We expect instant account-to-account (A2A) payments to gain a meaningful share of the online payments market in the coming years.

For consumers, A2A payments are already a seamless and secure alternative to debit card transactions, with a user experience increasingly on a par with wallets such as Apple Pay. And for merchants, the benefits are even more significant: instant settlement of funds, lower rates of fraud (as transactions are bank-authenticated), and at lower cost than either wallets or traditional card rails. These benefits are most keenly felt where instant settlement is integral to their customer experience (such as financial services use cases), for high-value transactions, or in higher-risk categories such as travel where transaction costs and fraud rates are higher.

A2A payments have already been widely adopted in certain European markets in the form of local, regional or privately-owned schemes like iDEAL (which has a nearly 75% share of all Dutch e-commerce TPV), SOFORT, and Vipps. We believe that standardisation – in open banking frameworks and real-time schemes such as Faster Payments and SEPA – will unlock broader adoption across European markets, allowing merchants to provide unified payment experiences across a much wider region. Indeed, the replacement cycle for products such as SOFORT and Giropay that are currently being deprecated is already accelerating demand.

As the landscape matures in the coming years, we expect to see several trends play out:

• PSP adoption driven by growing merchant demand: PSP adoption will be key to unlocking scalable distribution in this market, and we see more and more PSPs looking actively at integrating open banking payment providers, despite potential cannibalisation of their card-driven revenues. Over time, we expect some PSPs to look at M&A for a fully-integrated solution.
• Enhanced consumer offerings: as adoption grows, we expect to see providers invest more deeply into buyer protection and wider consumer offerings such as rewards to enhance the value proposition and expand their monetisation footprint.
• Pricing will stabilise: we expect rates for A2A payments to stabilise (or even expand) as the market consolidates. Already, in a tightening capital market, providers are finding it unsustainable to continue buying market share. We expect A2A payments to remain meaningfully cheaper than card rails, but take rates in the industry will have to settle for providers to operate with sustainable margins.
• Cross-border opportunities: we expect cross-border fees to become a meaningful ancillary revenue stream for instant payments providers, as providers support merchants collecting and disbursing internationally.

We believe that the most successful players in the coming years will be offering end-to-end payment solutions for merchants and PSPs, combining tech and financial infrastructure to support collections, reconciliation, and pay-outs and lower the barriers to adoption. Operating with a proprietary network infrastructure will also be important, allowing providers to maintain control over the payment experience as well as their margins. Finally, we believe significant value will be gained in future from having built a trusted consumer brand to increase merchant and consumer loyalty, and to build a platform for additional post-purchase revenue opportunities.

Dawn has already backed two players operating in this market – firstly open banking pioneers, Tink, on the journey to their $2bn acquisition by Visa – and more recently, Brite, whose $60m Series A round we led in 2023.