Request to Pay: What does it mean for instant payments?

The introduction of Request to Pay (R2P) services this year is poised to play a starring role in the broader transformation of the UK and EU’s payments landscape.

Reduction of costs, fraud and chargebacks alongside the delivery of better transaction data are the obvious improvements, yet, it is the potential that R2P holds to act as a catalyst for instant payments which is increasingly stealing the limelight.

What is effectively the next upgrade in digital payments, R2P schemes involve a request for payment sent by the payee which can be approved by the payor, creating a streamlined and faster billing system for both parties.

In a 2019 report published by EBA Clearing, the organisation describes R2P as a key step towards unlocking the enormous potential that instant payments hold for both consumers and businesses.

“Many payments professionals consider Request to Pay to be the missing link between the instant payment clearing & settlement infrastructure and innovative customer solutions.”

In contrast with Direct Debits, R2Ps are real-time, suitable for single or ad hoc payments and they do not require an upfront mandate from the payer. They may also be thought of as an upgrade of Electronic Bill Presentment & Payment (EBPP), allowing the payer to approve and execute the requested payment in real time. EBPP is a common process used by companies to collect payments electronically over the internet, direct-dial access or ATMs.

Graphic source: Pay.UK

Will R2P boost appetite for instant payments?

In conversation with Finextra Research, Ireti Samuel-Ogbu, EMEA head of payments and receivables, treasury and trade solutions at Citi, delved into the R2P journey to explore the scheme’s expected impact across the European financial sector.

Samuel-Ogbu anticipates that R2P will create a reciprocal interchange within the UK and European payments landscape, where the access to an instant pay system lends itself to implementing R2P.

“I think it creates a virtuous circle, because when you are sending and receiving instant payments as a bank. You can make more payments because you're using a smaller amount of liquidity. If the traffic is only one way and all you're doing is paying, then you're required to provide a lot more liquidity.”

By introducing receipts into the equation, the velocity and the size of payments can be increased against a smaller amount of liquidity. This reduces risk which reduces cost and the entire ecosystem is set to benefit: “I do think that one of the benefits of Request to Pay will include providing payment optionality for customers; it will also compliment instant payments from a liquidity utilisation perspective and accelerate incomings for banks, in comparison to longer settlement times for card.”

The process is a natural next step as payment providers attempt to streamline and tighten security around digital transfers to meet an increasingly demanding customer base. In a Pay.UK and Ipsos MORI report published September 2019, the raft of benefits R2P could provide listed by respondents centred around two key areas:

1. Saving time and money by streamlining systems and processes (£1.3 billion saved per annum in billing costs alone). This could involve joining together different systems, reducing manual workloads, enabling better reconciliation and enhancing existing systems.
2. Improving communication with customers. This could enhance the customer experience by turning transactional payments into a conversation, allowing businesses to support customers better.

Speaking of EBA Clearing’s R2P solution, Erwin Kulk, head of service development and management tells Finextra Research about their pan-European infrastructure: “PSPs [payment service providers] and payment operators across Europe have put in a lot of effort to create both critical mass and pan-European reach for instant payments, and Request to Pay will be a crucial tool to leverage these rails for innovative and sustainable end-user solutions.”

“There are two aspects to Request to Pay: first it’s the ability to share data. The second aspect is the ability to make a payment from a bank account. Regardless of whether it's a finTech third party provider or it's a bank that is providing that service, I think the whole ecosystem will benefit because you're providing optionality to consumers.”

Will the EU and UK align or diverge their R2P plans?

While the EU and UK markets have R2P solutions scheduled to go live during 2020, Samuel-Ogbu argues that their respective use cases hold fundamental differences. A Pay.UK report describes R2P as a communication tool which can be overlaid on top of existing payments infrastructure, allowing for a private ‘conversation’ between the biller and the payer. In this way, the delivery and nature of the product itself will to a degree be affected by the payments infrastructure already in place.

“We understand that the UK is carrying out a closed pilot to test R2P with a launch date set for this year. I think it's fair to say that the way the UK is looking at R2P differs from how the EBA is looking at it, because this seems to be more of a bill presentment type of Request to Pay, rather than an e-commerce use case.” She adds that this isn’t altogether surprising given Open Banking in the UK is one of the most successful Open Banking regimes, which can be used in an e-commerce scenario.

