A2A

Michael Salmony 0:12

Hello, my name is Michael Salmony and I'd like to welcome you to another episode of the Trilogue. And this time we'd like to look at the A2A payments, that's account to account payments. So basically one of the alternatives to cards, where the money moves directly from my account to you without having to type in 16 digit numbers.

Ralf Ohlhausen 0:17

In this time we'd like to look at the A2A payments, that's account to account payments. So basically one of the alternatives to cards where the money moves directly from my account to

Michael Salmony 0:33

The money is moved instantly, irrevocably. So that's really attractive for a lot of people. And we've seen a lot of success of that around the world, Brazil and India, very famous use cases, but also in Europe, iDEAL, Bizum, Swish and the coming EPI and SPAA. These are all account to account payments. So we want to look at that. And Gijs is going to look at it from the bank side and Ralf from the TPP side.

Ralf, why don't you start us off? I know you're a big fan of this.

Ralf Ohlhausen 1:05

Yeah, well, no surprise there. So account to account is what we've done from a TPP's perspective all the time. And maybe worthwhile mentioning that it well, I'm not sure what was first because iDEAL was pretty, pretty early in this. And I think probably before so the bank started doing this before the the TPP's came up.

But it is both like what is it almost 20 years ago, 15 more years ago. So there's a we have been in account to account in Europe for quite some time. for the last, I guess, for the first 10 years or so, it was a bit of a rivalry there between the the bank owned or the bank contracted versions, we used to to call on Online Banking e-Payments, or OBePs.

Gijs Boudewijn 1:37

2005, yeah.

Ralf Ohlhausen 2:01

So iDEAL being the I guess, the showcase example, but there is also there has been Giropay in Germany, EPS in Austria, MyBank and in Poland, Pay-by-Link. Many of those were there. then on the non-bank side, it was exactly what the early PISPs have been doing. SOFORT in Germany, Trustly, later on Tink and you know, all those. it is

a used to be called an alternative payment method. And with cards being like the standard payment method, but I think it has it has grown in it has really caught on in some countries like Holland, but not so much in others, like in Germany was always a bit had a relatively low market share. But it has it's quite some advantages. So if you are

I think it is the most efficient way of moving money from A to B, if you do an account transfer. And the reason why we had cards and wallets coming up was because this account transfers were not done in real time. Initially, you know, years back, it was settled in two

days, three days more than we with with SCT or separate credit transfer stipulating next day settlement, but it was still it was like it took a day. And you need to have, especially for retail payments, you need to have real time guarantee some notification to the merchant that the payment is is is done or will be done is guaranteed. So for cards, we know this is this two step process.

where you have an authorization reservation of funds first, and then you have the settlement later on, but then that just happens in the background. And for wallets, it's also similarly an overlay where especially for those, you know, three corner wallets, like a PayPal where you have essentially an internal transfer. And that's why you know that the real that it is done in real time.

So therefore, you also have that real time functionality of a wallet payment. And well, now with instant payments finally coming, we will have not just credit transfers arriving the next day, but we will have credit transfers arriving within seconds. And that provides that guarantee. And therefore, with the settlement becoming real time itself,

Gijs Boudewijn 4:41

Thank

Ralf Ohlhausen 4:42

I think we're there that we don't really need cards or wallets or any overlay on top of the actual credit transfer.

Michael Salmony 4:52

I mean, that sounds pretty exciting. The stable coin guys might disagree with you that this is the most efficient way of moving money from A to B. They have yet another model, but that's for another episode. But Gijs, you are the champion of how to do this, right? iDEAL in the Netherlands was the best example ever.

Ralf Ohlhausen 4:54

the stable coin guys might disagree with you that this is the most efficient way of moving money from A to B. They have yet another model, but that's for another episode. But guys, you are the champion of how to do this, right? iDEAL was the best example

Gijs Boudewijn 5:06

Ha ha

Ralf Ohlhausen 5:09

ever. Yes, well, and indeed, as well said. And maybe to roll back the movie a little bit, indeed, iDEAL was...

