Account-to-Account Payments Place Treasurers at the Heart of the Digital Payments Revolution

With non-cash payments on the rise, a jump in e-commerce business models, and real-time payment clearance systems increasingly prevalent, innovation is thriving in the retail payments space. A recent TMI webinar explored account-to-account payments to analyse how they can help treasurers support the digital transformation of their organisation.

The retail payments arena is in the middle of a golden age of innovation. The already transformative sector was supercharged by the Covid-19 pandemic, as companies raced to offer e-commerce stores and online payment options to retain and grow their customer base. As a result, the decrease in cash usage also accelerated during this time. In 2020, for example, data from trade association UK Finance shows that the number of cash payments made in the UK fell by 35%.^[1]

Neil Pein, Global Head of Axepta and Head of Payments Transformation, BNP Paribas, notes that there are three key drivers of this payments revolution: “The first trend is the role that technology is playing, particularly with regard to immediacy. Payments used to take one day, and even more for cross-border, and now you can verify them through instant notifications. Then there is the digital revolution in smartphones, which have made payments almost invisible. This creates a high-quality integration for banks and payment service providers with the client. Finally, there is the evolution of regulation, through developments such as open banking, allowing startups to provide specific payment services.”

Todd Clyde, CEO, Token agrees with Pein, particularly on the immediacy point, noting that developments such as the adoption of real-time national clearance systems, such as Faster Payments in the UK or SEPA Instant in Europe, have had a tremendous impact.

 “SEPA Instant was a major upgrade to the national clearing systems in Europe, bringing instant settlement to banks,” Clyde says. “And PSD2 [Payment Services Directive 2] has been an amazing catalyst to how banks provide APIs that allow consumers to access data or initiate payments from their accounts.”

These two trends have created a tremendous inflection point, enabling account-to-account (A2A) payments to emerge as an alternative form of payment. In fact, Clyde believes we will now start to see A2A payments challenging the dominance of cards and digital wallets. What’s more, A2A payments are helping to challenge the boundary between the in-store and e-commerce shopping experiences.

Bringing online benefits to the offline world

The 2021-2022 edition of Journeys To Treasury,^[2] the annual report from BNP Paribas, PwC, SAP and the European Association of Corporate Treasurers (EACT), highlights the need for unified commerce – the blending of the physical shopping experience with the benefits of online retail.

“The unified commerce world is all about the experience,” affirms Pein. “Not only are payments becoming almost invisible but the frontier between what happens in the physical world and what happens online is also disappearing. Ninety percent of all sales start with a Google search, for example. For merchants, unified commerce offers the potential to recognise a customer, track their customer journey and offer them specific services. This makes shopping easier for consumers, which is key for merchants.”

Another example of the power of unified commerce can be seen in how the in-store shopping experience can be improved. The challenge for traditional shops is to bring the online warehouse directly within the physical store, to increase the space to display items, and to decrease the number of cash desks.

“This is exactly what we’ve done with Axepta, for instance, for FFT [Fédération française de Tennis] in Roland-Garros last June,” explains Pein. “We revisited the complete customer experience at the store so that, now when you enter the Roland-Garros store, there is a salesperson with a shopping tablet. You could either buy directly in the store and take your items home or buy on the tablet from the salesperson and have it delivered to your home. Many companies are investing in this, as they realise that digital transformation is vital for their business.”

For corporate treasurers, this matters because the payment is a vital element at the centre of such a digital transformation. The importance of the payment in every customer journey presents a great opportunity for treasurers to be at the centre of their own organisation’s digital transformation.

Bridging the gap

A2A payments can also play a crucial role in bringing about the unified commerce vision outlined earlier, supporting the shift from physical to digital transactions.

“We can bring offline payments into online payments,” explains Clyde. “We accomplish this by using a QR code, a ‘pay by link’ or a ‘request to pay’ to bring the payment from an in-store point of sale to the shopper’s mobile device for the payment. You could be in a warehouse store configuring a large purchase, and right there at the checkout you’re prompted to your phone or to your email to push a payment, rather than pulling out a card.”

