Yesterday, Nets, a large payments company in the Nordics, and Mastercard announced that "Mastercard has entered into agreement to acquire Nets' account-to-account (A2A) based services including clearing and instant payment services, and e-billing solutions for €2.85 billion." Yet just a month ago, Nets also announced a partnership with Swish to bring the popular A2A-based payments app to physical POS terminals in Sweden.
Aren't the two announcements contradictory? No, not at all! It clearly demonstrates the distinction between two important layers in payments - the interbank clearing and settlement infrastructure, and the overlay services for consumers and merchants. Swish is an example of such an overlay service, which itself has been built on top of Payments in Real Time, a real-time payments system launched by Bangirot, Sweden's payments clearing house.
Mastercard, already a major interbank infrastructure player in cards, is well positioned to be a "rail-agnostic" network, given their recent acquisitions of Vocalink in the UK, and now the Nets unit. Nets will continue to focus on merchant services and processing for financial institutions, and is determined to provide its merchants with a range of acceptance services, in-store and online, irrespective of the underlying rails.
The Nets partnership with Swish is a good example of how A2A payments can be brought to merchants, even in physical stores. It uses Bluetooth Low Energy (BLE) technology to initiate a contactless transaction, during which the amount and the merchant credentials are passed into the customer's Swish app for them to authorise the payment. While there are other ways to use Swish at the POS, such as entering the merchant's commercial short code and amount directly into the app, or initiating the transaction via the QR code, the Nets innovation offers a contactless experience, similar to that provided by NFC technology. The merchant only needs to add a small BLE device, which plugs into the existing POS terminal; the device is branded with Swish logo, so the customer knows where to tap.
The solution is currently in pilot; going forward, it will likely find most adoption for larger purchases. For consumers, the Swish's reliance on strong customer authentication based on Sweden's Bank ID irrespective of transaction size, makes it less practical for low-value in-store transactions. Similarly, for merchants, the Swish's fixed rather than ad-valorem fee makes it particularly attractive for larger transactions. There is another, potentially peculiarly Swedish argument for merchants to explore A2A payments - as Sweden continues to move to an increasingly cashless society, merchants are concerned that relying on single rails leaves them too vulnerable to outages; offering alternative solutions creates redundancy and back up.
Our report Replacing Cards with Account-to-Account Payments for Shopping: Hold Your Horses published last year provided an in-depth analysis of the "battle" between A2A and card rails. In the report we suggested that the pace of A2A payments adoption for merchants in Europe would vary by market. The latest developments show that Nordics are a step ahead of many other countries.