Accounting for Account-to-Account

Driven in part by the rise of open banking and real-time technology, account-to-account payments are poised to disrupt the legacy card networks.

When it comes to what makes a payment option attractive to consumers and merchants, account-to-account payments have the key ingredients: real-time transfer of funds, convenience, and a lower cost of acceptance than credit cards.

Given those characteristics, it’s not surprising that account-to-account (often abbreviated as A2A) payments are rapidly growing across the payment-industry landscape.

A2A payment volume is expected to grow 19% annually to more than $200 billion in 2027, when it will represent about a 5% share of digital commerce in the United States, according to management-consulting firm McKinsey & Co.

The number of consumers using A2A payments is also exploding. Some 3.7 billion consumers are expected to use A2A payments by 2029, up from 1.8 billion in 2024, according to Juniper Research.

In its simplest terms, A2A payments transfer funds from one bank account to another bank account, such as from a consumer’s account to a merchant’s account, without the use of  a token, such as a check or card.

Popular consumer applications for A2A payments include bill payment, rent, loans, and recurring and peer-to-peer (P2P) payments. Bill payment is among the most popular of these.

Among consumers who say they have used their bank account to pay for a purchase, 33% have done so to pay bills multiple times per month, according to Carat Insights, a payments-industry report produced by the Milwaukee-based processor Fiserv Inc.

Consumer awareness of the payment method is rising fast. Some 78% of consumers surveyed in 2024 said they are aware they can pay with their bank account, compared to 61% in 2023.

Peer-to-peer payments have helped A2A gain traction globally, but a bigger opportunity for expansion lies in tapping into consumer-to-merchant payments, as well as payments from businesses to consumers, experts say.

“A2A payments are mostly used for high-value transactions and peer-to-peer payments, but have yet to fully penetrate the broader market, especially among small and medium-size businesses,” says Kate Hampton, chief strategy officer for payments provider NMI LLC.

 ‘A Key Driver’

Indeed, only about 5% of the possible scenarios for A2A are being activated, according to Booshan Rengachari, founder and chief executive at Finzly Inc., a provider of real-time payments, online banking, and financial-services technology.

As real-time payments become more commonplace, the market share for A2A should expand, Rengachari says, since real-time payment capabilities help remove any perceived friction.

For consumers, features such as real-time balances, instant notifications, and simple authentication processes make A2A payment an attractive option at the point-of-sale for consumers, adds NMI’s Hampton.

For merchants, a lower cost of acceptance is the primary attraction. Merchants pay a flat rate to accept an A2A payment, typically in the range of 40 cents to 50 cents. By comparison, the same transaction on a credit card could cost merchants between 2.5% and 3% of the sale on average, according to payments experts.

“By bypassing intermediaries like credit card networks, [merchants] can significantly reduce processing costs, making A2A payments particularly attractive for high-value transactions or industries with tight margins,” Hampton says. “This cost-effectiveness is a key driver behind their adoption.”

Despite the growth opportunity for A2A payments among small and mid-size businesses, adoption hurdles exist, some of them formidable. These lie largely in three areas: the somewhat forbidding nature of the technology, security questions, and government regulation, Hampton adds.

Open Banking’s Role

On the technology front, A2A providers have some work to do. They need to provide solutions that are easy to integrate, cost-effective to operate, and compatible with existing payment platforms, observers say. Specifically, a simplified onboarding process and compatibility with business-management systems are keys to broader adoption among merchants, Hampton says.

When it comes to security, observers say A2A payment providers need to address consumers concerns about fraud protection, something the card networks routinely tout to consumers as an advantage. Little has been done in the area of fraud detection and prevention for A2A payments, according to payment experts.

“While A2A payments allow merchants to verify funds in the account before the transaction is completed, which reduces the risk to merchants, consumers want to see fraud and chargeback protections” such as those they are accustomed to on credit and debit cards, says Nilesh Viadya, global industry head of banking and wealth management for Capgemini.

When it comes to regulation, governments and regulatory agencies must ensure A2A payments are secure and easy to implement, such as through open banking, which reduces the barrier to entry for smaller businesses, Hamilton adds.

Open-banking technology plays a key role in A2A payments by enabling the direct transfer of money from one bank account to another. As a result, consumers and businesses can link their bank accounts to third parties that offer payment services.

For example, Mastercard’s open banking technology powers J.P. Morgan Payments’ Pay-by-Bank offering. The solution gives merchants the ability to allow their customers to pay directly from their bank account using traditional automated clearing house banking rails.

In addition, open banking gives consumers more control over their financial data by offering solutions that allow them to grant and revoke access to their account data as needed. “This transparency and control build consumer trust and confidence, leading to greater adoption,” says Peter Reynolds, executive vice president for real time payments at Mastercard.

Another barrier to adoption is that countries with high rates of credit and debit card penetration, such as the U.S. and the United Kingdom, have been slower to adopt A2A payments.

