Account-to-account (A2A) payments are taking off around the world, driven by booming adoption of the payment method by businesses and payment infrastructure modernization efforts from governments, a report by fintech solution provider FIS says.

The 2023 Worldpay from FIS Global Payments Report, released in March, shares the latest trends observed in consumer payment behaviors and preferences for in-store and online purchases, highlighting this year the rise of A2A payments amid new innovations and advancements in real-time payments.

According to the report, there were 64 live real-time payment schemes globally in 2022, up from 60 the prior year. These schemes are providing high-speed payment rails and are enabling new use cases which are driving A2A payment growth.

In Brazil, the popularity of real-time payment scheme Pix doubled A2A’s share of e-commerce transaction value in just one year between 2021 and 2022. In India, the dramatic success of the Unified Payments Interface (UPI) derives largely from the platform’s seamless interoperability with commercial wallets including Paytm, PhonePe and Google Pay. And in Thailand, real-time proxy payment service PromptPay is enabling a steady stream of innovation, including payment by corporate identification proxy, QR retail payments and request-to-pay functionality.

A2A payments, which refers to payments made directly from one account to another, has long been a popular payment method for business-to-business (B2B) and person-to-person (P2P) use cases, but they are now entering the P2B realm, the report says.

Merchants are increasingly adopting the payment method, drawn by its safety, speed and lower costs. A2A payments reduce the cost of payment acceptance versus cards since transactions are not intermediated by major card network. They also offer instant settlement of funds, enabling thus improved cash flow for merchants.

In 2022, A2A transactions accounted for US$525 billion in global e-commerce transaction value, a sum that represents a 13% increase from US$463 billion in 2021. Through 2026, A2A e-commerce payments are projected to grow at a 13% compound annual growth rate (CAGR).

Emerging markets will continue the lead the movement, with A2A payments expected to make up for 45%, 35% and 28% of e-commerce transaction value in Thailand, Brazil and Peru, respectively, by 2026.

Share of A2A payments in e-commerce transaction value, 2021-2026, Source: 2023 Worldpay from FIS Global Payments Report, March 2023

BNPL enters next phase of evolution

After a dramatic growth phase from 2018 to 2021, the buy now pay later (BNPL) market is now entering its new phase of evolution, a so-called “BNPL 2.0” era which will be characterized by a number of trends, the report says.

First, a new class of BNPL providers comprising merchants, bigtechs, banks, card networks and super apps will emerge. Next, new regulations will be introduced, bringing BNPL more in line with legacy consumer lending products. More repayment terms will also be introduced, going beyond the “pay in 4” or “pay in 6” to include longer terms as well as revolving accounts. Finally, BNPL will be offered in a broader range of verticals and for goods and services at a wider variety of price points.

With more than 200 global providers now offering BNPL arrangements, the crowded sector is also projected to see some market consolidation, a trend that has already started emerging.

A 2022 analysis by Flagship Advisory Partners, a strategy consultancy and mergers and acquisitions (M&A) advisory firm focused on payments and fintech, shows that BNPL M&A started accelerating in 2019.

So far, M&A activity has largely focused on consolidation by well-funded players including Klarna, Zip, Affirm and Afterpay, the report says. As of February 2023, Klarna had made 14 acquisitions, purchasing Israeli risk and fraud management firm Analyzd in 2011, online banking service Sofort in 2013, and German payment company BillPay in 2017, among others. Affirm, meanwhile, had made four acquisitions, namely LendLayer, a startup that provides lending for accelerated learning programs; Returnly, a provider of digital return experiences for direct-to-consumer brands; Sweep, a budgeting app; and Paybright, a Canadian BNPL provider.

BNPL consolidation via M&A and BNPL funding amounts, Source: Flagship Advisory Partners, February 2022

The BNPL sector has faced increased regulatory scrutiny, interest rate pressure and intense competition this past year. But despite the headwinds, the sector stayed resilient in 2022 and remained a popular payment method among customers.

In 2022, BNPL accounted for 5% of global e-commerce spend, with Germany amongst the biggest adopters (23%), followed by Australia (14%) and the Netherlands (13%). Moving forward, the report expects BNPL’s global e-commerce value to grow at a 16% CAGR from 2022 to 2026 to reach a share of 6%.

Share of BNPL in e-commerce transaction value 2018-2026, Source: 2023 Worldpay from FIS Global Payments Report, March 2023

Global e-commerce growth remained robust last year, rising 10% from 2021. All regions, except Europe, recorded double-digit growth with a high of 21% of the Middle East and Africa.

Asia-Pacific led the world, accounting for half (US$3 trillion) of the world’s e-commerce transaction value (US$6 trillion) in 2022.

Global e-commerce transaction value is projected to grow 9% CAGR through 2026 to reach US$8.5 trillion.

Global e-commerce transaction value 2018-2026, US$ billions, Source: 2023 Worldpay from FIS Global Payments Report, March 2023

Featured image credit: edited from Freepik