The Rise of A2A payments and what it means for carrier billing & alt. Payments

Application-to-application or account-to-account (A2A) payments are growing in popularity globally, with services springing up in a variety of markets, propelled by the ease with which they allow consumers to pay for things.

Account-to-account payments are electronic transfers of funds from one bank account directly to another. Fuelled by instant banking, which allows accounts to instantly move funds, A2A payments are simple and almost friction free, allowing a payer to simply open their banking or payment app, scan a QR code and move the money to the payees account.

According to The 2023 Global Payments Report, A2A payments are projected to grow by 13% through 2026, resulting in a global ecommerce market size of almost $850 billion. Today, A2A payments are the leading online payment method in Finland, Poland, Nigeria, Malaysia, Thailand and The Netherlands.

The growth of mobile payments – and the resultant decline in card payments – has seen A2A grow rapidly. In developing and under-banked markets, where mobile phones are more ubiquitous than cards, A2A has started to gain a real foothold with those that are new to having a bank account.

In India, the Unified Payments Interface (UPI), the local A2A payment tool, has seen exponential growth. Similarly, Pix in Brazil has also grown rapidly. The tie-in with the biometrics on phones has also seen these services viewed as being very secure.

In Europe, Apple Pay and Google Pay dominate, but these newer markets are ripe for homegrown alternatives that make digital payments really simple.

For merchants, A2A offers some real advantages. It is simple to implement and, being simple for customers to use, it has a really high conversion rate.

It also offers substantially lower transactions costs compared to pretty much all other payment mechanisms.

Above all it is instant movement of funds, which is great for cashflow and guarantees they get paid.

IMPACT ON DCB

This could be seen as a potential threat to carrier billing. DCB has thrived in these very markets –particularly in low-banked Africa and Middle Eastern markets as it offers a rapid and easy way to pay for goods consumed on the phone itself.

It has, however, always fallen short when it comes to purchasing physical goods.

A2A payments neatly fill this gap in some markets where there are growing numbers of middle class consumers who are starting to earn enough to want a bank account. And once these people are on-board with A2A, then it could well usurp DCB.

But the news isn’t all bad for DCB. Many markets still see DCB as the simplest way to pay, particularly for the vast majority who don’t have a bank account – they can convert their cash to mobile credit, from which they can buy things.

Also, in the highly evolved European market, there are already significant advances in DCB –especially in Germany – towards seeing carrier billing become a physical and quasi-physical tool for payments.

As we reported in the last issue, mobile payment and performance marketing provider InternetQ has become one of the first German providers of carrier billing solutions to receive permission from the German Federal Financial Supervisory Authority (BaFin) to provide payment services.

As a regulated payment institution, the permit allows InternetQ GmbH to offer even more comprehensive services related to payment transactions from a single source. For example, non-digital goods such as electricity, ride share offers or licensed sports betting and casino services can also be settled via InternetQ GmbH.

Similarly, fellow German payment provider DIMOCO has also been granted permission to use carrier billing to bill for bike hire. German MNOs have also got together to give DCB a brand name and a logo in the country to help educate consumers in its use and veracity.

The beginnings of a third Payment Services Directive – PSD3 – in Europe is also hoped to pave the way for an expanded role for carrier billing in the payment landscape in the coming years.

The potential for bringing DCB into shoppable rich business messages via RCS is also likely to give the payment channel a boost.

So, while A2A is growing and is likely to rapidly become a key payment tool worldwide, DCB still has a very large and active niche to fill in many of the world’s markets and will continue to be a key payment tool for many years to come