It’s been five long years since the UK introduced its “open banking” reforms promising that new technologies would help consumers and small businesses get better financial services. Reforms have been slow to deliver on that promise, but innovation is now accelerating, thanks to companies such as Atoa Payments, which want to squeeze paid Visa and Mastercard cards out of the payments loop.
Atoa, which today announces the completion of a $2.2 million pre-seed funding round, is aiming squarely at the two payment giants. Each time a customer makes a payment on their debit card, the transaction takes place on rails controlled by Visa and Mastercard, points out Sid Narayanan, co-founder of the company.
“This means the merchant has no choice but to pay a 1.5-2% fee on the transaction,” Narayanan explains. “There are other issues too – merchants don’t get the money for one to two days, which causes cash flow problems, and card payment service providers usually want them to sign extended contracts. who lock them up.”
To add to merchant frustration, the UK has a great payment alternative that costs nothing and settles the transaction immediately. The Faster Payments service allows UK bank account holders to instantly transfer money to recipients at no cost to both parties. In an ideal world, merchants would therefore ask all their customers – in-store or remotely – to pay by bank transfer rather than by card. But that’s not practical, because setting up a wire transfer requires the customer to initiate and manage the transaction in their banking app; consumers would balk at the inconvenience of having to do this every time they make a purchase.
Enter Atoa. Its technology allows consumers to pay by bank transfer at the point of sale rather than by card – and to do so instantly, without all the usual administration required to set up such a payment. To make this possible, the merchant downloads Atoa’s app and then displays a QR code to customers; when the customer wants to pay, all they have to do is scan the code, which then automatically sets up the payment in their banking app – all they have to do is authorize it.
Consumers themselves only need a UK mobile banking app on their phone. Atoa’s technology uses a payment initiation API to connect the app to the merchant’s bank account, to issue a payment instruction.
“We can reduce merchant fees by up to 70% by removing Visa and Mastercard,” Narayanan adds. “We also save merchants money because they don’t have to buy payment hardware up front or pay a monthly fee to rent it; Moreover, they receive their payment instantly and there is no need to commit to a long contract. »
In practice, Atoa’s fees start at 0.6% per transaction, which significantly reduces the card payment fees that merchants currently have to pay. Merchants processing large volumes of transactions will be entitled to even lower fees – potentially as little as 0.3% per transaction.
There is a huge market for the company. There are over 4 million small and medium businesses in the UK that currently rely on card payments from customers. Not all have the size and power to negotiate better rates with Visa and Mastercard, and could benefit from a move to bank transfer-based payments. In the longer term, Atoa also sees larger companies adopting its technology.
One question is whether consumers will accept this new method of payment. Card payment is such an ingrained habit that some customers may not like being asked to pay another way. However, Cian O’Dowd, the company’s co-founder, thinks customers who understand traders’ frustrations will be eager to help. “We need to raise awareness, but people know how tough the high street is right now and they want to support small businesses.”
Certainly, the company seems to be gaining traction with merchants. Signups have increased 100% per month since the company began offering its technology in June. “It’s new to customers and will take some getting used to, but it’s very simple,” says O’Dowd. Atoa is regulated by the Financial Conduct Authority, he points out, which should reassure consumers; in any case, the company never touches their money – it just asks the bank to transfer money to the merchant.
The key will be to make sure people are familiar with using bank transfers rather than card payments. While there is already significant competition in the small business payments market, new and rapidly growing providers such as Zettle and Square are relying on card payments; this inevitably exposes merchants to Visa and Mastercard fees.
The company’s fundraising should help Atoa spread the word. The pre-seed round was led by Leo Capital and Passion Capital, and also included angel investors such as Matt Robinson, co-founder of GoCardless and Nested, and Moon Capital Ventures. Anil Stocker, co-founder and CEO of MarketFinance, serves as an advisor to the company.