Money movement is moving into the future across new payment rails.
That’s why, if the transition from paper cash to electronic money ever feels to you as though it is happening exceedingly fast — it is.
And if money movement today feels like it’s happening so fast that it might as well be real-time, you’d also be right — because it increasingly is.
“Merchants today want three things: a great UX, which means high conversion; a low cost, meaning less fees; and a non-refutable transaction, so no chargeback,” Craig McDonald, chief business officer at open banking FinTech Trustly, told PYMNTS.
“The fact that they can get settlement in real time is an added bonus,” he said.
In terms of requests for payment (RFP), real-time rails are “not ready,” McDonald said, noting that widespread adoption of real-time payments (RTP) “from an acceptance perspective” is still probably a couple of years away.
Trustly was part of the drafting committee for FedNow, the Federal Reserve’s real-time payments system set to launch in July, and is a major processor of today’s RTP transactions.
But as RFP real-time rails wait on their silver bullet, it’s important to remember that instant isn’t everything.
In fact, merchants across categories are increasingly turning to account-to-account (A2A) payments to meet those key needs listed above.
If the world’s ongoing digitization has just one transformative impact, it is continually evolving payment methods.
McDonald explained that while real-time rails have the potential to disrupt the status quo, open banking is key to unlocking their full potential.
“Any merchant is really trying to see how they can increase conversion and reduce their cost of payment acceptance,” McDonald said.
Still, for certain everyday spend categories, the actual cost to the merchant of a real-time rail may be at or above that of debit, at least for low-dollar transactions, he added.
That’s why, from a disbursement standpoint, real-time payments represent “an absolute runway success and winner.” For RFP occasions, A2A payments can, at times, offer more value and utility to merchants.
“In some cases, real-time rails will be fantastic, while in others, you’ll want to leverage the cost benefits of a debit network,” explained McDonald. “It’s why we believe that A2A represents a superior rail and delivers an optimal payment experience.”
He added that having open banking on the “front end of that” is crucial to driving great UX and accelerating conversion.
That’s because in the near future, being able to route transactions based upon their attributes, such as cost to a merchant or end-user behavioral profile, to either a real-time rail or to a debit network, could eventually disrupt the card-dominated U.S. market.
“We have embedded economics and structures that are in place [already], including consumer incentives, for A2A payments to take hold as a viable payment rail outside of cards,” said McDonald. “If you look at the incumbent payment rails in the card-not-present transaction environment, A2A has a lot of benefits.”
Because with A2A transactions, end-users have to sign into their banks, identity verification and secure authentication are already embedded into the payment occasion.
“You’re authenticating yourself to your bank, so that we know that the consumer is who they claim to be. We know they own this underlying account. And we know that they have the ability to pay,” said McDonald.
“In one form or another open banking has been around, and the adoption of open banking is writ large,” he added.
He highlighted that “the interplay between account-to-account payments and open banking” definitely “go hand in hand” and feed on one another.
“All of these things coming together, open banking, the regulatory framework, real-time rails, and the data to be able to adjudicate a transaction in real-time will provide merchants with what they really want — a positive authorization response, great UX, great conversion, low cost and a non-refutable transaction,” McDonald explained.
Still, no matter how superior a payment rail is, industry collaboration is needed to build out account-to-account payments from an end-to-end perspective. And as always, consumer trust, education, and adoption are essential to accelerating any flywheel effect.
The only missing piece, according to McDonald, is an effective regulatory framework in the U.S. around open banking.
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