Category: A2A

  • Visa Protects Pay-by-Bank Buyers—A Payments Gamechanger?

    Visa Protects Pay-by-Bank Buyers—A Payments Gamechanger?

    When Visa formally switched on its Pay-by-Bank rail in the UK on 2 June 2025, the headline feature was not speed—open-banking payments have been real-time for years—nor reach, thanks to Faster Payments. The news was the guarantee: a card-style dispute-resolution rule set that promises to reimburse consumers if a transfer goes wrong. Visa says the scheme gives account-to-account (A2A) payments “a similar level of protection typically associated with cards,” positioning Pay-by-Bank as a like-for-like alternative at checkout.

    The move arrives at a delicate moment for open banking. Despite impressive growth—Open Banking Limited recorded 130 million UK payments in 2023, up 90% year-on-year—cards still account for more than three-quarters of UK e-commerce volumes. Consumer surveys repeatedly point to two blockers: habit and fear of losing chargeback rights. Visa’s guarantee tackles the second.

    What the Guarantee Actually Covers

    Details sit inside the Visa Product & Service Rules, but public statements outline three pillars:

    1. Reimbursement for unauthorised or erroneous payments (mirroring card “zero liability” rules).
    2. A formal dispute-resolution window in which consumers can raise a claim via their bank app.
    3. Scheme-level arbitration if the merchant and consumer fail to agree.

    Under the hood, the service rides Pay.UK’s Faster Payment System. Visa’s API handles tokenisation, transaction messaging and dispute flows; settlement occurs in near real time, while the guarantee obliges participants to prefund a liability pot for refunds.

    Why Protection, Not Price, May Be the Catalyst

    Open-banking advocates have long pitched A2A as cheaper and faster than cards, yet adoption in high-income markets has lagged. A recent Financial Times piece noted that consumer awareness, trust and card incumbency still hinder Pay-by-Bank growth in Britain “despite years of investment”. Visa’s own 2024 Nordic study found that fully 48% of respondents would try A2A “only if buyer protection matched cards.” In other words, price is secondary; perceived safety is primary.

    Merchant maths tell a similar story. Card acquiring fees average 1.4% in UK online retail, yet many merchants hesitate to remove cards because a single high-profile fraud event costs more—in refunds and reputation—than the savings from cheaper rails. Visa’s guarantee shifts that risk calculus: merchants still pay a (yet-undisclosed) service fee, but the liability for fraud or non-delivery now sits inside a familiar rulebook rather than in bespoke contracts.

    The Scale of the Opportunity

    If protection closes the trust gap, Pay-by-Bank could eat into the “everyday card” segment: utilities, telecoms, streaming subscriptions and, eventually, one-click retail. Visa claims that broader A2A adoption could unlock £328 billion in UK economic output across five years. Even a modest share shift—say 5% of the UK’s £250 billion annual e-commerce spend—would reroute over £12 billion through Faster Payments.

    For banks the draw is stickier users and fee income on dispute processing; for fintech aggregators like Plaid the prize is richer transaction metadata (mandate IDs, refund statuses) that they can resell to merchants for reconciliation.

    Questions Visa Hasn’t Answered Yet

    Who funds refunds?
    Card schemes push chargeback costs to acquirers, who pass them to merchants. Visa’s Pay-by-Bank will need a similar waterfall—likely a prefunded pool plus merchant debit—yet participants have not disclosed fee tables. Without clarity, merchants cannot model total cost of acceptance.

    Will banks throttle volumes?
    Open-banking APIs still suffer time-outs: Open Banking’s April dashboard showed a 0.47% failed-call rate and 0.14% outright rejects. If disputes rise, some banks may cap transaction sizes or velocities, limiting the scheme’s appeal for high-ticket merchants.

