What are account-to-account payments?

What are account-to-account Payments? 

Account to Account (A2A) payments are the movement of cash directly from one account to another which has no requirements for any intermediaries or payment instructions (for example, bank cards). Account-to-account payments aren’t a new convention to the market and have been around for a long time, but historically they are conventionally just bank-to-bank payments. For example, this could be when you set up a direct debit for your gym membership and an A2A payment occurs each month from your bank account to the gym’s bank account.  

The main difference today is that we also have digital wallets as well, and these transfers fall under the umbrella of account-to-account payments too. For example, a transfer from one digital bank wallet to another is no different in this regard to a standard bank-to-bank transfer.  

Types of account-to-account payments 

There are two main types of A2A payments which you can consider. These fall under ‘Push’ and ‘Pull’: 

Push Payments 

A push payment is utilised for sending one-off payments from an account. This process requires the account holder to manually ‘push’ the payment from their account to another. This could be as simple as an individual ‘pushing’ a payment to their friend’s bank account because they owe them money.  

Pull Payments 

A pull payment is effectively the opposite of a push payment. This is when a business could ‘pull’ a sum of money from your bank account. The common utilisation of this is regular payments, such as direct debits payments for monthly subscriptions (gym membership, Netflix subscription etc). This recurring ‘pull’ method requires you as the customer to provide prior consent, this is set up in the form of a direct debit mandate. 

Payment Rails 

You can think of payment rails as the channels between accounts which enable the functionality for movement of funds across accounts. There isn’t a standard global payment rail, and this is a functionality which individual countries are tasked with setting up. Each country will have their own national payment rails. 

There has been a significant level of investment in payment rails in the last 10 years, with many central banks building new networks with improved functionality. Countries such as Brazil and Australia are leading the charge for continuous improvement of their national payment rails by encouraging local financial institutions to create forward thinking ideas for the national rails that are already in place.  

Part of the reason for such significant investment in payment rails is in order to keep up with the ever-evolving digital world we currently live in. Financial technology is gaining significant momentum, with many people around the world entirely relying on their digital wallets rather than their physical bank accounts. Another reason is to increase the efficiency of payments via rails - The quicker a payment goes through, the quicker an individual (or bank) can recognise any issues. It wasn’t long ago where waiting at least a day to receive a payment was standard. Now, it can be almost instant. 

Fraud is a significant issue around the world. Payment card fraud equates to roughly $24 billion per year. Development and innovation in the banking world, and even around payment rails means that higher security can be applied to reduce the risk of payment card fraud instances. 

Open banking and account-to-account payments 

Open banking is the process of creating an opening of data for anyone who consents to use, access and share the data within the set terms and conditions. The core benefit for this is it allows an increase in financial service infrastructure and therefore an increase in services which customers can benefit from. As banking data can be observed externally (with the correct approvals) banking customers can utilise tools such as automation of payments, and an increased visibility of their finances. For example, a developer could create an application on your phone which looks at all your banking transactions and analyses them for what you spend your money on, helping you to form a budget. 

Open banking is understandably heavily regulated, and each country will have their own rules and regulatory bodies which cover it. 

Open banking has had a significant benefit on account-to-account payments. In the past A2A was seen as inferior to other payment methods, as bank transfers required payers to log into their account for every payment and this meant that recurring payments usually required significant paperwork to authorise. There were other inefficiencies too, such as having to make a small payment to the account for recurring payments prior to being able to set up the larger recurring amount. All in all, there wasn’t any large benefit seen by consumers and as a result, businesses were left continuing to utilise card processing which comes with higher fees, but less difficulty. However, because of the benefits associated with open banking, it allows far more efficiency in the area of A2A payments. 

Read more: Open banking explained

Benefits of account-to-account payments 

Customer Experience 

At the crux of all customer based processes is how the experience is for the customer. Often no matter how good of an idea something is, if the user experience is tedious, it will not receive significant levels of adoption. Since open banking benefitted account-to-account payments, businesses are now able to provide a streamlined and easy experience for their customers. There are no longer the difficulties that occurred with A2A payments in the past. This is primarily due to the introduction of APIs being added into financial infrastructure. The experience is broad too, with payments being made from desktops, mobiles, applications, and this applies to both one-off and recurring payments too.  

SCA Compliance 

SCA stands for Strong Customer Authentication. This is a new European regulatory requirement which was introduced in 2021 which has been designed to reduce fraudulent payments online which equate to more than 50 (EUR). There are three elements which a customer must prove in order to meet this requirement and therefore protect against any fraudulent payments.  

Knowledge: This could be a pin or password that only the customer should know 

Possession: This is something only the customer should have access to, such as their mobile phone 

Inherence: This could be something such as a biometric identification of the customer.  

Open banking has certainly made abiding by SCA compliance significantly easier, with it naturally meeting multi-factor authentication requirements. Therefore, any businesses which do choose to use A2A are likely to see a reduction in fraud over time. This can lead to a reduction in chargebacks, all while maintaining an efficient customer experience. 

Read more: How to prevent chargebacks?

Read more: Invoice fraud protection: how to protect your business?

Modernised Requirements 

The requirements of customers are ever changing, especially in the finance world. This has been somewhat emphasised by the COVID-19 pandemic where people have been moving away from traditional payment methods, edging more towards more convenient alternatives. Studies have shown that over half of Britons are now utilising apps which are powered by open banking on a regular basis.  

Consumers want faster, more convenient but also more secure methods of payment. Account-to-account payments show this level of innovation, and have modernised for these requirements faster than traditional card payments. Because of this, consumers are moving away from card payments. Studies also show that Gen Z are generally more cautious than other generations, which likely accounts for this movement in consumer requirements. 

Future of account-to-account payments

As the finance industry develops, the future of account-to-account payments is likely to change as well. What we do know is that we are nowhere near the full potential of A2A payments, and their adoption is likely to significantly increase in the coming years. The Worldpay Global Payments Report believes that by 2023 20% of all eCommerce payments in Europe will occur with account-to-account payments, which would surpass the usage of card payments. 

The utilisation of A2A payments will be somewhat dependent on individual governments and their wish to capitalise on the demands of consumers within their relevant countries. 

Are account-to-account Payments Safe? 

To some extent how safe A2A payments are related to how safe open banking is, as this is the core functionality that allows account-to-account to run via API. Open banking has been deemed to effectively be as secure as your standard online banking which has become a pillar of normality in people’s lives today. The open banking API endpoints are built by the banks themselves and are therefore put through rigorous testing by both the banks and the authorised third parties, and they make sure that the API meets all regulatory requirements as well.  

Open banking exists within a bank’s established and highly secure technology framework, and therefore the APIs themselves are an incredibly secure way to transfer data. In essence, if open banking becomes insecure, there is likely more than just an open banking issue at your bank to be concerned about.  

The important thing to keep in mind is that nothing can happen over open banking/A2A payments without your approval and permission. This is aided by the recently applied SCA Compliance. Therefore, you can rest assured knowing that any payments occurring via account-to-account are exactly what you yourself approved. 

Read more: is Crezco safe?