Transforming the payments landscape with Request-to-Pay

Tuesday 19 April 2022 09:16 CET | Editor: Oana Ifrim | Interview

The Paypers spoke to Michael Boel, Head of Local Clearing at Payments Bank, Banking Circle, about how Request-to-Pay can become the cornerstone of the digital payments revolution

We’ve been talking about Request-to-Pay for a couple of years now, but growth seems to have accelerated in recent months. Do you think 2022 is the year we will see it become mainstream?

Alongside Buy Now Pay Later (BNPL), Request-to-Pay (R2P) is certainly growing and is set to become a vital element in the evolution of the new digital payments landscape within the next two years. Today fewer than one in five European banks offer R2P solutions, but by the end of 2023 we expect at least half of institutions to have R2P offerings.

We have seen payments innovations fast-tracked in the past two years, and that has undoubtedly led to R2P growing more rapidly than initially predicted. The recent rapid growth of R2P indicates an enormous market appetite for a flexible, low cost and secure new way to manage regular or one-off payments.  A secure messaging service designed to make payments simpler and more flexible for businesses and consumers, as well as cheaper and easier to manage for the financial institutions and merchants involved in the payment journey, R2P is a financial innovation that is fit for purpose for the future. 

Why hasn’t R2P hit the mainstream before now?

Despite the benefits it brings, there are some significant roadblocks holding R2P back from reaching its full potential – legislation being the biggest obstacle right now. 

Currently, the EU’s second payment services directive (PSD2) requires full customer authentication for each payment request sent. This is what is currently making R2P less attractive. Thankfully solutions are on their way. 

For example, the minimum transaction value requiring authentication was recently raised from EUR 30 to EUR 50, and GBP 100 in the UK, and automated customer authentication systems can be employed where authentication is still required. These are all changes that also provide a clearer path for R2P.

What else is holding back R2P?

Another challenge facing banks adopting R2P messaging is selecting a means of integration and deployment. Most banks opt to offer R2P within their internet banking and mobile app services, but integration is more complicated. Banks must choose which route will suit them and their customers best today - and in future. One route is a single integration with a third-party provider.  Another option is a one-to-many platform solution. The third-party integration is the simplest to launch but is limited in its capabilities. 

The platform solution, on the other hand, is the best approach in the longer-term due to the enhanced connectivity across banks and customers. But creating an interoperable platform takes more time and investment. Pay.UK is building such a platform, working to define the parameters of an instant payments system that allows all players to connect in the same way to the same model.

R2P will only take off if a scheme is defined and financial entities are agnostic so that R2P offerings are the same regardless of which banks are involved in the request.

How is R2P being adopted across different regions?

Most R2P schemes are built as a national model designed to be connected to regional interfaces, such as P27 in Northern Europe. Indeed, R2P frameworks are already established in the UK, EU, Australia and the Nordics. One US scheme went live in 2021 and a second is expected to launch in 2023. 

Pay.UK expects R2P to save the UK economy between GBP 2 and GBP 3 billion, so it is unsurprising that UK FinTechs and banks have been keen to get involved. Financial Institutions in the UK have launched a range of R2P offerings including solutions for invoicing as well as personal and Peer-to-Peer (P2P) payments. However, currently it is seen predominantly as an opportunity within the business-to-consumer (B2C) and consumer-to-business (C2B) fields, especially within ecommerce. 

Other regions are focusing R2P efforts on different opportunities. In Northern Europe, for example, the peer-to-peer capabilities of R2P are being used primarily when relatives are asked for money, or to pay bills. 

Who has the most to gain from R2P – banks, payments businesses, merchants or customers?

There are gains for everyone involved.  

Through R2P, companies that have relied upon invoicing for payment – and all the time, admin and resources that can entail – can turn the tables and request payment for a bill. The advantage for the seller is clear; the advantages for buyers are also considerable. On receiving a ‘Request-to-Pay’, a customer can quickly and easily pay in full or in part, opt to communicate with the biller, ask for more time or even decline to pay. Customers gain flexibility and control over how they manage their finances.

R2P also offers many advantages for banks, merchants and their customers, of which security improvements are some of the most important. Consumer authorisation happens within a bank’s app or website, meaning that R2P transactions are protected by bank-level security. This can include two-factor authentication and the Strong Customer Authentication protocols mandated by PSD2 where appropriate.  

The lower cost of R2P versus card payments is another significant benefit for merchants of all sizes. For businesses currently reliant on card payments, R2P offers an alternative that bypasses the card rails and associated interchange fees, dramatically reducing the cost per transaction. 

The potential for instant settlement is another attractive feature of R2P for both consumers and businesses, although feasibility depends on the method of integration adopted by the banks involved in the transaction. R2P is already proving popular for speeding up the cashflow of micro merchants and ‘gig’ economy workers, and for removing the friction in bill payment for the 18-34 demographic.

What should we expect to see in the future for R2P?

One of the many examples of the industry-wide shift to more accessible digital services, R2P clearly demonstrates the potential of a flexible payment system based on Open APIs and designed to fit the needs of users in the digital era. Banks looking to modernise their payment platforms by launching R2P solutions need to decide whether to adopt the third-party or platform approach. 

We expect to see the national and international one-to-many platforms prove cheaper and more efficient than integrating third-parties – as is already being demonstrated in the Nordic and UK schemes. They will also be more easily connected across borders, bringing vital interoperability capable of increasing both the potential and the use cases of R2P. 

While it is likely to be a few years before R2P reaches its potential, once it is adopted and secured it will have the capacity to become an international payment model. And, once linked to digital and mobile uses, R2P is likely to represent a viable, accessible and cost-effective alternative to international payment schemes.  

About Michael Boel

Michael has more than 15 years of experience within the financial sector and joined Banking Circle having previously worked for Saxo Bank. With hands on experience in capital markets, operations and product development, Michael covers both the technical and business aspects of the transaction banking value chain. For the past decade, Michael has focused on both international and domestic payment ecosystems – utilising his deep knowledge of regulation, finance and the payments industry to execute and drive implementation projects globally.


About Banking Circle

Banking Circle  is a fully licenced next generation Payments Bank, designed to meet the global banking and payments needs of Payments businesses, Banks and online Marketplaces. Banking Circle solutions power the payments propositions of more than 200 regulated businesses, Financial Institutions, and Marketplaces.


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Keywords: Request to Pay, digital payments, banks, merchants
Companies: Banking Circle
Countries: World

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