What is Request To Pay, And Why Will it Be Such a Revolution?

Request to Pay (R2P) is a new, flexible method for settling bills between people, organizations, and businesses. For years the old-fashioned paper and e-mail invoices have been the favoured way to list services done and request payment. Still, change often comes unexpectedly, and R2P is about to burst upon us in a Tsunami of change.

Mick Fennell
Mick Fennell – Business Line Director, Payments

So What Is It?

R2P is a messaging service invented to complement existing payments infrastructure. It gives billers the ability to proactively engage with the payer in a secure and standardized way rather than sending them an invoice with little or no context or interaction.

Request to Pay is surfing on top of the global success of real-time payments and is gaining popularity globally. It is a modern digital capability that is augmenting the consumer’s experience. It is safe, secure and provides more control and visibility to the end-user and businesses.

How Does Request to Pay Work?

Request to Pay is a digital request the payer would receive on their internet or mobile device, through a banking application or third-party FinTech application. The payer either approves or rejects the request. If approved, the app automatically initiates a real-time credit transfer to the payee.

Request to Pay introduces a secure messaging framework overlaid on top of existing payment infrastructures and is a new way to manage and settle bills between businesses, organizations, and friends. One of the benefits is its flexibility. For each request message, the payer can pay in full, in part, ask for more time, or decline to pay at all. Thus, beginning a dialogue with the requester on when they want to pay.

This process gives more control to the person or organization being asked to pay and provides the biller with all the necessary information to reconcile a payment when it arrives. A key differentiator for both a biller and a payer is that the communication occurs via a secure and trusted channel—the payers digital banking app—however, the framework is not a closed community. This means payment service providers, Fintechsand corporates will develop services that interact to deliver the Request to Pay service to their customers. Following the framework launch in 2020, the service is now ready to be used.

Will it Succeed?

The COVID-19 Pandemic ushered in an era of accelerated growth in digital everything. Restaurants offered contactless delivery while stores set up flexible pickup services with items placed in customers’ cars, and Deliveroo-type services sprung up in every restaurant and cafe. It’s no wonder that the already-growing digital payment solutions market expanded rapidly in 2020.

According to Mastercard, 61% of people say they are making more contactless payments than before the Pandemic. Over half (56%) of respondents say they would make more contactless payments if there were no limits per transaction.

To get an idea of how widely used contactless payment is right now, Mastercard compared this year’s data with the results of last year’s survey. In the UK, contactless payments almost doubled from 34% in 2019 to 64% in 2020. People used contactless payments for smaller purchases, most below £30.

Consequently, the last 18 months have proven that significant changes in market behaviours are possible, primarily if driven by a desire for a more frictionless and seamless user experience. There are many iterations of account-to-account payment solutions –and all have their glitches. Request to Pay has been designed to fit together all of the missing pieces of the jigsaw, delivering a frictionless and seamless user experience. As a result, is likely to spark strong user interest and take-up and further innovation through additional value-add services in the payments area.

What’s in it for a Bank? Why Invest in R2P Service Support Now?

So why be an initial provider? What is in it for the banks? There will be limited market coverage for the near to medium term; therefore, not every bank will support the flows—It is optional. However, it is an opportunity to differentiate in a field that has been barren of much innovation recently. It is arguably the effects of the Pandemic, which have moved payments innovation in banking—not great leaps forward by the banks. It would be an excellent addition to their portfolio of services for the banks –whether they be billers or payers.

For billers, banks would be able to provide them with an additional, interactive method for collection. It provides them with a potentially more subtle way of talking to your customer. Billers have a chance to chase up and remind less responsive customers to remember to pay without seeming to ‘hound’ them and to give them more time to pay or explore other options if they are in financial difficulties. The digital communication and linked payment trail will enable easier reconciliation and reduce case management time and costs.

Payers will get the flexibility in how they pay, and they can pay partially or communicate a reason for deferring. This communication will also help those customers who may have inadvertently missed making a payment or those that cannot make regular payments via direct debit and prefer an ad-hoc account-to-account payment alternative.

Mastercard’s 2020 State of Pay report found one in ten (10%) of people in the UK often forget to pay their bills resulting in late payments, and nearly one in five (17%) say they do not feel in control of the outgoings from their accounts. Request to Pay provides individuals with more options and flexibility to settle bills, whether for significant purchases, utility and telecoms bills, or items such as council tax payments.

“While Request to Pay is highly tipped with the potential to transform the payments landscape, it’s important to note that it is still at an early place in terms of its development and reach”

Claus Richter, Chief Operating Officer at P27 Nordic Payments in a recent webinar discussion.

The success and adoption levels of Request to Pay schemes will be largely dependent on whether the industry and regulators get behind the initiatives and give them enough of a push, according to Claus. In particular, banks will play a pivotal role in the transition and will need to lead when it comes to customer take-up. This is key, and I cover this in more detail in Part Two of this blog.

Back in the 90s, when text messaging was introduced, no one predicted that short messaging services (SMS) would one day become the world’s favourite method of communication—a service designed for one use morphed into another, completely different usage. The current popularity of platforms such as Facebook Messenger and WhatsApp
indicates the change in social behaviour, so it shouldn’t come as too much of a surprise that payment transactions are now taking place on these messaging platforms.

Peer-to-peer payment services integrated with messaging platforms, such as Venmo in the US or Tikkle in Europe, are growing in popularity. However, two separate platforms are used in these cases: one creating the payment link or invoice and one sharing the link using a messaging platform. Request to Pay is a significant improvement in this regard. It is a message-based process that standardizes the link between billing and payments, and all rolled into one unified approach that enables end-to-end traceability.

For those banks keen to be in the first wave of R2P service providers, there’s a chance to offer it as a closed-loop for your customers only, where the biller and payer are on your books, and then build up a network of payer accounts at other banks as they come on-board as service providers.

Crucially, this can be a chargeable service overlay on one’s instant payments rails. The bank can seek transaction fees for enabling the flows for the biller and possibly the payer, even though the execution of the payment may not merit a price in itself.

R2P is a chance to expand and elevate your relationship with your customer, becoming part of their business flows and thus creating better insights into their challenges and ambitions. The data from the communication between the biller and payer will be precious, enabling your bank to identify additional products to help the customer, be they a biller or payer, and be it credit or cash flow related.

All in all, this is an excellent opportunity for early adopters to both differentiate and grow their businesses. Time to hop on board the R2P bandwagon!

Filed under:

Mick Fennell
Mick Fennell – Business Line Director, Payments