Title: The Rise of Account-to-Account Payments: How Open Banking Fuels the Fintech Boom
Introduction: Fueling the Rise of FinTech through Open Banking Payments
The global financial landscape has been undergoing a significant transformation with the advent of Open Banking. This shift towards Open Banking payments, especially in the European Union (EU), has effectively fueled the rise of Financial Technology (FinTech) startups. By leveraging Open Banking standards, these startups have been able to create wallets and function as neobanks, revolutionizing day-to-day banking operations for consumers.
1. The Dominance of Digital Wallets in E-commerce
Digital wallets have emerged as the world’s leading payment method in e-commerce, accounting for a majority 49% market share. According to the Worldpay Global Payments Report, this dominance is expected to continue as digital wallets provide convenience, security, and ease of use for online transactions. However, a new trend in account-to-account (A2A) payments is gaining momentum, with the global value of A2A transactions projected to exceed $525 billion by 2022. The availability of real-time payment pathways has facilitated this surge in A2A transactions.
2. Riding the A2A Boom: Startups Seizing the Opportunity
An increasing number of startups are capitalizing on the A2A boom, leveraging the potential of real-time payments. One such example is Reliable, a Stockholm-based startup that has raised 23 million euros to date. Their focus on A2A payments has allowed them to tap into the growing market demand.
Another potential player in the Stockholm FinTech landscape is Brite Payments. Recently, Brite Payments announced a successful $60 million Series A fundraising round led by B2B software specialist investor Dawn Capital, along with participation from German/US VC Headline and existing investor Incore. Brite Payments, founded in 2019 by former Klarna executive Lena Hackelöer, has experienced significant growth and profitability in 2022. Their platform is currently available in 25 European countries, excluding the United Kingdom following its departure from the EU.
3. The Backing of Industry Leaders: Investors Recognizing the Potential
Dawn Capital, one of the early backers of Swedish FinTech leaders iZettle and Tink, has shown confidence in Brite Payments’ future prospects. Additionally, Headline, known for backing Pismo, a Brazilian payments infrastructure provider, has acknowledged the potential of Brite Payments in the ever-evolving FinTech landscape.
4. Differentiating Factors: Brite Payments’ Instant Account-to-Account Service
In an interview, Lena Hackelöer highlights Brite Payments’ differentiating factor — its focus on instant account-to-account service. While the UK market boasts express payment systems, Europe still lacks widespread instant payment standards. Brite Payments aims to bridge this gap, catering to consumers seeking real-time payment solutions. This distinctive approach sets them apart from first-generation A2A players and positions them as pioneers in the evolving landscape of account-to-account payments.
5. A Global Landscape of A2A Payment Platforms
Countries worldwide are developing their own account-to-account payment platforms to meet evolving consumer demands. For instance, Brazil’s Central Bank introduced PIX, while Canada has Interac Online, an e-commerce payment service offered by Interac. India launched the Unified Payments Interface (UPI) in 2016, through collaboration between the National Payments Council and the Reserve Bank of India. Each country’s A2A payment platform features unique characteristics and infrastructure, reflecting the diverse global landscape of financial technology.
6. Why Merchants Embrace A2A Platforms
Merchants have increasingly embraced A2A payment platforms due to their cost-effectiveness and convenience. Compared to traditional credit card payments, A2A platforms reduce processing fees and offer instant settlement of funds. This shift is driven by both merchants’ desire to enhance profitability and consumers’ gradual transition away from credit cards. The emergence of alternative payment methods such as digital wallets, buy now pay later (BNPL), and point-of-sale financing options has prompted consumers to explore new payment avenues beyond traditional credit cards.
7. Expanding Opportunities: Brite Payments’ Funding Round
With the successful $60 million funding round, Brite Payments is well-positioned to scale its operations and potentially engage in mergers and acquisitions (M&A) within the FinTech industry. The funding round positions them as a category leader in the race towards open banking 2.0, where real-time account-to-account payments are set to become widespread across Europe.
Additional Piece: Exploring the Future of Account-to-Account Payments
As the global financial landscape continues to shift towards open banking and the rise of FinTech, the future of account-to-account payments looks promising. This transformative trend offers numerous opportunities and challenges for the banking and payments industry. Let’s delve deeper into the subject to gain a comprehensive understanding of the implications and potential scenarios:
1. Enhanced Customer Experience
Account-to-account payments enable real-time transactions and instant fund transfers, providing customers with a seamless and convenient experience. By eliminating the need for intermediaries, A2A payments streamline the payment process, reducing transaction time and enhancing overall customer satisfaction.
2. Disrupting Traditional Banking Models
The rise of A2A payments poses a significant challenge to traditional banking models. With FinTech startups leveraging Open Banking standards to offer neobanking services, customers are presented with alternative options that are often more user-friendly, technologically advanced, and cost-effective. Traditional banks must innovate and adapt to remain competitive in this evolving landscape.