Gijs Boudewijn 5:09

Yes, well, indeed, as Ralf said, maybe it's good to roll back the movie a little bit. Indeed, iDEAL was reinvented because

for historical reasons, the Dutch are not great credit card lovers, at least were not great credit card lovers. And when e-commerce started coming up in the new millennium, the retailers specifically asked for something, cheaper payment method than credit cards, because those were the only

payment instruments available to make payments for e-commerce purposes. at some point in time, the stars were, the setting was ideal, just a joke, between the three large banks that said, but why don't we just transfer money from account to account instead of using cards or whatever? And that's just how iDEAL it came about. It was a bank solution because it's based on the good old credit transfer, not instant.

But as Ralf said, you need something instant, and that was the instant payment guarantee by the issuing bank, the, let's say, the cardholder's bank. And especially in e-commerce, it's not so much that you want to have the funds in real time, but you have the payment certainty in real time. You want to, yes, the money will come, you have a real hard bank guarantee. So as an e-commerce company, you know, yes, I have the guarantee, I will get the money so I can ship the shoes, as we said.

And even to this day, iDEAL is not, the credit transfer is not instant, yet it's still based on the D+1 in the Netherlands, most of the time there's intraday. So instant will add, it will become instant when it becomes Wiro at some point in the future. But that was not a real retail at the moment. we want the underlying credit transfer also to become instant. We're happy with the payment guarantee.

In the Netherlands, we already had eight settlement cycles intraday. So it was already near instant. So for them, they said, we're not going to pay extra to get the money instantly. We want the payment guarantee instantly. And it became hugely successful with many other use cases, also P2P, but also pay by link. You can pay your taxes with it. You can top up anything. Your phone stuff, it's used for topping up stuff in real time.

Yeah, the tragic was a little bit that even before Open Banking was there, even before PSD2 was there, we tried to convince colleagues across Europe, at some point in time, you would also need something A2A as an alternative to, let's say, card payments on the internet. But well, the business model from an initial perspective might be a little bit more attractive. the TPPs had to, let's say, force and indeed Sofort Überweisung

Georg Schardt and his friends with first screen scraping and then we fought many battles in the days about that being illegal or not. But that finally led to the banks having to open up their payment accounts for those third parties which Ralf now represents. And based on instant payments, it really is now a full-fledged alternative.

Michael Salmony 8:23

Absolutely. mean, I've always been super impressed how smart the Dutch were with iDEAL in the pre-instant days to send the guarantee immediately. And that was all that was needed. The merchant just needed to know he's going to get his money. It might be settled a day or two later. The immediate guarantee meant you basically had a thing that looked instant. You had an instant economy even before instant. I thought that was incredibly smart.

I mean, nowadays, of course, with instant, you have the real thing. But let me just ask you one thing Gijs about that, I'm sure Ralf will want to talk about the screen scraping in a second. But just before we get onto that, Gijs a lot of banks in France, in the UK, in the US actually make a lot of money out of cards. isn't there a bit of a dilemma on the one hand, A2A has all these advantages for banks. On the other hand, they do lose card revenues. How do you see that?

Gijs Boudewijn 9:15

Yeah, that is of course the dilemma and that's why we never succeeded in really exporting iDEAL back in the days. As I said, for historical reasons, the Dutch are not very credit card minded. They want to pay the money they have for goods they need and don't want to live on credit. But in other jurisdictions, that payment tradition or history or culture is different. So if you have it based on card payments, especially credit card payments, the business model from an issuing perspective,

was more attractive than changing to a lower cost A2A based alternative. And you can't blame them for that. By the end of the day, banks are commercial institutions that need to make money.

Michael Salmony 9:59

Yeah, but in the end, I think the A2A model will win. There's some people even talk about peak card having been surpassed. But Ralf, I can see your itching to reply to some of the things that Gijs said.

