Account-to-account (A2A) payments have been around for centuries in the form of checks, but in recent years new forms of A2A payments have transformed the way consumers send money to friends and family and to themselves between their own accounts.
In this article, we’ll define exactly what an A2A payment is, examine how A2A payments have evolved alongside fintech, and look into what the future holds for A2A payments—in particular in the consumer-to-business (C2B) space.
What is an A2A payment?
Account-to-account (A2A) payments are payments made directly between two bank accounts without an intermediary like a credit card company or third-party financial institution. A2A payments are typically only used by consumers and are either ‘me-to-me’, ‘me-to-you’, or ‘you-to-me’. A2A payments are most commonly used in P2P payments platforms like Venmo, CashApp, and Zelle.
Popular payment rails for A2A payments
The most popular A2A payment rails (the means by which payments are sent) are the Automated Clearing House (ACH) and paper checks. Checks are the ‘original’ A2A payment, and ACH is the next evolution, i.e. the digitized check. Many adults remember getting checks in an envelope from their relatives on birthdays and holidays. The younger generation may not experience that, instead getting Venmo or PayPal transfers.
Both ACH and checks are low-cost options, but they can take hours or days to settle. There are also ‘real-time’ payments that represent the next evolution of A2A payment rails.
Real-time payment rails include The Clearing House’s Real-Time Payments (RTP) network, which can instantly send payments but for a higher fee than ACH. The Federal Reserve is also launching a real-time rail called FedNow, scheduled for release in July 2023.
Consumers come into contact with RTP when they are given the option to transfer their money from an app like Venmo or PayPal. What we typically see is the free option (ACH), which takes 1-2 business days, or the option to get the money instantly for a percentage fee through RTP.
For decades, the value of check payments far outnumbered the value of ACH transactions. However, since the rise of digital payment systems, direct deposit payroll, and P2P payment apps, ACH value has greatly surpassed checks. The total value of bank payments (check and ACH) dwarfs other non-cash payment types such as credit and debit cards (see below).
A2A payments have been central to the evolution of the fintech industry, primarily through ACH.
The fintech ecosystem is built on the ability to connect apps and bank accounts for transferring funds. Investment apps like Robinhood, P2P payment apps like Venmo, and crypto trading apps like Coinbase all heavily rely on the availability of easy and low-cost A2A payments.
When a new customer signs up for a fintech app, they now expect to be able instantly fund their new account directly from their bank account. In the past, connecting accounts for A2A payments was done with voided checks or confirming account numbers through microdeposits. Thanks to advancements from tools like Plaid Auth, account verification can now happen in as little as seven seconds.
This instant connection has been central to the evolution of fintech, not just for payments, but for providing the secure account data needed for personal financial management, wealth management, and more.
→ With Plaid Transfer, companies can use Plaid not just for instant account verification, but for also processing payments—either through ACH or real-time payment rails.
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Opportunities in account-to-account and bank payments
With the advances in instant account authentication, it wasn’t difficult for ACH to digitize the check experience. Digitally native processes and apps for transferring funds between accounts led to the dominance of ACH for account-to-account payments in the consumer-to-consumer (C2C) space. Where most of the challenges—and opportunities—lie is with consumer-to-business (C2B) payments.
Today, merchants heavily rely on card networks like Visa and Mastercard to collect payments from consumers, but it is costing them. In fact, a $100 purchase on a credit card costs a merchant around $3, compared to around $0.60 with ACH. If they were to deploy ACH at scale, the $2.40 savings per $100 transaction would create tremendous savings over time for businesses of any size.
Imagine a large enterprise generating the savings that ACH payment offers across billions of transactions. For companies like Walmart, Amazon, and Starbucks, this would amount to hundreds of millions—if not billions—of dollars saved.
Yet merchants tolerate this fee because of three things: security, speed, and consumer familiarity. Card networks settle instantly, putting the money in the merchant’s account right away.
With ACH, the transfer can take hours or days. This means that even if the consumer has funds in their account at the time they authorize payment, there may not be a sufficient balance in the account at the time the transaction settles - creating the possibility of an ACH return. When an ACH payment is returned, the merchant does not receive the funds, so would need to look for other ways to collect payment from the consumer.
