Accelerating Account-to-Account Transfers via Real-Time Payments

Account-to-account payments involve direct electronic fund transfers between two bank accounts, skipping the usual intermediaries like credit cards or escrow services. As digital banking becomes more ubiquitous, A2A transfers have seen increased adoption in recent years, accounting for $525 billion in eCommerce transaction volume in 2022.

In the U.S., however, A2A payment rails have been slow to gain traction due to factors such as sluggish processing times and the entrenchment of existing payment tools like credit cards. Accelerating these transfers by establishing real-time payments rails could set a new dynamic for A2A payments in the U.S., potentially bringing wider adoption.

A2A Payments Frustrate Businesses and Consumers Alike

U.S. Trails in A2A Adoption

How Real-Time Rails Can Improve A2A Payments

Revitalizing A2A Payments

A2A Payments Frustrate Businesses and Consumers Alike

The rising popularity of A2A payments does not necessarily make them a perfect fit for all use cases. Both businesses and consumers have grown frustrated by many of A2A payments’ limitations, including transaction limits and susceptibility to fraud.

A2A transfers often have strict transaction limits, handicapping their use in certain situations.

These limits depend on the financial institutions (FIs) themselves but are typically set at $5,000 per day and capped at $30,000 per month. While sufficient for most individual consumers, these thresholds can pose a significant challenge for small businesses trying to pay vendors. Frustration with such relatively low caps is compounded by the fact that A2A payments are not widely accepted by businesses, forcing users to find alternative payment solutions.

37%

of organizations say they have been targeted by ACH fraud.

A2A transfers lack certain fraud controls inherent in other payment methods.

Unlike credit cards or other transfer methods, A2A payments, including automated clearing house (ACH) transfers, have no mechanisms to revoke or recover funds in the event of fraud. Any money lost is gone forever. While certain A2A transfer methods have lower fraud rates overall than other transaction forms — for example, 66% of firms reported being affected by check fraud compared to just 37% targeted by ACH fraud — this lack of recourse has made many organizations hesitant to embrace A2A rails. Fraud targeting more modern A2A methods like same-day ACH and real-time payments affects just 5% of organizations, however.

U.S. Trails in A2A Adoption

While A2A payments have gained prominence worldwide, their adoption in the U.S. has lagged. Americans, it appears, prefer faster payment methods such as peer-to-peer (P2P) apps to the slower, costlier alternative.

35%

of consumers reported that A2A payments were too slow for their liking.

Americans say A2A transfers are too slow and expensive.

A recent study found 35% of consumers reporting that A2A payments were too slow for their liking, and 36% were dissatisfied with the cost of these transfers. These numbers were even greater among millennial and Generation Z consumers, who much preferred P2P apps like Venmo or PayPal. More than half of respondents said they would trust only their own banks to make payments, however, indicating an interest in some form of A2A transfer, were it not for its low speed and high expense.

Resolving complications could bring broader U.S. A2A adoption.

A2A payments hold great promise for businesses, as they carry lower fees than other options. For example, a $100 purchase on a credit card costs a merchant about $3 to process, while the same transaction would cost just 60 cents via ACH. Security and speed — or, more specifically, the lack thereof — have been a problem for consumers, however. Accelerating settlement speed and ensuring that customers have recourse in the event of fraud could encourage A2A payments’ use, help businesses reduce their margins and, in turn, lead to lower prices, further benefiting consumers.

How Real-Time Rails Can Improve A2A Payments

Real-time payments have become incredibly popular over the past several years as the pandemic pushed payments online and businesses and consumers clamored for faster transactions. Accelerating A2A payments into real-time transactions could boost this channel’s popularity.

The RTP® network recently reached one million daily payments

This accomplishment is a major milestone for The Clearing House, which launched the RTP network in 2017 as the first nationwide instant payment network in the U.S. Account-to-account transfers are a major use case for the RTP network, with businesses and individual consumers leveraging the network to pay vendors, draw advances on their paychecks and manage cash flow problems. The network is currently available across 20 different technology solution providers, offering access to a huge swath of the business and consumer landscape.

1M

Number of daily payments The RTP® network recently reached

Real-time payments are still just a small slice of overall transaction volume, however.

In 2022, real-time payments accounted for just 1.2% of the total spend in the U.S., a negligible amount compared to paper payments’ roughly 18% share and non-real-time electronic payments’ 81%. Experts project that the share of real-time payments will grow in the future, however, at a compound annual growth rate (CAGR) of nearly 33% between 2022 and 2027. This is due to the growing demand for earned wage access as well as the introduction of new real-time options such as the FedNow® Service. Increasing this share of real-time payments volume could also make A2A payments more attractive to consumers.

Revitalizing A2A Payments

A2A payments have the potential to be the fastest, easiest transaction method available to consumers, but they currently fall short of realizing their full potential. In many aspects, A2A transfers combine some of the worst of both worlds when it comes to new and old payments. Like legacy payment methods, they can take some time to clear and cost users significant sums. On the other hand, like newer payment forms, they cannot recover funds intercepted by or mistakenly sent to fraudsters.

Implementing real-time rails could make these payments much more convenient for consumers and businesses, especially consumers wanting to pay for goods and services directly from the businesses themselves. Banks and FIs seeking to increase the prevalence of A2A payments have multiple real-time options available to them, and for businesses aiming to reduce credit card fees, switching to A2A payments will likely reward them richly with customer loyalty.