Ralf Ohlhausen 10:11

Well, yeah, I guess there is irony. if know, if banks wouldn't have been so resistant initially in allowing this access, I don't think we would have maybe we would have needed PSD2 and all forcing all the banks to basically come with regulation come with a stick to force everyone doing it. And there is another example on on this payment certainty. So if

all the banks would have used the Berlin Group standard of payment notifications so that they would have basically told the TPP that if and when the payment is done and not just initiated and then we have to cross fingers that it will go through. So if that notification system in the API would have been used, then well, we would not have had to push.

you know, for for instant payments for for actually the money arriving in time, because what really counts in retail payment is the guarantee being instant, the payment certainty being instant. Having the money instant, I think even the majority of merchants, I don't think they would even want it. Because in many cases, they don't even want the settlement the same the same day they wanted once a week or some even only once a month, because it's a fine, it's an overhead for their

finance department to reconcile and to do all of this. I think we could have avoided quite some regulation if we had played ball a bit more friendly at an earlier stage.

Gijs Boudewijn 11:47

Yeah, but Ralf, I can testify that there was a real genuine security concern at the time when e-banking, internet banking was emerging. Rapidly, the banks started falling prey to what was called at the day in the days, man in the middle attacks. And let's say the screen scraping modus operandi was sort of a bona fide man in the middle attack from the bank's perspective, because they could not distinguish

the screen scraping TPP accessing the account or the customer in him or herself. So for banks it was new, they were uncertain. was cyber security was still emerging. And of course there were some competitive concerns as well. But if I recall correctly, it was mainly the security concerns that they didn't fully understand the risks yet. On the one hand, there were already criminals doing man in the middle attacks. And this

from a functional perspective was exactly the same thing, but then from a bona fide party. But hey, how do you know that as a bank that somebody accessing the account, et cetera, et I know.

Ralf Ohlhausen 12:55

Well, there are solutions to this. I mean, at the

time, was already, we were very, very willing to say that, hey, this is my IP address. So this is, I'm the PISP here accessing now. It wasn't meant to be hidden. And with eIDAS and certificates, we already have now a solution for it. And in terms of the credential sharing, which I guess is the main problem that customers would disclose a password. here,

we go, it's those are your credentials. So you just stop, stop issuing passwords and go biometrics or whatever arrive in the 21st century. And then if we if there are no shareable credentials, they can't be shared. Full stop. It's as easy as that actually.

Gijs Boudewijn 13:37

I know, Ralf, but that was

difficult for banks understanding how this all worked. They have legacy systems. It was new. There were concerns, many different concerns, and the time wasn't ripe yet. And that's why we ended up with PSD2.

Michael Salmony 13:53

When we planned this episode, we said, this is going to be a short one. I'm not so sure anymore. I you two still have some old scars, which are still opening up. But I get the impression that the banks are more more embracing this. I mean, I know that from all sorts of other countries, Middle East and other areas where we're open banking and account to account.

Gijs Boudewijn 13:57

But.

Michael Salmony 14:13

is happening in Latin America or in Asia or in everywhere. think it is an absolutely unstoppable force. Contradict me if you see that differently, right? And also the card companies are thinking about how to support this model and even corporation models like IATA Pay where the banks are working with the airline industry to allow everybody to pay their airplane tickets directly from their accounts, saving $8 billion per year in card fees. I think that's the figure.

some strong motors happening there towards account to account or do either of you have any doubts that this is this is the future.

Gijs Boudewijn 14:52

No, I don't doubt, but you have to distinguish it. Let's say what we used to call the international card schemes, they will also have a chunk of the action even not card-based because the international card schemes for which instant A2A is supposed to be an alternative, of course, are also moving into that space and they're just moving money. A transaction is a transaction, be it a card transaction, A2A

these schemes, they don't care. So they will be in that business too. It's not like we're getting rid of the card schemes. No, they will also be big players in the A2A space. And we've seen that them buying up infrastructures and so on and so forth, changing the slogans. We move money. We're not a card company. We're not a credit card company. We just move money. Just tell us how you want it.

Michael Salmony 15:45

Absolutely. mean, if you look

at the acquisitions people like Mastercard have been making all along the value chain just to enable A2A accounts from infrastructure to service providers.

