Account-to-Account payments (also known as A2A payments) allow for the direct transfer of funds between two bank accounts. And they’re quickly gaining popularity. While credit cards and digital wallets still dominate the payments landscape, A2A payments are faster, more inexpensive and more convenient than either. In this article, we’ll lay out everything you need to know to get up to speed about this payment method, including:
What A2A payments are
The different kinds of A2A payments
The different use cases for account-to-account payments
The advantages and disadvantages of a2a payments
The state of a2a payments across the world
What are Account-to-Account Payments?
Account-to-account payments are payments made directly between two bank accounts. They bypass intermediaries like credit cards and digital wallets, making them more inexpensive for merchants and more convenient for users.
A2A payments have seen widespread adoption in the form of P2P (peer-to-peer) payments (think Venmo), but they’re increasingly being used in other scenarios too.
Peer-to-Peer (P2P): Allows individuals to transfer money directly to each other, simplifying cost-sharing and personal transactions.
Business-to-Business (B2B): Facilitates transactions between companies, streamlining supplier payments and enhancing financial operations.
Business-to-Consumer (B2C): Enables businesses to directly pay customers, employees, or settle claims, improving efficiency in disbursements.
Me-to-Me: Permits users to move funds between their own accounts at different banks, aiding in personal finance management.
Consumer-to-Business (C2B): Enables consumers to pay businesses directly from their bank accounts.
How Do Account-to-Account Payments Work?
From payment initiation to settlement, here’s a brief overview of how an A2A payment works:
Payment Initiation
The first stage of the process involves payment initiation, in the form of either a push payment or a pull payment.
Push Payments
Push payments are initiated by the payer, who sends funds directly to the recipient's account. These are typically used for one-off transactions or immediate transfers. The payer has full control over the timing and amount of the payment. Examples include online purchases, peer-to-peer transfers, and bill payments. Push payments offer greater flexibility and, with open banking, they can now be processed in real-time, providing instant access to funds for the recipient. Ivy’s Instant Payments are a great example of this.
Pull Payments
Pull payments are initiated by the payee, who requests funds from the payer's account with prior authorization. These are commonly used for recurring transactions such as subscriptions, direct debits, and automated bill payments. The payee controls the timing and amount of the transaction, subject to the payer's initial consent. Pull payments offer convenience for businesses by automating regular payments and improving cash flow predictability. Read our page on recurring payments for more details on how this can benefit your business.
Authentication
Once a payment is initiated, the system authenticates the payer's identity using various security measures. For push payments, this typically involves Strong Customer Authentication (SCA), which requires at least two independent factors: something the user knows (e.g., password), has (e.g., phone), or is (e.g., fingerprint). For pull payments, authentication occurs when the payer initially authorizes the recurring transactions.
After authentication, the sending institution authorizes the transaction. This involves checking for sufficient funds, compliance with regulatory requirements, and internal risk management protocols. For push payments, this happens in real-time, while for pull payments, it occurs when each scheduled transaction is processed.
Transaction Risk Analysis (TRA) may be employed to evaluate the risk level of each transaction, potentially triggering additional security measures for high-risk activities. This process ensures that only legitimate and approved transactions proceed, maintaining the integrity and security of the A2A payment system.
Settlement
Settlement is the final stage of an account-to-account payment, where funds are transferred from the payer’s bank account to the recipient’s account. This process ensures that the transaction is completed and both parties receive confirmation of the payment. Traditionally, settlement could take days, but with advancements like Ivy’s open banking API, this process has become faster and more efficient.
Popular Payment Rails for A2A Payments
Account-to-Account (A2A) payments utilize various payment rails, each offering unique features and benefits. Here are some of the most popular payment rails for A2A transfers:
Single Euro Payments Area (SEPA): Used across Europe, SEPA facilitates efficient cross-border transfers in euros. It includes SEPA Credit Transfer (SCT) and SEPA Instant Credit Transfer for real-time payments.
Faster Payments: This UK-based system enables near-instantaneous settlements, typically within seconds.
Automated Clearing House (ACH): Widely used in the United States, ACH handles various transaction types, including direct deposits and bill payments.
A2A Payment Use Cases
A2A payments can be used in a number of different ways, in sectors ranging from ecommerce, to crypto, to FinServ and more.
Ecommerce
Online Payments: An A2A payment option can be added to checkouts to enable customers to directly transfer funds from their bank account to a merchant’s. This saves on costs by bypassing expensive intermediaries like cards and wallets. With providers like Ivy, funds are transferred instantly, improving cash flow.
