Open Banking and A2A Payments Explained

The global infrastructure for value exchange is undergoing a significant transformation, more impactful than the introduction of the magnetic stripe or chip card. For decades, commerce has primarily relied on a model established in the 1950s: the credit card network. This system involves a complicated structure with issuing banks, acquiring banks, and centralized card schemes.

A new approach is emerging that challenges this dominance through regulatory changes and technological advancements. This report offers an in-depth look at open banking and A2A payments. It provides modern merchants with a practical guide to navigate this shift.

The Shift in Global Payments

The global open banking market was valued at about USD 31.61 billion in 2024 and is expected to grow to USD 135.17 billion by 2030. This indicates a Compound Annual Growth Rate (CAGR) of 27.6% during this period, showing a strong and steady increase in adoption. At the same time, the number of Account-to-Account (A2A) payments is projected to rise from 60 billion transactions in 2024 to over 186 billion by 2029.

This growth is not gradual but exponential, driven by the development of instant payment systems and widespread mobile banking usage.

Merchants are increasingly focused on payment methods that provide “instant liquidity”. In the traditional card system, it typically takes two to three days to settle a transaction. In contrast, modern A2A solutions use real-time gross settlement (RTGS) systems to transfer funds in seconds.

What is Open Banking?

Open banking is the governance and data layer. It refers to the rules and technology that allow banks to share customer financial data with regulated Third-Party Providers (TPPs). It is the “pipe” through which information flows.

Open banking standards clarify how a third party securely identifies itself to a bank, how a customer gives consent, and how data is structured during transmission.

Open Banking APIs

The technology driving open banking is the Application Programming Interface (API). APIs act as the language and gateway between the bank\s internal systems and the TPP.

• Structured Data: Rather than parsing visual HTML, the TPP receives clear, structured data, usually in JSON format, directly from the bank’s database. This ensures high accuracy and prevents errors from interface changes.
• Tokenization: One major security improvement is the removal of credential sharing. When a TPP connects via an API, the user does not provide their password. Instead, they are redirected to the bank’s secure authentication portal. After logging in, the bank issues a secure access token to the TPP. This token works as a digital key, granting access only to the specific data or functions the user has allowed, and can be revoked anytime without changing the user’s banking password.
• Performance: APIs enable real-time data retrieval. For lenders, this means immediate access to a borrower’s verified income and expense history. For merchants, it allows instant confirmation that a customer has enough funds to make a purchase.

The Role of Consent in Open Banking

In open banking, consent is the key governance mechanism. It is the “opt-in” step that legitimizes data sharing. The consent process typically follows a standard pattern known as the “Redirect Flow” or “App-to-App Flow”.

This process ensures high levels of transparency:

• Scope Selection: The TPP explicitly outlines its request, such as “Allow [Merchant Name] to initiate a single payment of $50.00”.
• Authorization: The bank shows the user a “Consent Screen” that reiterates the TPP’s request, which the user must confirm.
• Sovereignty: Open banking dashboards let users see all active consents and revoke them with a single click, cutting off the TPP’s access immediately.

What are A2A Payments?

Account-to-Account (A2A) Payments are the execution layer. This term represents the actual transfer of money from the payer’s bank account to the payee’s bank account without using card networks like Visa or Mastercard.

While A2A payments have existed for years as manual transfers or ACH batches, modern A2A payments stand out due to their integration with open banking APIs. This allows for payment initiation directly within a merchant’s checkout process, providing an experience similar to card payments but with the advantages of direct credit transfer.

Bypassing the Card Rails

To understand A2A efficiency, we must examine the cost structure of the card model. When a customer swipes a card, a complex chain of intermediaries activates, each taking a share of the transaction.

• Interchange Fee: This fee is paid by the merchant’s bank to the customer’s bank, funding rewards programs and risk management, ranging from 0.2% in Europe to over 2.5% for US commercial cards.
• Scheme Fee: Paid to the card network (Visa, Mastercard) for using their digital infrastructure.
• Acquirer Markup: This is the markup by the processor for their services and profit margins.