In 2018 EBA Clearing established a taskforce to deliver a pan-European R2P solution (in line with the European Payments Council scheme) with experts and financial institutions working to meet EBA requirements.

In its 2019 report, EBA Clearing highlighted different roll-out approaches and the lack of historical data of processing patterns as hurdles characterising Europe’s journey toward R2P integration.

On this divergence of approach Samuel-Ogbu notes that structurally, there are two different models under which R2P schemes are launched: “One is the Open Banking model which the UK and Europe is looking at. The second is leveraging standardisation with a financial market infrastructure, which is what we are seeing in India with UPI, Australia and more recently with EBA’s RTP.

When a scheme such as R2P is introduced into a financial market infrastructure, as the connectivity to many end users, banks, and even non-banks, the adoption is greater in this standardised environment, Samuel-Ogbu argues.

Graphic source: EBA Clearing

What are the key hindrances?

It is in the context of Open Banking that Samuel-Ogbu believes the difficulties lie. “The first challenge is that in Europe, there isn't a standard API for the 4000 or 5000 banks in the region, means that they really haven't progressed with R2P through Open Banking. This is unlike the UK which has developed one standard. Given this, you could argue that this helps to paint the UK as the poster child for successful implementation of Open Banking.”

Further, the need for strong customer authentication causes friction in the system. “As we don't have unified digital identity in Europe, a two factor authentication is required. This means it's not just a matter of logging in, you also need to either use biometrics or you need an additional one-time password for example.”

While added friction in the system may instinctively be viewed as a hindrance, Samuel-Ogbu sees it differently: “The clunkiness of the process shows just how good the consent is.”

While Open Banking was introduced as a means of strengthening digital security for an increasingly online banking landscape, and to farewell processes including the widely criticised screen-scraping, many worry that the further automation of payments risks exposing sensitive consumer data.

Samuel-Ogbu counters: “I don’t think it exposes, if anything it protects the consumer. Within Open Banking you willingly give information to third parties for specific purposes, and this consent is very firmly in the hands of the consumer. I don’t see a conflict with GDPR, actually I view it as an enable that help corporates and individuals actively control their data.”

“What’s more, is that consumers aren’t limited to what their bank provides, they are able to leverage their data and ensure they are getting the services they require.”

This high benchmark for service and delivery is more effective the more adoption of Open Banking occurs. Samuel-Ogbu believes the European Banking Association’s R2P is a very good example enabling adoption of payments through bank accounts with the market players pursuing and implementing R2P.

Does infrastructure size matter for the delivery of R2P?

The momentum behind developing and implementating interoperable payments infrastructure is illustrative of the potential value a single, widely-adopted approach presents.

“What's great about the European project is that it's pan-European. As an infrastructure it has the ability to touch all the banks in Europe and is therefore is able to be more inclusive. The strength in any payment system lies in its ability to reach as many people as possible – this R2P scheme will have this capacity.”

Bringing the “Open Banking principles of PSD2 to fruition,” Dutch payments service provider MultiSafePay is piloting Deutsche Bank’s Request to Pay solution, a three-corner model which facilitates an interaction between the customer’s bank, the customer and the merchant.

Benjamin Madjar, EMEA head – cash management structuring, Deutsche Bank, comments: “A pan-European payment solution leveraging PSD2, the Open Banking framework and the instant payment capabilities resonates very strongly with Group Treasurers, as well as the teams involved in online platform developments.”

 It’s interesting to consider that few predicted a delay to R2P implementation across the UK and EU, and perhaps goes to Samuel-Ogbu’s thinking that “Open Banking in the context of payments through bank accounts and request to pay are like two sides of the same coin.”

In minutes from its most recent meeting on 25 February 2020, the Pay.UK Request to Pay Advisory Group noted that the scheduled ‘go-live’ date for R2P would be 30 April, with a Vendor Event to be held 31 March. It remains to be seen whether the ongoing impact of Covid-19 will have an impact on this timeline.

Request to Pay is a key topic to be discussed at EBAday, the Euro Banking Association's annual conference in partnership with Finextra. European banks, fintechs, and payment providers will gather to explore changes in the industry to develop an open dialogue across key industry players.

Postponed from its original May date due to Covid-19, you can register here for EBAday at The Hague, Netherlands now scheduled for the 25th-26th November, 2020.