The payments giant is launching a new real-time A2A sandbox to help banks and fintechs test next-gen use cases, aiming to drive adoption and unlock billions in untapped value.
A children’s sandbox is a safe, contained space where imagination can run free. It allows children to build, explore and experiment without real-world consequences. This simple idea has been adopted in the world of financial services through the concept of a digital sandbox.
A digital sandbox is a secure, controlled environment where new technologies, services or systems can be tested safely. It encourages innovation while minimising risk, making it easier to trial ideas before they are launched in the real world.
On June 24, Mastercard announced it would launch its fifth-generation account-to-account (A2A) instant payment technology in the UK via a digital sandbox.
The environment will act as a testing ground for interested companies to engage with the new A2A offering and collaborate with Mastercard to foster new support and growth for the payment method, which is growing year upon year.
A2A payments saw significant growth in the UK last year; Juniper Research revealed a 212% increase in usage, worth an estimated $102bn in payment value. This growth is expected to continue to reach $235bn by 2027.
Backed by instant settlement times, lower transaction fees and a more secure authentication process, A2A payments like ‘Pay by Bank’ are quickly gaining momentum across both merchants and consumers alike.
However, despite the UK financial services firms leading A2A payment innovation for the last 20 years, barriers continue to be obstacles for true mass adoption.Mastercard is aiming to refine and develop the technology to modernise A2A payments into its next growth cycle.
Speaking to Payment Expert, Peter Reynolds, Executive Vice President of Real Time Payments at Mastercard, revealed some of the use cases Mastercard is hoping to develop within the digital sandbox for A2A payments.
“At Mastercard we understand the importance of industry-wide collaboration, and the A2A sandbox is designed to build on this, giving banks and fintechs a way to develop new tools for the next generation of UK payments,” he said.
“We aren’t defining what customers do, we’re providing the tools so they can innovate and experiment themselves. But we can do this supporting innovation for banks, fintech and merchants as they look to explore new use cases using ISO20022 standards with rich data, including fraud reduction, retail payments, digital wallets, and tokenised assets.”
Within Mastercard’s initial announcement, it revealed the global card network will look to introduce a 5-leg credit transfer for confirmation of funds. This will enable consumers to make retail real-time payments while the merchant receives instant confirmation of payee.
A breakthrough in adoption?
When asked if Mastercard identified an opportunity to help foster growth among merchants and customers, Reynolds said there is a “powerful use case where merchants could make use of real-time payments to transact, either with other businesses or directly with consumers”.
“Mastercard is determined to help people pay and be paid in any way that suits them,” continued Reynolds.
“Our report with EY reported that there’s as much as £9bn annually that could be unlocked through new A2A services and with meaningful regulation.”
While debates have been thrown back-and-forth as to who should shoulder the burden for wider adoption between consumer and merchant, Mastercard highlighted it is keen to work with the UK government and regulatory officials to encourage wider adoption.
The Faster Payments Service is currently in operation within the UK and forms the regulatory backbone for the growth of A2A payments amongst banks and fintechs. This comes amidst a developing EU Instant Payment Regulation which is set to be introduced later this year.
“The A2A ecosystem in the UK is one of the most dynamic in the world, with components like BATCH and real-time payments touching pretty much every part of the economy,” added Reynolds.
“The UK government is keen to look at how we can encourage growth, and the National Payments Vision sets out some bold challenges to address.”
Some of these challenges the UK government seeks to address include upgrading the Faster Payment Service to support the growth of A2A payments, backed by three key pillars; innovation, security and competitiveness.
Reynolds anticipates the New Payments Vision to guide A2A payments on its upward trajectory, as well as being a bedrock for what it can achieve in the digital sandbox with banks and fintechs collaborating in a safe environment.
He concluded: “The New Payments Vision is driving growth and updating the A2A space in the UK. The Sandbox gives us a place to bring this to life, and for banks, fintechs and merchants to start the journey, in a safe and secure way without disrupting existing services and come up with new ideas and input into their and the industry’s future plans.
“By allowing banks and fintechs a place to test their ideas, we can be ready for the evolution of A2A in the UK.”
