-account payments as a transformative payment method, Latin America stands poised to join the global trend. By focusing on consumer awareness and adoption, Latin America can unlock the full potential of account-to-account payments.
Embracing these global trends will not only benefit businesses and consumers but also contribute to the overall growth and evolution of the financial ecosystem in Latin America. “Efforts to create an interoperable network of real-time, cross-border, and ubiquitous account-to-account payments will be vital in delivering a seamless experience to users in Latin America,” Pablo Viguera added.