David Parker, the founder and CEO of Polymath Consulting, clarifies the difference between account-to-account payments and Open Banking payments.

The plain answer is no. Account-to-account payments are simply the transfer of value, generally fiat currency, from one account to another without any intermediaries, such as bank/scheme cards. Note the account could be a bank account, but not necessarily; in developing countries, many A2A movements are from one Mobile Wallet Account to another.

The principle of moving funds from one account to another is, of course, something hardly new in many markets around the world and this has been common for many years. Even international payments with IBANs (International Bank Account Numbers) have enabled A2A. In some cases, these funds have flowed through ‘Intermediary’ banks, that is a middleman between an issuing bank and a receiving bank. An intermediary bank is sometimes needed when international wire transfers are occurring between two banks in different countries that don't have an established financial relationship. However, these are still A2A transfers/payments.

The big change in A2A, though, has been in the speed of transactions with the rise of what are called ‘Instant Payments’ or ‘Real-Time Payments’. According to GlobalData, 118.3 billion real-time payment transactions were made globally in 2021 – a YoY growth of 64.5% and this is set to rise to 427.7 billion in 2026.

Moreover, ACI reports that by 2026, real-time payments will account for a quarter of all electronic payments globally (see image below).

The top five countries with the highest volume of real-time payment transactions in 2021 were according to Global Data:

India (48.6 bn)
China (18.5 bn)
Thailand (9.7 bn)
Brazil (8.7 bn)
South Korea (7.4 bn).
However, examples of real-time payments can be found across the world such as in Africa with the work of Ghana’s central bank to introduce a universal QR code that can be used for payments via a phone or bank account. The country’s real-time payment solution GhIPSS Instant Pay (GIP) experienced an almost six-fold rise in transaction volume year-on-year during the first half of 2020. Meanwhile, Nigeria’s real-time payments scheme has evolved into Africa’s most successful – boasting 3.7 billion real-time transactions in 2021. Brazil is considered a stand -out market with Pix, the local real-time A2A payment solution expecting real-time transaction numbers to rise to 82.4 billion annually by 2026.

Even in Europe, 81% of consumers say they are ‘likely’ to make an account-to-account (A2A) payment in the future, according to recent research by Token/Open Banking Expo. 46% of those surveyed, had made an instant bank transfer in the past three months from consumers across the UK, France, Italy, Germany, the Netherlands, and Poland.

Of course, in Europe, A2A payments are well established in countries like:

The Netherlands. The popular online payment system iDEAL, launched in 2005, is behind 70%+ of the country’s ecommerce payments. Its use increased after the introduction of SEPA credit transfers (SCT) in 2019 which allowed real-time payments.

Germany. Giropay is based on online interbanking and it enables immediate payments and transfers for those in German markets. Previously, 16% of all online transactions in Germany were processed by Giropay, with the merger with paydirekt they are set to increase further. Germany was also one of the earliest adopters of SCT, launching real-payment payment capability in 2017. In 2020, real-time payments accounted for 1.8% of 818 million transactions.

There are, though, two types of A2A payments:

1. A2A Retail – a user, could be a business or consumer paying a merchant/retailer.
2. A2A Person-to-Person – one individual is paying another individual.

So, if not all A2A payments are Open Banking Payments, what are Open Banking payments?
Open Banking allows Payment System Users to share their data with third-party providers (TPPs). This has delivered two main functions/types of providers:

1. PISPs (Payment Initiation Service Providers): they enable third-party companies to make a payment on behalf of consumers. With the introduction of Variable Recurring payments this is now becoming a push process as well:
a. The end user pushing funds to a merchant – traditional PISP payment
b. A pulled process using VRP where the merchant has been granted authority to pull payments similar to a UK direct debit process
2. AISPs (Account Information Service Providers) enable third-party companies to access consumer banks and obtain information about their accounts.

However, there is a third one often not mentioned:

3. CISPs (Card Issuer Service Providers) are a third party that issues debit cards linked to bank accounts opened at another institution. CISPs do not hold the funds directly but can check the availability on the bank account linked to the debit card and can allow the finalisation of a payment in favour of a merchant.

Open Banking payments thus runs on the rails of A2A payments where in the UK this is the ‘Faster Payment’ rails or in Europe the SEPA Credit Transfer. However, where a consumer directly goes into their account through a website, or app and pushes the funds to a person or a merchant this is just an A2A payment. Open Banking payments are where Payment System Users use the infrastructure i.e. TPP, to enable a payment. That is a third party is used to access their account from an Account Servicing Payment Service Provider (ASPSP) and enable either the push or pull payment.

Whilst Open Banking does not require real-time payments per se to be live in a market, it is challenging to deliver Open Banking payments without it as users are looking for an experience similar to other payment methods. With card-based payments there is a third party that guarantees the funds. Without this third party, the receiver wants to ensure receipt of the funds before they deliver the service/goods. Without real-time payments, this delay between sending and receipt can make the service not realistically effective.

About David Parker

David is the founder and CEO of Polymath Consulting who work on projects across the Cards & Payments industry. David is also an active mentor, NED and advisor to many boards. He has worked across the complete value chain helping banks/Programme Managers/ Processors with their overall strategy right through from market entry analysis and segmentation to scheme certification and membership applications.