Gijs Boudewijn 15:52

Yep. But that's the best proof of it

will be a success. Otherwise they wouldn't do that.

Michael Salmony 15:57

I mean, they're still called MasterCard, but I think they're moving into a technology company which enables payments and identity and other things. Ralf, you also, you presumably also see the future, right?

Gijs Boudewijn 16:00

Master money.

Yeah.

Ralf Ohlhausen 16:08

Yeah, I

Yes, I think so too. And it is well, we have seen huge growth in the card world also in recent years. And it's sort of still growing. I'm always waiting for when is the tipping point coming? So but I think it is coming or it will come. There just, you know, generic advantages of a push payment versus a pull payment.

because and of course, cards were also one of the reasons was but like 50 years ago, it was only the merchant side which was connected to a network customers were not. So you had to the merchant terminal was the only electronic device in the game. And so that had to basically do the action and then pull the money from the bank of the consumer or the of the payer. But now with everyone having their own connection, and smartphone, etc, you

Well, you don't need that. And having a push payment has it has many advantages. So for starters, you're typically not having a chargeback need. I mean, coming from a merchant's perspective, so typically no chargeback. Also, you don't you're not getting the customers data. So you don't have to protect it. Because most merchants never really wanted that customer data that card data, which then they have to invest a lot of money of securing it and

When they get hacked, they have big fines for getting hacked and GDPR fines, etc. So it's a great advantage from a merchant's perspective, not having to deal with that, with that data. And of course, from a consumer's perspective, well, it I get the merchant data so I can push the money. So and I don't have to give away my data, my details so that he can then pull it from me. So it's a much better privacy.

You could argue that, with the chargeback here, there is a question mark. But then if you know, if, the money is not just pulled at some point in some time from my account, which I can't really control, I have, and if I have to use an SCA, if I have to strongly authenticate the payment, there is actually no, no much need for a chargeback. so therefore the downside from a customer perspective, I think it can also be handled differently. For example, like payer protection or some.

you know, the mechanism mechanisms that could be part of a scheme, then as well. So I think it has really only advantages.

Gijs Boudewijn 18:35

Yeah, well, it's a funny thing. within the closed ecosystem of iDEAL, there never was really much need for a chargeback because there was so much trust in the ecosystem that even if we didn't want that, iDEAL became a trust mark and retailers would gladly refund, push a payment back to a customer that was complaining or that the defective goods received or whatever. let's say that the

Ralf Ohlhausen 18:38

within closed ecosystems.

Gijs Boudewijn 19:02

The hygiene was in the ecosystem, the onboarding of merchants and the behavior of merchants and customers really trusting if I make an iDEAL payment. Of course, if something goes wrong, I will get my money back, even if that is not part of the scheme rules and there is no rules. But that was just sensible behavior of the participants. And you can do that in a small country with a relatively small ecosystem. At the pan-European scale, you probably have to organize that differently because one of the things I'm not sure how much time we still have.

is how do we then scale up this account to account thing to a pan-European scale because we never succeeded in creating pan-European card alternatives. The question is then will we succeed in creating pan-European account to account based alternatives?

Michael Salmony 19:51

And there of course brings us to EPI and a few of the other developments because a number of the things that you two have been mentioning about branding and about trust and about refunds and disputes and everything. These are all in the scheme, which sits on top of a sort of instant payments mechanism. And that's where these things like EPI and others come in, which listeners could of course see in other episodes. Now, my guess is the cards will be with us for still a while. There are some projections it's going to be a few years.

Gijs Boudewijn 19:55

Yeah.

Michael Salmony 20:21

I would go for more for 10 years, if not more, but I think the future is clearly there. So unless either of you do have any burning issues, I would say we're gradually approaching the end of this episode and hope the listeners found this insightful as always and you will see all the connections to the other things that we talk about in other episodes, which I hope you will also enjoy.

So thank you very much for watching and thanks again to Gijs and Ralf for being so lucid on yet another topic around payments.