This highlights how A2A payments put the bank right at that point of sale, enabling them to offer new services to customers. BNP Paribas and Instanea is already live with that capability in France. As Clyde explains, there have been a few challenges to negotiate in getting to this point.

“We faced a couple of challenges, the first being the availability and usability of APIs,” Clyde says. “It felt like we were building a payments network by connecting 3,000 pieces of technology that we didn’t build. There were certain delays in the regulation that delayed availability. The quality and usability of the APIs were initially very unfit for purpose, but we’re getting there now. The user experience has improved, conversion rates are starting to exceed those of cards in certain countries. The second challenge is the adoption of SEPA Instant. It’s a big priority for the European Payments Council, but there is still a long way to go for SEPA Instant to be universally adopted in Europe. We need to continue to advocate for that.”

Corporate treasurers have the potential to obtain the same benefits from an A2A solution as consumers in terms of low-cost payments, faster settlement times, and the ability to reach anybody with a bank account. But the corporates also have the challenge of reconciling payments. To solve this issue, Token has blended A2A with another recent development in the payments world: Request to Pay (RtP).

“RtP simply enables a supplier to encode a transaction with the details of both the purchase and other beneficiary account information, and then when the payment is initiated those same details are combined with the payment and travel with the payment,” notes Clyde. “This solves the major headache of reconciliation. It is an excellent example of how A2A payments can be tweaked to accommodate the corporate needs and solve a big problem in B2B payments as well.”

RtP is also shaping up to be a critical tool to drive traffic away from cards and towards A2A payments.

“It helps to move commerce from physical to digital, and it’s much more convenient for consumers as it lets them schedule if they don’t want to pay now after receiving a prompt,” adds Clyde.

Continued advancements in retail payments trends

A number of the trends in retail payments seen today will continue to unfold and deliver innovation during the years to come. This is the case with unified commerce and with the emergence of A2A payments as a mainstream payment mechanism. A further trend to look out for is the unbundling of services traditionally seen around credit card payments.

“If you think about a credit card payment, it is a 30-day loan, a loyalty programme, cashback and purchase protection,” says Clyde. “Those services are now being unbundled from that form of payment and are being rebundled around A2A payments.”

Elsewhere, the concept of Buy Now Pay Later (BNPL) services has grown exceptionally over the past year or so, mainly thanks to the boom in e-commerce, which looks set to continue into 2022.

“BNPL is a great way to increase the value of a consumer’s basket,” says Pein. “For some large marketplaces that have completely integrated this kind of payment, BNPL can represent 30% or even 40% of their sales. This means that it’s no longer just one form of internet payment – it is the payment method that e-commerce websites rely on. But not all merchants are equipped yet, so there is even more growth ahead for this.”

For Clyde, BNPL is just one example of a more significant trend: “I expect to see lending at point-of-sale, and purchase protection being offered at a point-of-sale, particularly around airline ticket purchases,” Clyde says. “I see the loyalty offers at point-of-sale. This is why banks need to compete in that new layer, because it puts them behind that payment while enabling them to bundle new services for customers.”

A chance for treasurers to seize the day

For corporate treasurers, developments such as A2A payments represent a chance to actively drive a digital transformation within their own organisations.

“What we are seeing from our clients, corporates, and merchants is that it’s time for investment,” Pein comments. “After Covid, we see many companies investing in unified commerce and their own digital transformation. The treasurer is the perfect candidate to realise that transformation and to be at the centre of this project, thanks to the role that payments will play in those transformations.”

Clyde agrees, concluding that: “A2A is emerging as a very promising payment method, and I would encourage corporate treasurers and payment professionals to take a look at that as a payment mechanism. We see it providing lower costs, improved conversion rates, and we’ve solved the challenge of reach by using PSD2 APIs.”