Account-to-account payments are the future. Here’s why.

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Jun 30, 2021 · 6 minutes

Do you think it makes sense that the most popular consumer payment method — credit and debit cards — happens to be the most expensive one for merchants to accept?

If you think about it, it doesn’t make much sense. Although cards account for 61% of retail transactions, they take up 83% of merchants’ cost of collection. And that’s not considering the other issues cards cause, such as fraudulent chargebacks, reconciliation issues and poor customer experience.

The best alternative? Account to account payments. They are affordable, seamless and more secure. But first let’s look into the how and why of payments.

How did we get here?

Let’s turn back the clock for a moment. How did we get to the payments landscape we’re currently in?

Pre 3000 BC, bartering was the name of the game. Goods were exchanged for goods with their value pre-decided.

Coins were first minted in 700BC, but it’s not until 1659 that we saw the first drawn notes, now known as cheques. In the same century, banknotes were introduced as heavy coins became too impractical. In the 20th century, we could suddenly pay for things without cash or cheque: in 1979, Visa introduced the first credit card. It wasn’t that long ago that you’d need to make sure you had cash on you to go out for a meal, head to a bar, or do the weekly shop.

But the transition from physical to online money is a bigger one than you’d think. When you’re exchanging money physically with cash, transferring monetary value is direct and trusted. But with credit cards, cheques and now online banking, money is non-physical.

For this reason, secure technologies had to be put in place to ensure online transfers were trustworthy. Credit cards took up the role of a physical representation of the virtual bank account, allowing consumers to be protected whenever making a payment.

Although this protected consumers, it now meant there was a middleman in every card payment. Merchants were the ones to foot the bill, and now had to pay fees to credit card companies if they wanted to accept card payments.

Nowadays, we still use credit and debit cards, and modern day payments include contactless spending and embedded finance. Customers can also choose from a plethora of payment methods, ranging from Buy Now Pay Later schemes, cryptocurrencies and e-wallets.

But the biggest innovation to happen since contactless spending, is actually Open Banking.

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What is Open Banking?

In simple terms, Open Banking is a framework that allows banks and financial institutions to share consumer financial data securely.

The UK Open Banking movement was initiated by PSD2 in 2016, a European directive that obliges banks to make their customers’ financial data shareable through Application Programming Interfaces (APIs).

With these APIs, licensed third parties can gather consumer information such as spending habits, salary and account details, and then use that information to help consumers with budgeting, investing and other money management activities.

Open Banking is a revolutionary movement for payments. By integrating customers’ financial data, licensed third parties can enable push payments directly from their bank account — also known as direct bank transfers, or account to account (A2A) payments.

Aren’t bank transfers very manual and time-intensive? Not with Open Banking. By partnering with a third party provider, your customers can make direct bank transfers in three clicks rather than twenty. As a merchant, you can now accept payments in a secure and seamless way, without the expensive card companies. That’s revolutionary.

What modern day customers want

Just decades ago, merchants decided how consumers were to pay. That’s because payment options were limited, and customers had to make do with what was available.

But in the age of on-demand delivery, real-time information and personalised ads, consumers are demanding better, online experiences. They want to be able to pick from a plethora of payment options, or even better — not “pay” at all.

That means: invisible payments. A world where you hop in a taxi and the payment happens once you arrive at your destination. Or a world where you enter the shop, take your groceries and leave, and the payment happens automatically. Payments are quickly becoming a blip in the customer experience journey.

Sounds too futuristic? It’s already happening with Uber and Amazon Go shops. The definition of payments is changing and businesses need to adapt to customer preferences in order to remain relevant.

Consumers want better experiences, but many merchants are stuck with slow growth due to incumbent payment infrastructure and expensive middlemen. Visa and Mastercard are increasing merchant fees, chargeback fraud is still high and payments can still take weeks, or even months to settle.

For example, in the travel industry, it is not uncommon for businesses to wait weeks — or even months — before getting the cash flow they need. Similarly, the e-commerce retail sector is dogged by fraudulent payments.

Annoying and clunky customer payment experiences can also cause a problem. If a platform makes authentication difficult for customers, this can lead to an increase in cart abandonment and people are less likely to revisit the site.

Customers are demanding a better customer experience, but merchants are still having to rely on archaic banking infrastructure that has not kept up with the speed of digital take-up. So how can Open Banking and account to account payments help?

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Why A2A payments are the answer

The rollout of Open Banking and account-to-account payments is an innovation that will help set customer expectations with payments, and allow merchants to move away from incumbent infrastructure. Here’s how:

Experience: modern day customers want payments that are seamless, secure and practically invisible. As a customer and merchant, A2A payments happen in a couple of taps and don’t require any manual data entry. That’s a payment experience that matches modern day consumer needs.

Speed: card payments can take days or even weeks to settle, as the payment needs to go through several middlemen before landing in the merchant’s bank account. Since A2A payments are direct, there aren’t as many middlemen and therefore payments settle almost instantly. This makes it easier to reconcile transactions and also boosts cash flow.

Savings: according to an 11FS study, high street businesses pay 0.7% on debit card transactions and 1.3% for credit card transactions. These numbers quickly add up, costing merchants more than it should. Since A2A payments are direct, there are fewer middlemen and therefore can be offered at a fairer cost.

Security: one of the main issues with card payments and other payment methods is that there is always the risk of chargeback fraud. With A2A, payments are made through secure bank transfers and pass Secure Customer Authentication (SCA). Each payment requires payee verification and information, and can be verified with biometrics through their banking app. This means merchants can feel confident that the purchaser is, who they say they are.

The future of payments

The future of payments is fast, secure and seamless — and also enables merchant growth.

As a society, we’ve always looked for easier and better ways to work. We’ve moved from a world of bartering, cheques, bank notes and credit cards, to soon a world where payments will be invisible thanks to A2A payments. In fact, there are speculations that over 40% of online payments will be account-to-account payments by 2022.

At Vyne, we're perfecting payments by enabling merchants to take and make payments that work better for them. Founded by industry experts we understand the problems merchants face. Our solutions offer access to faster, more transparent, open, and fair payments.

As a merchant, you’re likely looking for ways to lower card fees and reduce basket abandonment, while offering your customers a superior customer experience. If that’s you, then get in touch to learn how you can implement A2A payments.