What are Account-to-Account payments?
Account-to-account (A2A) payments are an online payment method that allows you to directly transfer money from one account to another without using third parties or alternative payment intermediaries, such as cards.
Account-to-account payments aren’t new; they have been around since the 1970s. They are usually in the form of direct bank transfers at traditional financial institutions that allow you to move high-volume transactions between two accounts or schedule bill payments via Direct Debit.
However, there has been a recent increase in the daily usage of account-to-account payments, driven mostly by the adoption of Open banking, and a push towards businesses looking for more convenient, instant, and less costly ways to accept payments from their customers.
Let’s look at how these account-to-account payments generally work and how Open banking technology can make the experience faster and better for customers and businesses.
Types of Account-to-Account payments
Account-to-account payments can be initiated in two ways, either as a push payment or a pull payment.
Push payments
These are one-off payments where the customer manually transfers money from their account to the recipient’s or merchant’s account. For example, if you want to pay for your lunch and log in to your bank to make a direct bank transfer to the food vendor, that is a push payment.
Pull payments
This payment type is used by businesses to automatically transfer money from customers’ bank accounts with their consent or approval. This is mostly used for collecting direct debits, recurring payments, and subscriptions.
Ways you can use Account-to-Account payments
Some common use cases for account-to-account payments include:
Consumer-to-Business payments (C2B): This is often used to pay for one-off services, where the customer directly transfers money from their bank account to the merchant’s account for payments like utility bills or online purchases.
Business-to-Consumer payments (B2C): A business can use the A2A payment method to pay their customers directly from their bank account. This can be paying employees’ salaries, settling vendors’ invoices, or processing customer refunds.
Peer-to-peer (P2P) payments: This allows an individual to pay another individual via a direct money transfer from their account to cover bills or expenses.
Business-to-Business payments (B2B): A business can pay another business by directly transferring funds from its business account to the other business’ bank account.
Me-to-me payments (money sweeping): This is used to send money from one bank account to another, where both accounts belong to the same person.
Account-to-Account payments and Open Banking
Traditional account-to-account payments like bank transfers require the customer to log into their bank accounts and manually enter the account details to make a payment. This can be error-prone, as a user could enter incorrect account details and the payment sent to the wrong recipient, making it difficult to retrieve or recover the payment.
Additionally, traditional recurring or direct debit payments require physical authorization and lengthy forms to process a transfer between two accounts. This is time-consuming and often inconvenient for customers.
With the rise of Open Banking, new payment rails have been developed to supercharge the experience of account-to-account payments. Through a connection to users’ bank accounts using Application Programming Interfaces (APIs), Open Banking account-to-account payments enables the transfer of money directly from one account to another with the user’s permission, and the experience is instant and more secure.
This also enables more customers to complete payments at the point of purchase without relying on other payment intermediaries and offers a faster and more seamless payment experience.
How Open banking-powered Account-to-Account payments work
Account-to-account payments powered by Open Banking technology use APIs to facilitate the direct movement of funds between accounts, a process distinctly different from regular bank transfers.
To enable this payment process, Open banking providers like Mono leverage the existing bank transfer technology and layer it on Open Banking APIs to build a better experience for collecting account-to-account payments.
Let’s consider the A2A payment process using the Mono DirectPay product.
For example, if you’re placing an order on a food delivery app, and at the checkout stage, you decide to pay using the account-to-account payment method. You’ll be taken to the Mono DirectPay widget to review the payment details. Then, you have to select your bank of choice and enter your online banking login credentials to authorize the payment. The payment will then be instantly processed from your bank account to the merchant's account. Once the transfer is confirmed, your order is accepted by the food vendor.
With Open Banking-powered payment options like Mono DirectPay, customers don’t need to enter the recipient’s account details each time they need to make a payment, reducing the rate of misdirected payments.
Also, with Mono Direct Debit, which caters to recurring account-to-account payments, the experience is more seamless, making it possible for your users to automatically approve mandates on their accounts without paperwork or physical visits to their banks.
Are Open Banking-powered Account-to-Account payments safe?
Open Banking-powered A2A payments are safe as the transfers happen directly between financial institutions. Additionally, the customers’ account and identity details are verified before any payment is processed, reducing the chances of payment fraud.
Open Banking Account-to-Account payments in Nigeria
Open banking account-to-account payments are growing in Nigeria, particularly with the introduction of the operational guidelines for Open Banking. At the forefront of this innovation, Mono is one of the pioneers of Open banking-powered A2A payments in Africa. By leveraging open banking technology, Mono has reshaped how businesses can accept customer payments and how individuals can make financial transactions online.
To bolster the adoption of open banking A2A payments across Africa, Mono has also partnered with other local and global payment technology companies like Flutterwave to enable their merchants with an alternative payment option for customers at checkout, and Mastercard respectively to provide digital commerce businesses with another convenient and secure way to collect payments.
Benefits of Open Banking-powered Account-to-Account payments
Open Banking account-to-account payments offer very significant benefits to both customers and businesses. Here are some reasons you should adopt open banking payments:
Faster payment experiences
With Open Banking-powered A2A payments, customers only need to link their bank account and pay in a few clicks. The payment steps are reduced, intermediaries are removed, and there’s no need to manually enter account details for each payment. This makes the payment experience faster and more convenient for customers making one-off and recurring payments. Businesses can also process payments more quickly and boost their conversion rates.
2. Lower transaction fees
Unlike other payment methods such as cards, transaction costs for Open Banking A2A payments are significantly lower. This is because payments are sent directly from one account to another without the cost paid to issuers and intermediaries, so businesses don’t have to pay interchange fees or operational costs associated with other payment methods, and can maximize their revenue.
3. Improved payment success rates
Anyone can use the account-to-account payment method if they own a bank account and have access to online banking, meaning more people can pay your business easily. In other cases where recurring payments may fail if a customer’s card is inactive or expired, Open Banking-powered A2A payments are a more reliable option and ensure that failure rates for these payments are minimal.
4. More secure payments
Open Banking A2A payments are more secure than traditional A2A payments because the customer’s identity and proof of ownership of their account are verified before a payment is authorised. With these security measures in place, your customers can confidently pay you using their account and you can reduce the risk of payment fraud for your business, while still delivering a seamless payment experience.
What’s next for Open Banking-powered Account-to-Account payments?
With more customers and businesses coming online, customers are looking for safer and more convenient methods of payment. Open Banking has expanded the possibilities for A2A payments by offering security, convenience, and speed, making customers more likely to adopt it for making payments online.
Today, account-to-account (A2A) payments are one of the top online payment methods in Nigeria, with cash transactions dropping from 95% in 2019 to 80% in 2022 and instant payments increasing by 8%. Now, imagine the growth curve that could occur if the A2A payment experience is improved with Open Banking technology for a customer base that has already embraced traditional bank transfers.
Banks also have an important role to play in encouraging the adoption of Open Banking payments among users. Developing a strong regulatory framework for Open Banking payments to promote uniformity in its implementation, coupled with secure and direct access to A2A payment rails for third-party providers, can score significant milestones for Open Banking-powered A2A payments and help it reach its full potential in the future.
