McKinsey: The prospects for open banking payments in the US

Merchants welcome these payments because the transactions are low-cost, irrevocable, and more secure than other payment methods. Use of A2A can significantly reduce fraud and charge-backs, as well as eliminate interchange fees. These benefits accrue because every transaction is authenticated by a consumer’s online banking credentials and uses real-time rails. Merchants can elect to pass the savings on to consumers or improve margins by retaining them.

Consumer-to-business payments remain a key target for A2A. We estimate that US A2A payments—consumer purchases made remotely at the POS and excluding any type of bill payments such as utilities and mortgages—could surpass $200 billion in volume by 2027, representing a compounded annual growth rate of 19 percent and a roughly 5 percent share of US digital commerce spend. Automated clearing house (ACH)–based A2A has traction in certain government and utilities use cases, where cards are often surcharged or not accepted.

In the United States, A2A payments have been slow to catch on. One reason is that, in the absence of a regulatory framework, banks have been at a competitive disadvantage in staking out a strong presence in the payments marketplace. Also, Americans love their credit cards and the rewards that come with them, so dislodging the popularity of cards is perhaps the biggest challenge to US adoption of A2A.

Although card companies have a dominant US market position, A2A could offer banks a more competitive and standardized way of making payments while giving consumers and merchants more options. For banks and other institutions, the data provided by open banking could help generate a wide range of financial services, including enhanced insights and analytics. Consumers could benefit from potentially lower costs and improved customer journeys. With these benefits in mind, our analysis of payments in North America estimates that A2A could handle about $200 billion in consumer-to-business transactions by 2026 and potentially much more in other types of payments. The impact may be limited for daily transactions with a retailer or service provider but larger for big-ticket and recurring payments such as utility bills, insurance payments, and more.