Global A2A/real-time payments developments – from adoption to trends; Visa’s Q2 2024 results; The key components of building a card program;
In this edition, we’re diving into the surge in global A2A and real-time payments adoption, the essentials of building personalized fintech products, and the transformative impact of AI on the banking sector.
Insights & Reports:
Curated News:
TL;DR:
The adoption of Account-to-Account (A2A) and real-time payments is surging globally. In the U.S., high interchange fees are pushing the shift towards ACH, which, despite longer confirmation times, remains cost-effective and widely used on platforms like Venmo. The newly introduced FedNow system is expected to revolutionize this space with instant settlement and low fees. Europe, however, is leveraging A2A for unique use cases like egaming and high-value transactions, with initiatives like Bizum offering instant mobile transactions and the European Payments Initiative working towards a unified A2A solution and digital wallet. Latin America's Pix system, accounting for 20% of the region's total ecommerce transaction value in 2023, continues to impress with its cost-effectiveness and strong authentication, and upcoming features like Pix Agendado Recorrente aim to democratize recurring payments. In the Asia-Pacific region, real-time payment systems like India’s UPI, China’s IBPS, and Australia’s New Payments Platform are setting the standard with widespread adoption and interoperability.
We're also exploring how to build personalized fintech products. By leveraging Third Party Providers (TPPs) and customer data, banks can create hyper-personalized offerings that meet specific customer needs, driving retention and satisfaction. For example, a bank can use transaction history to preemptively meet the credit needs of SMEs, improving customer relationships and retention. Understanding the regulatory landscape and investing in technology, such as standardized APIs for secure data sharing, are crucial for these innovations.
Additionally, we cover the essentials of launching a card program, highlighting the need for network licenses, regulatory approvals, and robust payment processors. In Africa, fintech companies are addressing the needs of a largely unbanked population with innovative digital solutions, offering both challenges and opportunities.
On the corporate front, Visa's Q2 2024 results showcase strong financial performance, with GAAP net income at $4.7 billion, driven by a 10% increase in net revenue to $8.8 billion. Payments volume and cross-border transactions saw significant growth, contributing to this success. Meanwhile, AI continues to revolutionize banking by enhancing workforce productivity, optimizing software code, and improving risk management and customer retention. AI-powered digital agents are reducing customer wait times and enhancing the overall customer experience.
In our curated news, we look at the European Central Bank's push for Revolut to bolster its EU bank controls, Chase's new policy on credit card payments for third-party BNPL plans, and fintech startup Coast's impressive fundraising efforts, securing $40 million just four months after their last raise.
Insights & Reports
Global A2A/real-time payments developments – from adoption to trends
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In the United States, the adoption of Account-to-Account (A2A) payment rails is primarily driven by the high interchange fees associated with card payments, as these fees are not capped and remain significant. The primary A2A rail has been the Automated Clearing House (ACH) network, known for its cost-effective transactions despite longer confirmation times. ACH is widely integrated with platforms like Venmo to reduce costs and improve margins. The introduction of the FedNow system in 2023 is expected to revolutionize this space, offering both low fees and instant settlement.
In Europe, the cost of card payment processing is significantly lower than in the US, so businesses are less concerned with processing costs. Consequently, A2A payments in Europe focus on other use cases, such as supporting high-risk businesses like egaming and betting, which benefit from Open Banking. A2A payments are also vital for high-value transactions, utilities, and recurring bills. While Open Banking payments are not yet recurring, the industry is working towards this goal. The most widely adopted A2A payment method in Europe is direct debit, valued for its ease of use, reliability in recurring transactions, low cost, and low friction for users. Notable developments include Bizum, a Spanish banking sector initiative offering instant mobile transactions, and the European Payments Initiative (EPI), which aims to create a unified A2A solution and digital wallet (wero) for Europe.
Africa’s Banking and Lending Tech Sector
Africa has a large unbanked population, and many of its banked citizens have limited access to savings and credit products, which presents a sizable opportunity for FinTech companies in the region
✅ Informal Banking Services in Africa
🔹 Informal Credit: Borrowing from family and friends, stores, microfinance institutions and other private non-bank lenders
🔹 Sou-sous: Savings clubs in which groups of people gather regularly and contribute a fixed amount of money to a pool, with one member of the group taking the entire pool from each gathering on an rotating schedule
🔹 Stokvels: Invitation-only clubs of 12+ members which serve as rotating credit unions, where members contribute a fixed amount of cash on a weekly or monthly basis; common in South Africa
The system – which mirrors the continent’s largely local and small-business led economy – has thrived in Africa, especially in areas where regularly-scheduled, in-person meetings are more accessible than digital and mobile services. But the existing system has several issues including cash security and record keeping, and as Africa’s digital revolution continues, consumers will expect more reliable, convenient services.
Curated News
ECB Is Pushing UK Fintech Revolut to Bolster EU Bank Controls Amid Review
The European Central Bank is pressing Revolut to improve the financial crime controls and governance of its unit in the bloc, after a review flagged concerns similar to those delaying the UK fintech’s bid for a banking license in its home market.
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Helping you make sense of going Cashless | Best-selling author of "Cashless" and "Innovation Lab Excellence" | Consultant | Speaker | Top media source on China's CBDC, the digital yuan | China AI and tech
5moHi Sam, Great read. For developed regions like the US or EU, you rightly point out that A2A is a response to high interchange. I think that between A2A, CBDCs, and even the EU's zero-fee debit cards, the card companies must be anticipating a much leaner future!
Founder & Board Advisor | Fintechs | Emerging Tech | Payments | Financial Inclusion G20 GPFI | Open Banking & Finance | Public Policy | Keynote Speaker | Investor | Former HSBC, VISA, Maersk
5moReal-time payments are revolutionising the financial landscape, driving new business models and transforming the way we transact. As payments become virtually free thanks to Digital Public Infrastructure, we're witnessing unprecedented growth in transaction volumes and the emergence of innovative services that leverage this seamless, cost-effective framework!