Request to Pay (R2P) is a hot industry buzzword. While still in its infancy, Request to Pay promises greater control and faster settlement for consumers and businesses alike.
Payments Cards & Mobile’s James Wood goes under the hood to find out how R2P works, and whether the hype is justified.
Declared appetite for Request to Pay across the industry is staggering. Whether it’s consumers, merchants or corporates, R2P is being enthusiastically received as an idea.
As you might expect, R2P specialists have seen stratospheric growth in recent years – though as yet it’s very early days.
Indeed, the hype around R2P makes it sound like a payments phenomenon in the making that could rank alongside Buy Now Pay Later (BNPL) as a cornerstone of payments in the digital era.
According to a recent survey by Icon Solutions, almost nine in ten consumers (87 percent) said they would prefer R2P over Direct Debit transactions given the ability to spread and manage payments that R2P offers.
Seven in ten (73 percent) corporates said they would favour R2P given the quicker and easier reconciliation it allows, while a similar number of merchants would opt for it over debit transactions to avoid card scheme fees.
“When it comes to implementing R2P solutions, banks are being constrained by their current infrastructure and platforms.”
Given such interest, it may come as a surprise that fewer than one in five banks currently offer R2P – and only another third plan to introduce them in the next eighteen months or so, according to Icon’s research.
That’s partly down to how new R2P is as a payment technology, but Andrew Ducker, Senior Payments Consultant at Icon Solutions, says it’s also linked to some of the challenges faced by banks: “Banks are keen to close the gap on their online rivals when it comes to digital payments, but they are being constrained by their current infrastructure and platforms.”
Potential everywhere
Created as a flexible way for bills to be settled between people, organisations and businesses, R2P is a messaging service designed to complement existing payments infrastructure.
It gives invoicing companies the ability to request payment for a bill rather than sending an invoice, and allows customers to pay in full or in part, communicate with the biller, or decline to pay.
Sitting alongside Direct Debit and other payment methods, R2P gives consumers and businesses additional choice and flexibility when managing their finances.
This presents a number of potential advantages for both banks, merchants and their customers.
For all parties, security is a big plus: consumer authorisation happens within a bank’s app or website, meaning R2P transactions are protected by bank-level security.
This can include two-factor authentication and, where appropriate (over £100/€50), the Strong Customer Authentication protocols mandated by the EU’s second payment services directive (PSD2).
From a merchant point of view, R2P payments don’t happen over card rails and thus do not incur interchange fees, something that will be popular with companies currently dependent on card transactions and paying large Merchant Service Charges (MSCs).
Finally, consumers will appreciate the potential for instant settlement in R2P transactions, depending on the method adopted by a bank.
In particular, R2P is proving popular with micro-merchants and “gig” economy workers looking to speed up cashflow – and with the 18-34 demographic that uses instant payments for sports fees, concert tickets and similar cases.
The uneven road to R2P
Michael Boel, Head of Local Clearing at global payments bank, Banking Circle, says there’s still work to be done before R2P’s promise is realised: “Despite the positive reception from consumers, merchants and corporates, there’s a way to go before R2P becomes fully integrated into European payments.
One step which will enhance the attractiveness of R2P is to resolve the current legislative requirement for full customer authentication for each payment request under the provisions of Europe’s PSD2.”
Such regulatory challenges are not insurmountable, however.
For instance, the recent increase from €30 to €50 (£100 in the UK) in the minimum transaction value requiring stepped-up authentication, as well as automated customer authentication systems that can satisfy this requirement, suggest that authentication challenges are unlikely to prove a blocker to R2P’s widespread adoption.
Making R2P real
With fewer than one in five banks offering R2P at present, one might fairly ask what happens next. In brief, banks looking to offer R2P technologies have to solve two problems: which channels should R2P products be deployed in, and how to integrate R2P into a bank’s existing technology stack.
Overwhelmingly, banks are going to opt to offer R2P through their mobile and digital banking channels as part of their wider digitization strategy.
When it comes to implementation, banks can either opt for single integration with a third-party provider such as Trustly or Tink, or join a “one to many” platform such as those being developed by the US, Australia, Denmark and the UK, among other countries.
Third-party solutions work by integrating with a bank’s API architecture.
The customer provides the third party with their username and password, and the third party accesses the consumer’s bank account to retrieve the funds.
Essentially, the third party receives permission from the end user to operate their account on a transaction by transaction basis, with exchange of funds occurring through automated clearing houses such as FPS or BACS.
Security is assured by the fact that the consumer has to input their bank username and password for every transaction.
The “one to many” platforms being developed in markets like Denmark and the UK for banks and merchants that enables banks to access a suite of standardised and robust R2P services.
Mastercard is working with players from Sweden, Denmark and Finland on a peer-to-peer payments network to cover all those living in these countries with an R2P option.
Denmark’s Mobilepay offers in-built R2P technologies plus OmniBilling, an e-invoicing platform that enables banks, businesses and governments to establish an ecosystem for digital billing optimisation through R2P.
The platform empowers users by providing a central overview of transactions and real-time insight into flows of funds.
At present, Britain’s Pay.UK is working to define the parameters of an instant payments system that allows all players to connect in the same way to the same model.
Looking a little further ahead, that kind of connectivity would make it easier to enable cross-border R2P activity, as opposed to untangling a web of one-to-one integrations between banks and third parties.
Securing R2P via tokenization is another approach that could enable R2P to go international and enable (for example) a Danish business to make an R2P request to a British consumer.
Coming soon …?
As R2P develops, the greatest challenge to its widespread adoption may be controlling the freedoms it offers.
Just as BNPL has – to date – offered consumers relatively easy access to low levels of credit and increased their spending power, so R2P offers so much flexibility it could cause problems.
Consider a lower-income individual given the power to pay only part of their utility bill thanks to R2P systems, or a company with poor credit deciding to spread the cost of its goods over three months using R2P.
While it will be argued that payment terms are made clear on invoices, the freedoms R2P offers payers will no doubt need to be legislated.
Meanwhile, R2P’s capacity to operate outside card rails will be attractive to merchants, much as the promise of easier and faster reconciliation between invoice and payment will be for corporates.
Before any of these questions, however, comes banks’ capacity to speed up their digitalization efforts such that R2P, among other payment services, can even be offered to those customers who so clearly want to see these services working.
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