Account–to–Account payment: Is it really here?
The launch of Open Banking in 2018 enabled regulated Third Party Providers (“TPP”) to enter markets that were long ruled by legacy banks and incumbents. Open Banking uses APIs to connect banks with these TPPs, enabling the direct movement of money between different bank accounts at the consumer’s consent.
Open payments and Account–to–Account (“A2A”) payments are the most attractive and promising applications of Open Banking, creating an inflection point for this form of payment in Europe.
Today, when a customer uses a credit or debit card to pay a merchant, it requires sign–up and authorisation from both parties and a fee of 70–80bps to payment intermediaries such as processors, card networks and the customer’s bank. Settlement of funds can take up to 90 days, depending on the number and nature of intermediaries.
With A2A payments, anyone with a bank account and money in it (obviously!) can authorise a payment. The payment moves directly from the consumer’s bank account to the merchant’s bank account (in some cases through a payments gateway) over national clearing systems instead of card rails. What Open Banking enabled A2A payments mean for the consumer is a better experience with no card number entry, faster and more secure payments. For the merchants, they mean better economics, which includes faster, cheaper, instantaneous, and more secure transactions. Processing and settlement cost is 2–20x lower than cards.
For the merchants, Open Banking enabled A2A payments mean better economics, which includes faster, cheaper, instantaneous, and more secure transactions. Processing and settlement cost is 2-20x lower than cards.
A2A payments are value creative, especially for merchants that process higher value transactions (£50+). And, if incentivised correctly, for customers too. It will inevitably become a major payment method!
However, adoption has been slow. Europe–wide national clearing systems are fragmented, difficult to access, and were designed to move money between banks instead of facilitating commerce. It took companies like Token time and substantial investment to build stable API connections to banks across all EU geographies. With these connections in place, the market is growing, faster now than ever.
Target addressable market includes all non–cash based payment made in Europe: approx. 157bn transactions each year.
In the next four years, the global value of Open Banking payments is expected to exceed $116bn, with Europe accounting for 75% of all transactions. A2A payments will account for 20% of all e–commerce payments in Europe, surpassing credit and debit cards in the next decade.
Use cases with higher average transaction values (£50+), and which value speed and security of payments, are increasingly turning to A2A. Applications in the B2C space include funding e–wallets, paying utility bills, paying off credit card bills, and tax payments (to the HMRC). B2B applications such as request to pay, smart invoicing and AR/AP integration are also increasingly using A2A. Open payment technology is also growing to incorporate new capabilities like Variable Recurring Payments and automated sweeps, which will allow more applications and use cases.
We see huge potential in this market and are proud to back Token.
UK headquartered, Token is a payments technology company facilitating A2A and Open Banking payment transactions. Token is connected to over 80% of bank accounts in the UK and 16 EU countries including UK, France, Germany, Austria, Belgium, Netherlands, Hungary and Poland, representing over 250m potential end–users. Token enables Open Banking payments for Payment Service Providers (“PSPs”), gateways, acquirers, banks and large merchants.
Token is connected to over 80% of bank accounts in the UK and 16 EU countries including UK, France, Germany, Austria, Belgium, Netherlands, Hungary and Poland.
Token has a differentiating enterprise–focussed and payments–first go to market strategy.
Token made a strategic decision to follow a B2B2B go to market via existing payment providers and multiple levels of resellers. The enterprise focussed platform is designed to handle hierarchical distribution systems of payment resellers, including merchant–level customisation and multiple jurisdiction regulatory enablement.
A merchant can offer A2A payments at checkout in one of three ways:
- Own checkout: setup individual API connections to all consumer banks for A2A and add other payment methods on top, bearing the burden of integrations and uptime;
- Part–owned: work with an Open Payment provider for A2A and add other payment methods on top;
- Payment gateway–hosted checkout: work with existing payment gateway or initiator with full suite of payment methods including A2A, credit/debit cards, BNPL, etc., benefiting from existing integrations.
Of the above, Token makes part–owned and payment gateway–hosted checkout possible.
Token provides the Open Banking payment infrastructure to existing payment providers, including gateways, acquirers, card networks and PSPs so they can compete in the A2A category. Instead of selling directly to merchants one–by–one, Token is enabling existing payment providers who have their channels and merchants secured, reaching 80% of all merchants globally.
Selection of customers already working with Token
Token’s payments–first approach required substantial investment in its technology stack, placing high requirements on API stability and call response times – areas that attract lower attention under a data–first product strategy.
Token has pioneered innovation in payment initiation and data aggregation technology, making history by conducting the first end–to–end payment through a public bank API in the UK in 2018. Token has had 98% growth in transaction volume over the last 12 months, and has 22% of the UK market share by number of successful transactions. While the payments market is not a “winner takes all” market, Token is well placed to win in A2A enablement for large payment players.
Customers include Mastercard, HSBC, BNP Paribas, Vyne, Nuvei and Paysafe, among 80 others. More than half of its clients represent sales channels of their own, enabling access to over 50k indirect clients. For perspective, one in three credit cards in the UK can be repaid using Token’s A2A payments platform.
Todd Clyde, the CEO of Token, has 30 years of experience in the digital channels and payment space and has had four successful exits already. Token will use the capital to continue driving the shift to open banking enabled A2A payments across Europe. Its near–term product roadmap will focus on expanding its connectivity network to additional European countries while delivering new capabilities like Variable Recurring Payments and sweeps, refund capabilities, and bulk payment to banks.