“While new technologies, such as A2A payments, transcend card-based networks [in other countries], the card infrastructure in the U.S. is way ahead of the curve, so we are kind of stuck with what we have,” says Thad Peterson, a strategic advisor for Datos Insights.

A Threat

The good news is that many of the barriers to broader A2A adoption are beginning to fall. Visa Inc. for example, is preparing to roll out an A2A payment system in the United Kingdom in 2025.

U.K. consumers will be able to pay for product subscriptions and services including digital streaming, gym memberships, and food boxes directly from their bank account, as opposed to paying by check, cash, or card.

Visa plans to expand its A2A payment capabilities to the Nordic region, followed by other European countries.

“Given that A2A payment adoption, infrastructure, and demand differs in markets across the globe, we’ll determine further global rollout based on individual market demand and needs,” says Mehret Habteab, senior vice president of product and solutions for Visa Europe.

One driver behind Visa’s planned rollout of A2A payments in the U.K. is that A2A payment volume in that country increased 15% year-over-year in 2023 to $4.89 trillion (£3.7 trillion).

That’s a lot of potential volume flowing away from the Visa and Mastercard networks. It’s no surprise then that Visa and Mastercard have taken a strong interest in A2A payments, as they threaten existing network card volume.

A2A payments could cannibalize 15% to 25% of future card transaction volume growth, according to Capgemini’s 2024 World Payments report. In addition, 77% of respondents say debit and prepaid cards would be most impacted by A2A payments, while 23% expect significant loss of credit card volume as A2A payments grow.

“Visa and Mastercard are adopting A2A payments because they understand that payment option will eat into their business and revenues,” Rengachari says. “As real-time payments become more commonplace, A2A payments will eventually challenge debit cards.”

‘A Significant Amount’

While the threat to debit card volume is a motivating factor for Visa and Mastercard to be on the leading edge of A2A technology, Capgemini’s Viadya notes that the card networks have a history of pursuing alternative payment options to protect their respective empires. “It’s better for Visa and Mastercard to support the payment options consumers want,” Viadya adds.

In addition to the loss of network volume—and the network fees associated with those transactions—credit and debit card issuers stand to lose interchange revenue if the growth of A2A payments is such that they begin cannibalizing not only card transactions, but the interest income on credit card balances that are rolled over month-to-month.

The financial impact to card issuers from such a loss of volume could be painful, according to payments experts.

“Think of the impact on e-commerce as a profit base for the card networks. In the U.S. alone, retail e-commerce sales for 2024 are expected to reach $1.37 trillion, up 10.6% from 2023,” says Kristine Demareski, global head of payments practice at professional services provider Genpact, which advises clients in the banking industry. “With interchange fees between 1% [and] 3% on average, that is a significant [amount] for financial institutions.”

But supporting A2A payments can help Visa and Mastercard to offset lost card volume and help soften the blow to card issuers’ revenues. It can also open the door for the networks to capture large corporate and government payments typically routed now through the automated clearinghouse, Viadya adds.

“For Mastercard, it’s all about providing choice. We want people and businesses to pay and get paid in whatever way works best for them, whether that be cards or account to account,” says Peter Reynolds, executive vice president for real-time payments at Mastercard.

Reynolds adds that Mastercard has supported alternative payment technologies, such as open banking and real time payments, through collaboration with central banks, financial institutions, and retailers. The goal, he says, is to promote payment innovation, financial inclusion, and economic growth.

Hurdles

Despite the cost and speed benefits A2A payments offer merchants, several hurdles remain to growing A2A volume in the U.S. market. These include consumer concerns about the potential for fraud and the absence of chargeback protections, not to mention giving up the opportunity to earn rewards, according to payments experts.

The biggest obstacle, however, is that the user experience for A2A payments in the U.S. has yet to meet consumers’ expectations, Demareski says.

“Until the user experience meets or exceeds the ease and ubiquity of making purchases with a credit or debit card, [A2A payments] won’t take off,” Demareski says.

“It has to compete with features that are as convenient and fast as tapping your card or digital wallet, as financially rewarding, with points and cash-back offers, and as risk-free as it is for cardholders to dispute a potentially fraudulent charge,” he says.

While adoption of A2A payments at checkout has been slow to catch on, especially in the U.S., awareness is spreading among sellers and consumers. That’s prompting some merchants to embrace the technology. As a result, availability is expanding, albeit unevenly.

“Businesses are making account-to-account payments available across the buying experiences they enable for customers, whether that means shopping in-app, in-store, or leveraging loyalty programs to accrue incentives and rewards,” says Charles Williams, vice president of alternative payment acceptance for Fiserv.

“A consumers become more comfortable with open banking, and real-time payment innovation progresses,” he adds, “merchant interest in providing customers with the ability to pay with their bank account will also grow.”