In South Africa, account-to-account (A2A) payments are starting to bring about a revolution when it comes to the concept of how payments are managed. However, this method of moving money directly from one account to another is something most consumers will not even be aware of. Instead, it is at the merchant level where the most significant changes will take place.
Like so many things, the pandemic has driven demand for more efficient ways of managing customer payments. Before long, A2A is expected to become the preferred way of taking care of transactions whether it be for online shopping, in-store purchases, or even business-to-business dealings.
A2A can be triggered in two ways. Firstly, by card. This sees a payment transaction processor like Mastercard routing an A2A payment via the usual channels. However, the traditional card fees will be suppressed and replaced by a nominal A2A fee. The second way is through a digital wallet or linked account such as that provided through the Spot Money application.
Of course, A2A is not a new concept. International research has shown that card-not-present (CNP) transactions made up 27% of all debit payments by the end of 2019. Given developments of the past two years, this will be significantly higher come end of 2021. A2A, which include the likes of mobile wallets and consumers using peer-to-peer (P2P) solutions like tapping apps to pay were considered the leading use cases for growth in debit payment volume. Another survey has found that 26% of banks said that they would start offering mobile P2P payment services by the end of this year.
Fundamentally, A2A gives merchants more margin as they do not have to battle with the high charge rates typically associated to traditional transactions. And because A2A is a real-time settlement, it also enables them to drive more value to their customer base.
An example of where A2A has resulted in significant savings is in those industries where goods and services may be priced more highly, such as travel. In 2019, the International Air Transport Association (IATA) launched IATA Pay to enable travellers to pay for flight tickets bought online by directly debiting their bank account.
What is more, because A2A is considered an ‘open banking’ solution, it is set to become unstoppable in the South African market given the rise of digital banks and other fintechs. For the uninitiated, open banking provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through application programming interfaces (APIs). This materialises in the form of apps, P2P transactions, and mobile banking solutions that many people have become comfortable with.
While the surge in A2A payments have mainly focused on transfers between individuals and bill payments, it is only a matter of time before these become commonplace in the retail payment environment. Already, China’s WeChat Pay has moved beyond a money transfer service between people into a method of payment accepted by more than 72 million merchants.
Touchless payments, as enabled through A2A, are replacing the traditional point-of-sale. Younger consumers are flocking to this in droves. Data shows that more than 64% of bridge millennials (33 to 43 years old) use digital wallets to pay at physical stores, while 24% have used contactless credit and debit cards to make such purchases.
By cutting out the go-between in the transaction process, payments will become significantly more user friendly to consumers and affordable to merchants. It comes down to making the transaction journey as smooth as possible, keeping costs transparent, and being seamless for consumers who do not care what happens in the background. They simply want things to work. It is up to the merchants and the banks, whether traditional or digital, to manage the complexities on their behalf.
Andre Hugo, CEO and Co-Founder of Spot Money SA