3. Regulatory Frameworks and Standardization
As A2A payment platforms continue to gain traction, regulators play a crucial role in establishing comprehensive and standardized frameworks to ensure security, privacy, and compliance. Striking the right balance between innovation and regulatory oversight is essential for fostering a healthy and sustainable FinTech ecosystem.
4. Collaboration and Partnerships
The evolving payment landscape encourages collaboration and partnerships between traditional financial institutions and FinTech startups. Established banks possess deep industry expertise, while FinTech companies offer innovative solutions and agile operations. Collaborations can fuel innovation, offering customers the combined benefits of security, trust, and cutting-edge technology.
Summary:
Open Banking has triggered a FinTech revolution, fueling the rise of startups that leverage account-to-account payments and disrupt traditional banking models. Digital wallets dominate e-commerce, but account-to-account transactions are on the rise globally. Startups like Reliable and Brite Payments are capitalizing on this trend, attracting significant investments and achieving remarkable growth. Brite Payments’ instant account-to-account service sets them apart and positions them as a category leader. The global landscape of account-to-account payment platforms is diverse, with different countries developing their own solutions. Merchants are embracing A2A platforms for their cost-effectiveness and instant settlement of funds. With Brite Payments’ successful funding round, they are well-positioned to scale their operations and potentially engage in strategic partnerships or M&A. The future of account-to-account payments holds exciting prospects, ranging from enhanced customer experiences to regulatory frameworks, collaboration, and disrupting traditional banking models. As Open Banking 2.0 approaches, real-time account-to-account payments are set to become widespread across Europe.
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The move towards Open Banking payments, especially in the EU, effectively fueled the rise of FinTech. Open Baking standards meant that FinTech startups could create wallets and effectively become banks, or at least “neobanks,” in practical day-to-day terms.
Today, digital wallets are the world’s leading payment method in e-commerce, with a 49% share. according the Worldpay Global Payments Report. That said, so-called account-to-account (A2A) payments are on a roll, and the global value of A2A transactions will exceed $525 billion by 2022, as real-time payment pathways are now available.
There have been a growing number of startups now taking advantage of this A2A boom, including Reliable of Stockholm, which to date has raised 23 million euros.
However, they may now feel some pressure from their other Stockholm-based neighbor, Brite Payments, which today announced a $60 million Series A fundraising led by B2B software specialist investor Dawn Capital. Also joining the round were German/US VC Headline (the rebranded eVentures) and existing investor Incore (out of Sweden).
Prior to this round, Brite had raised seed capital from a smaller non-institutional investor. Agof Investments which is directed by Marcos Blom next to Nicolai Chamizo (President of Brite and also CEO of Incore).
Brite, which only launched in 2019 and was founded by former Klarna executive Lena Hackelöer, had a banner year in 2022, claiming to have doubled its transaction volume and revenue, and reached profitability. Its platform is now available in 25 countries in Europe, although not in the United Kingdom (which is no longer a member of the EU).
It is worth noting that Dawn Capital was an early backer of other Swedish fintech leaders such as iZettle (sold to PayPal for $2.2 billion) and Tink (acquired by Visa for $2 billion). Headline has previously backed Pismo, the Brazilian payments infrastructure provider (which moved to Visa for $1 billion).
In an interview, Hackelöer told me that he believes Brite’s payments platform is taking off “largely because we focus on instant account-to-account service, and that means we process transactions between the consumer and us, which really “wasn’t the case before.” . If you look at the UK, we have express payment systems, so it is a market that is of course very mature. But we don’t operate in the UK, we operate in most of Europe at the moment, and there, instant is not yet the standard. “That’s what sets us apart from the first-generation account-to-account players.”
There are currently a large number of A2A payment platforms, each with their own unique features. In Brazil, the Central Bank developed PIX, while in Canada, Interac Online is an e-commerce payment service provided by Interac, a private collaboration between major Canadian banks. Additionally, the National Payments Council of India and the Reserve Bank of India launched the Unified Payments Interface (UPI) in India in 2016.
Merchants are particularly fans of A2A payment platforms because they reduce the cost of accepting payments compared to credit cards, while offering instant settlement of funds. The trend seems to be that consumers are also gradually switching from credit cards to newer alternatives such as direct use of credit cards, digital wallets, BNPL (buy now, pay later) and other point-of-payment financing options. sale. Cryptocurrencies remain a minor payment method. With more A2A payment schemes available than ever, it looks like this trend will continue.
Josh Bell, general partner at Dawn Capital, added in a statement: “We are on the cusp of open banking 2.0. The prospect of real-time account-to-account payments becoming widespread across Europe is on the horizon, and Brite is emerging as a category leader.”
Certainly, in this funding round, Brite is well positioned to use its war chest to scale or potentially enter into M&A deals with other players.
Open Banking led to a FinTech boom — As Brite raises $60M, account-to-account payment grows
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