As the world shifts ever closer to real-time operations, it is looking increasingly unlikely that the incumbent payment solutions can meet the needs of today’s businesses and consumers. Certainly, as consumers self-isolate in their homes and retailers around the world close their doors in the wake of the Covid-19 pandemic, the need for efficient, reliable online payment solutions is rising to the top of the agenda.
Fortunately, the rapid uptake of instant payments, as well as the introduction of Europe’s revised Payment Services Directive (PSD2), has opened the door to new and improved payment methods – ones that can benefit consumers relying on online shopping, as well as retailers hamstrung by a weakening economy.
Among these are a variety of Request to Pay (RtP) solutions – fast, irrevocable, and cost-effective payments that integrate and streamline data exchanges between the payer and payee. By implementing these solutions, the certainty, transparency, and convenience of payments for corporates, retail customers and their PSPs can be vastly enhanced. Today, initial forays into RtP are well underway, representing a first step in the creation of a Europe-wide solution for online payments, which, eventually, could be replicated anywhere in the world with an Open Banking framework in place.
What is Request to Pay?
RtP is an umbrella term for a number of scenarios in which a payee takes the initiative to request a specific payment from the payer.
One such approach to RtP, uses Open Banking principles to facilitate more direct and frictionless payments. The approach draws upon instant payments and PSD2’s provision for licensed third parties to access and service accounts held by other banks, often through the use of application programming interfaces (APIs). This means merchants can empower their PSPs to instantly and irrevocably make and receive payments directly between their accounts and those of their customers. Deutsche Bank, for example, has gone live with a RtP solution that leverages this approach to facilitate a three-way interaction between the customer’s bank, the customer and the merchant (see Figure 1).
Elsewhere, similar approaches are being worked on, such as EBA CLEARING's R2P solution – scheduled to go live in November 2020. The solution, for which Deutsche Bank is also a leading partner, provides end-user's with a similar experience, but operates a four corner model without the use of Open Banking and APIs.
Figure 1: The open-banking model for Request to pay
Request to Pay in action
As the industry adjusts to the evolving payments landscape, RtP solutions are rapidly being put into practice. For example, MultiSafepay, an online payments specialist and among the pioneers of ecommerce in the Netherlands, is one of the first to take the initiative, using Deutsche Bank’s Open Banking RtP solution, which is now being rolled out to a series of merchants in Germany, with plans to enable it across Europe and beyond.
When checking out at a MultiSafepay client’s online store, the customer chooses from a list of payment options – where RtP now sits alongside other payment methods, such as credit cards, debit cards, and e-wallet providers. After opting for RtP the customer selects their bank from a drop-down menu and enters their basic online banking login credentials, such as a user ID or account number.
Behind the scenes, the merchant forwards the request to the customer's bank via Deutsche Bank, which acts as the payment initiation service provider (PISP). The customer's bank then requests authorisation from the customer.
The customer receives a notification, checks that the payment is correct and then uses two-factor authentication (2FA) to authorise the payment. Once the customer has authenticated the payment, the merchant directly receives the cash via a SEPA Credit Transfer (SCT) or instant payment (SCT Inst). From the payment initiation to payment confirmation, the entire process occurs in just a few seconds.
Reaping the rewards
This model not only gives consumers a greater range of payment choices, but also an easier, less complex payments process. For example, provided the consumer has given their consent, a trusted merchant can store their RtP details – prepopulating the relevant fields at the checkout. This streamlined customer journey also comes with the added benefit of greater security. By complying with 2FA – a step that can be carried out in a matter of seconds with a mobile device and a thumbprint, for example – fraud can be dramatically reduced.
But how will RtP benefit merchants? Take a large online retailer that currently processes millions of card and e-wallet payments each year. While convenient for their customers, accepting these payments comes at a cost. Depending on the payment provider, companies are charged rates of between 1% and 3.5% in fees on each transaction, which can end up costing millions each year. That is not the only drawback. Once approved, these payments can often take several days to process, delaying the final settlement of funds. As the retailer waits for its payment to be credited, it might, for example, be forced to hold a working capital buffer – meaning earmarked cash sits otherwise idle in the company account.
Each RtP payment, on the other hand, comes with just a flat fee per transaction, which can help diminish costs by replacing the commission-based rates levied by card or e-wallet solutions. These payments are also instant (if sent via SEPA Inst) and irrevocable – ridding merchants of long processing periods and the associated risk of non-payment. In addition, the more comprehensive data sent via RtP facilitates a drastically improved reconciliation process.
Receiving funds instantly also provides companies with far greater visibility and control over their cash position. For instance, companies can accurately time the disbursement of their payments to ensure purchases can always be made "just in time". This reduces the costs of holding inventory and helps merchants to optimise their working capital.
Wide appeal
With the benefits of RtP only now coming into sharper focus, this particular payment journey is just beginning. As the solution gains widespread appeal, major corporates across various sectors, including PSPs, marketplaces, retail, travel and insurance, look set to reap the rewards. And, in the not too distant future, RtP solutions could well become the standard for online payments across Europe. Stay tuned.
About Benjamin Madjar
About Deutsche Bank
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