The combined effect of these layers results in the Merchant Discount Rate (MDR), which can cost businesses between 1.5% and 3.5% of gross revenue.

A2A payments avoid this whole structure. Because the payment is a direct transfer between banks, there are no interchange or scheme fees. The cost is usually just a low flat fee or a minimal percentage with a cap.

Types of A2A Transfers

Push Payments vs. Pull Payments

• Push Payments (Credit Transfers): The payer (customer) actively sends funds to the payee. Since the customer has authenticated and initiated the transfer, reversing the transaction is not easy, which enhances settlement certainty.
• Pull Payments (Debit Transfers): The payee (merchant) takes funds based on prior permission, like Direct Debits. These transactions are slower, have higher failure rates due to insufficient funds, and can be reversed.

Instant Payment Rails

• SEPA Instant (Eurozone): Settles euro transactions in under 10 seconds, 24/7/365, across 36 countries.
• Faster Payments (UK): The backbone of the UK fintech sector, processing billions of transactions.
• RTP and FedNow (USA): The US is modernizing with the private. RTP network and the public FedNow rail, both offering instant settlement.
• Pix (Brazil): A global benchmark for A2A success launched by the Central Bank of Brazil.
• Unified Payments Interface (UPI) (India): A massive, bank-to-bank mobile instant payment system processing billions of transactions monthly.

How They Work Together: The Mechanics of the Transaction

For merchants integrating these solutions, understanding the technical workflow is crucial.

Step 1: Initiation

The process starts at checkout. Instead of entering card details, the customer chooses “Pay by Bank”. The merchant’s server sends information to the PISP’s API, including the amount, currency, creditor account (IBAN), and a unique reference ID for tracking.

Step 2: Authentication

The merchant redirects the customer to their banking app via a secure URL. On mobile devices, this uses “Universal Links” or “App Links” to open the banking app directly, bypassing the browser. The user authenticates using Strong Customer Authentication (SCA), often through face scans or fingerprints. They review the payment details and confirm.

Step 3: Settlement

Once confirmed, the bank debits the user’s account in real time and sends a payment instruction to the clearing system. The funds arrive in the merchant’s account within seconds. The merchant receives a success notification, marks the order as “Paid”, and releases the goods. This entire process can take less than 10 seconds.

Benefits for High-Risk and B2B Merchants

While the advantages of open banking apply to all merchants, they are especially transformative for specific categories like high-risk industries (iGaming, Forex, Crypto) and B2B businesses:

• Reduced Transaction Costs: In standard card transactions, fees increase with transaction value. A $50,000 wholesale payment could incur over $1,250 in fees. Open banking payments can lower this to almost nothing with flat-fee structures. Travel industry case studies show savings of up to 85% on processing fees.
• Elimination of Chargebacks: Open banking payments use SCA (Strong Customer Authentication) directly within the user’s banking app. This creates a cryptographic proof of authorization that is almost impossible to dispute.
• Faster Cash Flow: Card acquirers usually settle funds on a T+2 or T+3 basis. For high-risk merchants, acquirers often withhold 5-10% of revenue for up to 180 days to manage potential chargebacks. A2A payments settle via instant systems, providing T+0 liquidity.
• Automated Reconciliation for B2B: Manual wire transfers often arrive with missing reference data, leading to administrative challenges. Open banking APIs let merchants include structured payment information, like Invoice IDs, in the payment details. This information travels with the payment and appears on the bank statement, streamlining the reconciliation process.

Conclusion

We are moving from a system that relies on expensive intermediaries and outdated card infrastructure to one based on direct connections, secure cryptography, and instant settlements. This is not just a small improvement. It represents a significant change in how efficiently global commerce operates.

Merchants face increasing risks if they do nothing. To navigate this environment, merchants should use resources like the bilixe. Bilixe offers a searchable database of payment service providers (PSPs). Whether a business needs high-risk processing, B2B reconciliation, or specific regional instant payment options, bilixe helps compare and connect with suitable partners.

The foundation for a quicker, cheaper, and safer financial system is built. It is now up to modern merchants to connect.

FAQ: Open Banking and A2A Payments Explained