    Can the guarantee scale beyond the UK?
    The launch is UK-only, leveraging Faster Payments’ instant settlement and Pay.UK’s central infrastructure. Replicating protections in the eurozone would mean mapping to SCT Inst and myriad local consumer-protection regimes; in the US, FedNow has no scheme-level guarantee. Visa must convince regulators—and banks—that its rules can sit atop disparate clearing houses.

    Competitive Ripples

    Mastercard, which entered open-banking via its 2019 acquisition of Finicity, already pilots a “liability shift” for account-based payments in the Netherlands. Specialist PISPs such as TrueLayer and GoCardless tout variable recurring payments (VRP) with optional insurance wrappers. Visa’s move may force rivals to hard-bake indemnities rather than sell them as add-ons.

    Card issuers face a defensive dilemma: encourage Pay-by-Bank to keep volume inside the Visa/Mastercard orbit, or resist and risk ceding ground to open-banking-native challengers. Early evidence suggests embrace: Nationwide and NatWest appear on Visa’s partner list, betting that a bank-branded app journey beats a third-party overlay.

    Regulatory and Consumer-Duty Context

    The UK’s Consumer Duty pricing-transparency review in May 2025 put cross-border providers on notice for muddled fee disclosures. Domestic A2A players felt the tremor, too: any “zero-fee” claim must show FX mark-ups and dispute-resolution timelines. Visa will need to publish its guarantee rules in plain English and prove that refunds arrive promptly—standards already baked into card chargebacks.

    On the infrastructure side, the Joint Regulatory Oversight Committee (JROC) is drafting mandatory service-level agreements for open-banking APIs. If SLAs land near card-network uptime (99.999%), A2A could become a high-availability rail suitable for energy and telecom direct debits, not just ad-hoc P2P transfers.

    Merchant Economics: Case Scenarios

    Utility bills – A water company paying 0.9% interchange on card autopay could cut the fee to perhaps 0.3% under Visa A2A (exact pricing TBD) and gain instant settlement. The catch: integration. IT teams must map mandate IDs to legacy billing cycles.

    E-commerce checkout – A £45 apparel order routed via A2A saves 60 pence in fees versus cards, but the retailer must still cover the guarantee risk component. If that premium lands at ~0.2%, net savings fall to ~0.5%—a margin but not a revolution.

    Subscriptions – For streaming services wrestling with chargeback fraud, a bank-verified mandate plus Visa guarantee could lower involuntary churn and clawback costs. But acquiring gateways will compete aggressively on blended pricing; merchants may demand a revenue-share to migrate users.

    Consumer Experience: Will They Click?

    Friction matters. Card-on-file requires no extra step; Pay-by-Bank asks for authentication inside the banking app. Though Visa claims a single mandate can enable one-click repeat use, the first checkout step remains longer than typing the CVV. Unless merchants surface explicit benefits—“instant refund if we ship late,” “no credit-card surcharge”—consumer inertia may persist.

    Trust is the wildcard. A 2024 Visa survey found 72% of UK adults “feel safer” knowing a retail purchase can be reversed; only 38% said the same about bank transfers. The guarantee must close that perception gap quickly, otherwise protection exists only on paper.

    Outlook: Necessary, Not Sufficient

    Visa’s guarantee is a critical puzzle piece for A2A adoption, but not a silver bullet. Protection narrows the trust deficit; experience (fast, low-friction auth) and economics (meaningful savings after scheme fees) must follow. Regulators will scrutinise transparency under Consumer Duty, and banks will demand a revenue share commensurate with risk.

    Still, the launch reframes the conversation. Pay-by-Bank is no longer a low-cost, high-risk alternative; it is a premium rail backed by the same dispute machinery that built card dominance. Whether that promise convinces shoppers to click “Pay from Bank” instead of “Visa” is the question every merchant, PISP and issuing bank will watch over the next holiday peak.