Also, consumers are used to taking out their cards when it’s time to pay. If consumers had a reason to want to use their bank account to pay (such as a loyalty program with rewards), this could change their preferences. Buy now, pay later apps like Klarna and Afterpay have emerged as an alternative that consumers are used to seeing in online checkout flows, but bank payments largely haven’t shown up alongside those yet.
A2A payments opportunities in C2B will come from solving speed, security, and demand
The opportunity in bank payments for C2B lies in solving these security, speed, and consumer demand issues. This could make C2B payments more like A2A payments that consumers use to pay each other (e.g. through Venmo).
One way of solving this is with real-time payments (RTP) which settle instantly and aren’t subject to returns, but the cost savings aren’t as significant as with ACH. To rely on ACH, merchants need both a low-friction way to enable payments (through e-commerce or point-of-sale) and tools that can help them reduce the likelihood of returns and fraud.
If a merchant is offered fast settlement speed, certainty that settlement will happen, and a payment method consumers are interested in using, then bank payments could become as ubiquitous as cards are today. This is where the big, disruptive opportunity lies in the bank payments space.
→ Need to reduce the risk of ACH fraud and returns? Plaid Signal provides an instant risk assessment and enables you to customize payment flows based on the likelihood of an ACH return.
Merchants with frequently repeating purchases lead the way
Businesses that regularly service customers for the same type of purchase provide a strong use case for setting up direct bank payments with their customers. Gas stations, in particular, have led the way in setting their customers up with bank payments.
Many of us have seen these options at the pump, where a chain gas station has a sign asking customers to download an app and save $0.10 per gallon. The reason they’re willing to pass on that savings is that the app uses ACH for bank-linked transactions, which are significantly cheaper for them to process than credit cards. These apps not only reward customers for using ACH but create other incentives such as rewards points and exclusive discounts available only in the app.
Examples of gas station apps that offer discounts and rewards for bank payments include:
SmartPay Rewards, which offers $0.10 off per gallon, and rewards points that can be redeemed for free items at the convenience store.
Fuel Forward from 76, which uses ACH through its Direct Pay tool for bank-linked payments. It offers $0.05 off per gallon and kickback points that can be used for rewards.
The Chevron App, which allows users to make bank-linked payments through Venmo and PayPal, and has its own rewards program.
Can account-to-account payments work for e-commerce?
While it hasn’t yet widely caught on, many entrepreneurs see an opportunity in adding the ability to pay by bank through mobile e-commerce apps. Bringing the same kind of customer experience that we see with the gas station apps above to ecommerce gives merchants a chance to save money on fees, offer exclusive discounts and rewards, and build stronger brand loyalty.
One such entrepreneurial venture is Ansa, a fintech startup that’s created a ‘wallet-as-a-service’ platform for merchants that handle a high volume of small transactions, which is where credit card fees hurt the most. Ansa enables merchants to create a closed-loop payments system within their own mobile app.
Customers can upload funds to the app to use for in-app payments. Merchants can incentivize customers to use the app with rewards, incentives, and enhanced customer service options—similar to how the gas station apps get repeat customers to sign up.
The future: More A2A payment options and a multi-rail ecosystem
The first step in advancing A2A payments was evolving from paper checks, which has been largely achieved. The next was making A2A payments faster, which has also been achieved, but with a fee (at least for now).
The future of account-to-account payments will be a multi-rail payment ecosystem with more consumer options—not just for transferring money between accounts, but for paying businesses and receiving payouts from them. Already we see the option to transfer funds for free and wait 1-2 days or pay a small fee to get the funds now. We should expect to see more options like that outside of the ‘me-to-me’ use case.
In the consumer-to-business (C2B) world, the options for bank-linked payments will sit alongside card payments. You can either sign up for the app and start getting discounts and earning rewards points, or continue to pay by card if you’re not into that. You may only want to sign up for the bank-linked payments app for your everyday merchants and not when you’re an infrequent shopper.
The advancements in A2A payments are bringing more options, more discounts, more rewards, more loyal customers, and lower fees. The payments industry is ripe for improvement, and the future looks interesting.