3 Ways to a Leaner, More Modern Payment Infrastructure With Open Banking
A2A (Account-to-Account) payments currently account for 13% of all checkouts in Europe, and that number has steadily increased over the past few years. In Europe, 20 countries are part of the centralised instant SEPA credit transfer (SCT Inst) scheme used for A2A payments and simplifying bank transfers in Euros.
A2A payments are a growing trend and, in the coming years, will become the ‘new normal’. In this article, we will explore what is driving that trend and why A2A is the ideal replacement for card transactions.
What are Instant Payments?
A2A payments fall into two categories:
- Push payments: the payer initiates the transfer and ‘pushes’ money into the payee’s account.
- Pull payments: while the payer gives initial authorisation, it’s the payee who instructs the funds to be ‘pulled’ from the payer’s account.
Although A2A payments have been around for a while, they are only now starting to become part of the mainstream and initiatives such as SEPA are helping drive that change.
What is SEPA?
SEPA stands for the Single Euro Payments Area and is an instant bank transfer scheme introduced in 2017 at the request of the EU. The purpose of the scheme is to enable easy and instant cross-border payments across the EU, with 20 countries already signed up.
SEPA presents new opportunities for merchants and customers. From penetrating markets with low credit card use such as Germany and the Netherlands, where credit card use is lower than 50%, to improved cash flow from merchants by being able to collect payments when they want.
However, the current state of the market has some downsides. Firstly, adoption has been slow, so there are regions where it is not being used. For example, in the Netherlands, where adoption is high, there were 3.312 billion SEPA transactions in 2021. In contrast, in Denmark during the same year there were only 4.3 million.
Another issue that merchants need to consider is that SEPA uses two different infrastructure solutions, RT1 and TIPS (run by the ECB). Banks can choose to opt into either, but they aren’t interoperable. This means that a bank using TIPS can’t make an instant payment to a RT1 participant and vice versa. Integrating both means greater cost and effort on the banks behalf so there is not the motivation to do so.
Brite Payments as a SEPA Solution
Brite Payments solves many of the current issues that merchants face with implementing SEPA payments. They are building connections and integrations across Europe, and already covers 3800 banks, including ING, Citadele, SEB and more. This translates into a payment solution that is easy to embed at checkouts for both payins (in the Nordics and Baltics) and payouts (in the Eurozone). Merchants don’t have to choose between RT1 or TIPS, they can use a solution that integrates with banks on both sides.
Hence, with the current growing pains that SEPA is experiencing, Open Banking payments are the ideal replacement for cards and we will see greater adoption in the near future.
Why are Open Banking Payments an Ideal Replacement for Cards?
There has been a long-standing card dominance within the payment landscape, but that reign is coming to an end. Merchants and customers are seeing the benefits of Open Banking transactions and the demand for them is growing.
One of the major benefits for merchants is that A2A payments eliminate chargeback risks and costs. Midigators Year in Chargebacks report shows that 2.31% of merchants revenue was lost to chargebacks in 2021. This can have a huge impact on your business and its bottom line.
A2A payments present the opportunity to move to a leaner and more modern payment infrastructure that avoids this kind of problem. Here’s three ways how:
1. Lower Transaction Costs
Firstly, A2A payments via Open Banking can have significantly lower per-transaction costs than card payments. Your business may be making hundreds, if not thousands of transactions a day and these savings quickly accumulate. Typically a card transaction fee is around 3% but by using A2A payments, your business bypasses this infrastructure and in turn, its cost.
2. Less Friction for Customers
The second way businesses can improve payments with A2A open banking is by providing a better experience for their customers. How many of your customers abandon carts at checkout because of a poor payment experience?
With A2A, instead of your customer’s credit card provider mediating the payment, there is a direct transfer from their bank account, making a frictionless experience for your customers (and for your business).
3. International Reach
Thirdly, A2A allows your business to expand its reach and attract customers in new locations. Your business can reach anyone with a bank account, which, let’s face it, is the majority of the global population (71%, to be exact).
The Next Generation of Payment Solutions
A2A banking is becoming mainstream and the time for merchants to get on board is now. It frees you from the restraints of card payments and presents numerous new opportunities to grow your business.
If your business needs to pay out money fast, or if you want to make paying for your customers seamless… let’s talk.