American consumers, accustomed to cruising down the well-paved highway of credit card payments, enjoy a smooth ride filled with loyalty program points and convenient one-click purchases. But new on-ramps are emerging and Open Banking, a seemingly uncharted road, is promising a more direct and potentially more efficient journey.
Open Banking, much like a high-speed rail system bypassing congested tollbooths, facilitates Account-to-Account (A2A) payments. Consumers can transfer funds directly from their bank accounts to a merchant's account, bypassing the card networks and their associated fees. This holds the potential for a smoother ride for both merchants, who can potentially reduce their transaction costs, and consumers, who may benefit from lower prices or special A2A-only discounts.
However, the American consumer, comfortable in their high-occupancy vehicles (credit cards) and accustomed to the familiar rewards program exits, may not be easily persuaded to switch lanes.
Insights from the Worldpay Global Payments Report 2024:
Sponsored by the World Bank and other key players, the Worldpay Global Payments Report 2024 highlights the growing popularity of A2A payments. Back in 2022, only half of the jury members predicted A2A networks and mobile money would compete with cards within five years. However, just two years later, the picture has changed dramatically. Over two-thirds of jurors now believe A2A and mobile money will be the fastest-growing retail payment methods in their home markets. This trend is particularly pronounced in the Global South (Africa, Middle East, South America, Asia Pacific), where card networks haven't established a dominant position. Here, only 13% see cards holding sway, while 54% predict A2A or mobile money taking the lead. Existing examples like Brazil's PIX, which surpassed credit and debit card market share in 2023, showcase this trend's potency.
The Global North presents a more nuanced picture. Here, expert opinions are divided between cards and the A2A/mobile money combination. While A2A payments have gained traction in Europe (Poland's Blik, Netherlands' IDEAL, Sweden's Swish), some experts believe cards will retain dominance. However, a third of jurors foresee ongoing competition with no clear winner.
The Driving Forces:
Several factors are fueling the rise of A2A payments:
- Open Banking: Open Banking regulations allow third-party providers to access customer financial data with consent, facilitating A2A transactions.
- Instant Payments: The rise of instant payment networks enables faster and more efficient A2A transfers.
- Strong Authentication: Improved authentication methods enhance security and consumer trust in A2A transactions.
Potential Benefits:
- Lower Transaction Costs: A2A payments generally involve lower fees compared to card transactions, potentially benefiting both businesses and consumers.
- Improved Customer Journeys: Streamlined checkout processes and in-app payments can enhance the customer experience.
- Greater Consumer Choice: A2A payments offer consumers an alternative to traditional payment methods, fostering competition and innovation.
Industry Response:
The rise of A2A has spurred action from key players. Even in North America, where cards reign supreme, companies are taking notice. McKinsey highlights the potential for A2A to offer banks a "more competitive way of making payments" while providing consumers and merchants with more options. Visa and Mastercard are investing in A2A plays, and TrueLayer's new A2A payments app allows merchants to integrate A2A options into their checkout processes.
Conclusion:
Open Banking and A2A payments represent a significant shift in the global payments landscape. While the pace of adoption may differ across regions, the potential for A2A to become a mainstream payment method is undeniable. As the technology matures and consumer trust grows, A2A payments have the potential to revolutionize the way we pay, fostering a more transparent, efficient, and rewarding financial ecosystem.
Yet, the revolution faces a more significant obstacle: the inertia of established infrastructure.
Change, particularly when it involves money, is often met with resistance. Drivers, accustomed to the ease of swiping plastic, may be hesitant to navigate a new and potentially unfamiliar road system as it would be like asking drivers to switch from their favorite, well-lit highway to a less-traveled backroad – a more direct route, perhaps, but lacking the familiar rest stops and roadside attractions.
The battle for the future of payments in America is not a race to a single destination, but a reimagining of the entire transportation network.
Consumers, enticed by the promise of a more personalized and potentially cheaper experience, could become the loyal riders. But the established card networks, the seasoned highway authorities of the financial landscape, will not relinquish their control easily. They will unleash their marketing campaigns, wielding the glittering lure of rewards points as a well-advertised scenic byway.
The outcome of this digital revolution remains unwritten.
Will Open Banking and A2A payments become the preferred route for American consumers, ushering in an era of financial transparency and lower costs? Or will the inertia of the status quo and the allure of plastic's rewards prevail? Only one thing is certain: consumers are holding the steering wheel. Will they remain content with the familiar highway, or will they embrace the new on-ramp and become active participants in a financial revolution? Only time will tell who will reach their destination first in this high-stakes race for payment supremacy.