Instant Refunds: With A2A transfers through providers like Ivy, businesses can issue instant refunds to customers, which improves customer satisfaction and makes processing returns simpler.
Learn more about how ecommerce companies use A2A payments here.
Crypto
Pay-ins: A2A payments can enable customers to on-ramp fiat seamlessly and securely. For merchants, this reduces both transaction fees and chargeback fraud.
Payouts: A2A payments can allow customers to effortlessly off-ramp fiat to their bank accounts, improving customer loyalty and retention rates.
FinServ
Deposits: A2A payments enable customers to quickly and securely transfer funds into financial service accounts directly from their bank.
Withdrawals: A2A payments allow transfers from financial platforms directly to users' bank accounts. This method provides immediate fund access, reducing processing times and improving overall customer experience.
Public Sector
Benefits Disbursement: A2A payments enable government agencies to distribute benefits quickly and securely, directly to recipients' bank accounts. This method improves efficiency and reduces administrative costs associated with traditional disbursement methods.
Taxes: A2A payments streamline tax collection and refund processes for government agencies.
Insurance
Claims Payouts: Insurance companies can disburse claims directly into customer bank accounts, reducing administrative overhead and improving customer satisfaction.
Premium Payments: Policyholders can effortlessly pay their insurance payments directly from their bank account and set up recurring payments.
Personal Finance
P2P Payments: A2A payments facilitate transfers between individuals' bank accounts, eliminating the need for intermediaries. This method offers a secure and cost-effective way to split bills, repay friends, or send money to family members.
Investment Platforms: A2A payments enable users to quickly fund their investment accounts directly from their bank. This streamlined process allows for faster trade executions and more efficient portfolio management, enhancing the overall investing experience.
Travel and Hospitality: A2A payments offer a convenient way for travelers to make bookings and payments directly from their bank accounts. This method can reduce transaction fees for businesses and provide instant refunds, improving customer satisfaction in the travel industry.
Benefits of A2A Payments
Lower Costs: By bypassing expensive intermediaries like credit cards and wallets, A2A payments can significantly reduce costs for merchants.
Faster Transactions: With next-gen open-banking based A2A providers like Ivy, funds are available instantly, which improves cashflow.
Better Customer Experiences: A2A payments can make the checkout process seamless for users. There’s no need to remember credit card details or store payment information, all transactions are completed securely through the customer’s bank app.
Drawbacks of A2A Payments
Integration Complexity: A2A payments can be tricky to implement, but solutions like Ivy make implementation quick and easy.
Fragmented Landscape: The A2A payments landscape is fragmented, with regional differences – a problem that Ivy is solving with its best-in-class coverage for European A2A payments. One single API gives companies access to 5000+ banks across Europe. Ivy’s Smart Routing Engine also selects the optimal payment rail for every transaction, thereby minimizing payment failures and increasing conversion.
User Adoption: Users tend to gravitate towards familiar methods of payment like credit cards and digital wallets. Offering incentives at checkout can motivate users to switch to bank payments.
Global Adoption of A2A Payments
Global adoption of Account-to-Account (A2A) payments has been rapidly increasing, with significant growth projected in the coming years. Juniper Research predicts that the volume of global A2A payment transactions will surge from 60 billion in 2024 to 186 billion by 2029, representing a 209% increase. This growth is driven by factors such as improved security, faster transaction speeds, and lower costs for both consumers and merchants.
In Europe, the adoption of A2A payments has been particularly strong, driven in part by regulatory initiatives such as the Payment Services Directive. However, challenges remain, including the need for consumer education and overcoming the dominance of existing payment systems like credit cards and digital wallets.
FAQs
What are A2A payments?
A2A payments are direct transfers of funds between bank accounts without intermediaries like card networks. They offer faster processing, lower fees, and enhanced security. A2A payments have gained popularity due to open banking initiatives and technological advancements, enabling seamless transactions across various use cases.
Are A2A payments safe?
Yes, A2A payments are generally considered safe due to bank-level security, strong customer authentication (SCA), encryption, and fraud monitoring systems.
What is the difference between P2P and A2A payments?
P2P payments are a subset of A2A payments, specifically for transfers between individuals. While all P2P payments are A2A, not all A2A payments are P2P. A2A encompasses a broader range of transactions, including business-to-business and consumer-to-business payments.
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Sources last checked on: 28 January 2025
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Ivy GmbH or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional. We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