  • Australia’s Rate Cut Just Tilted the Board for PayTo

    Australia’s Rate Cut Just Tilted the Board for PayTo

    The Reserve Bank of Australia’s 25-basis-point trim on 20 May 2025 nudged the cash rate down to 3.85 percent, its lowest setting in two years. Headlines focused on mortgage relief, yet the bigger subplot sits inside the plumbing of account-to-account (A2A) payments.

    Cheaper money slashes the opportunity cost of float—the few hours or days during which merchants and billers wait for funds to clear. That is exactly the friction PayTo, the request-to-pay overlay on the New Payments Platform (NPP), was built to erase.

    Why the cash-rate move matters

    • Float math flips – When overnight cash earns less, merchants gain little by hanging on to batch files and delayed settlement. Real-time clearing becomes the cost-neutral default.
    • Lower funding spreads – BNPL providers and invoice-discounters who rely on warehouse lines see their borrowing costs fall, narrowing the price gap with PayTo’s straight-from-bank-account pull.
    • Consumer sentiment – A rate cut usually lifts retail spending; friction-free checkout captures the impulse faster than card rails that still settle on next business day.

    Momentum was already building

    Westpac IQ reported in February that the NPP now carries 35 percent of all Australian A2A transfers, up from barely 10 percent five years ago. The same note argued that business adoption of PayTo is the next “unlock” and could push real-time share into the high thirties by Christmas. Add a cheaper cost of capital, and that 40-percent milestone starts to look conservative.

    AusPayPlus data underlines the trend: 1.63 billion NPP transactions in 2024, a 23-percent jump year on year, with 140 million payments now coursing through the platform each month. Every extra percentage point of A2A migration drains volume from the legacy BECS direct-debit file, which still processes trillions but is slated for retirement in 2030.

    The merchant lens

    Picture a subscription gym. At a 4 percent cash rate, the gym’s bank earns some float income while direct-debit files clear overnight; the gym eats settlement lag as the cost of doing business. At 3.85 percent, and possibly lower later this year, that float premium shrinks. Switching to PayTo means:

    • instant confirmation that a mandate exists
    • real-time funds availability checks
    • no chargeback risk once the payer approves the agreement in their banking app

    With Westpac already piloting dynamic virtual cards that ride PayTo rails for corporate spend, CFOs can see the operational upside: no plastic, file uploads, or reconciliation pain.

    Friction beats fees

    PayTo’s wholesale scheme fee hovers around 4 cents per transaction, projected to dip further as volumes rise. Card interchange on the other hand averages 50–80 basis points for domestic debit. When the funding benefit of float evaporates, merchants care more about per-transaction cost and chargeback risk than about one-day access to cash. PayTo wins on both counts.

    The road to a tipping point

    1. Banks hurry to switch on outbound PayTo – Some still support only inbound agreements. Competitive pressure will sharpen once rivals start marketing PayTo instalments at the checkout.
    2. Platforms bake it in – Accounting and billing SaaS can embed PayTo APIs, offering small businesses instant settlement at card-beating economics.
    3. Regulators nudge – The RBA wants the 1970s-era BECS file gone by 2030. Each rate-cut cycle strengthens the argument that now is the cheapest migration time.

    Watch these metrics

    • Mandate growth – AP+ will release fresh PayTo agreement numbers in July. Anything above one million live mandates will confirm acceleration.
    • Cost pass-through – Large utilities and telcos may start sharing their PayTo fee savings with customers as bill-payment discounts, turbo-charging awareness.
    • Deferred debit cannibalisation – If PayTo eats into BNPL’s low-value instalments, expect card schemes to lobby for higher transaction caps on their own A2A propositions.

    Bottom line

    The RBA’s rate cut did more than soothe mortgage payers. It quietly removed one of the last economic excuses for sticking with overnight direct-debit files. Add growing consumer familiarity with real-time payments and a looming 2030 BECS shutdown, and PayTo now looks poised for its breakout year—perhaps topping 40 percent of all account transfers well before the next Melbourne Cup. The smart money is already rewriting payment flows before the float advantage disappears for good.