Embracing the shift: How A2A payments and Open Banking are reshaping finance

Henning Holter

by Henning Holter

In the world of finance, an A2A (account-to-account) payment denotes a direct transaction exclusively between two bank accounts. In contrast, Open Banking serves as a technology enabling the sharing of financial data among banks and third-party service providers, facilitated through application programming interfaces (APIs). It is therefore useful to point out a key difference: whereas OB Payments are A2A payments, A2A payments are not necessarily OB payments. 

According to The 2023 Global Payments Report, A2A payments are expected to grow 13% annually through 2026, driving the global e-commerce market to $850 billion. Notably, A2A payments have already claimed the throne as the leading online payment method in some markets such as Finland, Poland, Nigeria, Malaysia, Thailand, and the Netherlands

Disrupting traditional networks with A2A payments and Open Banking

By creating transactions that flow directly between accounts, you can "buy-pass" the card networks and the associated service and interchange fees levied on the merchants on those transactions. It will also simplify peer-to-peer (P2P) transactions as well as the disbursement e.g. central bank digital currencies (CBDC). 

In response, and so they won’t miss out on the shift in payment technology, the major card network operators have invested heavily in Open Banking and A2A capabilities. Visa acquired Tink, a major European OB platform and Mastercard bought Finicity in the US and Aiia in Europe to offer these services. They are also building so-called multirail solutions allowing payments to flow across networks without the merchant or end-user needing to adapt their processes. 

A2A payments

Open Banking vs A2A: unveiling business impact and opportunities

Not all merchants are equipped to accept card payments, and not all consumers and small businesses have a payment card. A2A payments enable merchants to receive payments directly into their bank accounts, bypassing the card networks. This accelerates settlement times, enhancing cash flow and eliminating the often cumbersome and error-prone data entry process. Consumers can seamlessly approve payments within their banking apps, often utilizing app-to-app redirection and biometric authentication, streamlining the process and eliminating potential issues like false declines and authorizations.

However, it's important to acknowledge that A2A payments come with certain trade-offs. While they offer efficiency, consumers may forego loyalty benefits such as air miles or discounts associated with card usage. Additionally, Open Banking (OB) payments lack the chargeback protection afforded by credit cards, a significant consumer benefit. Credit cards also provide the flexibility of installment payments, spreading the financial burden of a purchase over time.

OB also simplifies the sharing of data for use by lenders and others who need to verify someone’s income for affordability purposes for example. By using actual data (as opposed to volunteered information from the applicant, or manually collected documents such as bank statements) you can reduce operating costs and improve the accuracy of credit scores. This again should lead to lower default risk and credit losses, and subsequently better pricing for customers (or improved margins for lenders). 

Other examples are companies using A2A payments to pay contractors or service providers for their work. This streamlines transactions, reduces costs, and enhances security and transparency, or businesses can use A2A payments to directly pay their customers or clients. This can include processes like paying employee salaries, vendor bills, issuing customer refunds, or settling insurance claims.

benefits of A2A payments

Star's role in leading the change

In e-commerce, payments have emerged as a pivotal element in a compelling customer proposition. The rapidly innovating payment space presents both exciting opportunities for early adopters and inherent risks for those lagging behind. Recognizing the fickleness of customer loyalty, ensuring a seamless and satisfactory payment experience becomes a critical aspect, often serving as the concluding touchpoint in the customer journey.

At Star, we assist our clients in navigating this dynamic terrain. From aiding in partner selection to facilitating decisions between buy-vs-build approaches and devising effective go-to-market strategies across diverse geographies, our expertise ensures clients stay ahead of the curve. Our non-exclusive partnerships with key vendors with cutting-edge payment technologies, enable us to orchestrate swift and successful market launches for new payment solutions, catering to the needs of FinTech, banks, and other enterprises.

Moreover, our user experience (UX) and customer journey teams can craft tailored user interfaces that go beyond mere functionality. These interfaces are designed to deliver impressive customer experiences while also streamlining backend processes. This dual focus not only enhances customer satisfaction but also simplifies internal workflows and elevates data management practices. At Star, we are committed to ushering our clients into the future of payments, ensuring they have the most competitive solutions in this era of transformative financial technology.

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Henning Holter
Business Development Director, FinTech

Henning is a financial services executive specializing in digital transformation and innovation within the banking sector. His background includes 15 years in senior leadership positions, spearheading numerous successful digital transformation initiatives that empowered organizations to harness cutting-edge technologies to deliver enhanced customer experiences. Henning's expertise lies in leveraging innovative solutions to drive operational efficiency, optimize business processes, and foster sustainable growth.

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