From EBADay to our banks board rooms: Request-to-Pay is on everybody’s lips! But why has this overlay messaging functionality become a real buzzword? Request-to-Pay is the key missing ingredient to the end-to-end payment ecosystem of the future! But with ISO 20022 and Open Finance on the horizon, why should banks invest in Request-to-Pay? Is it even worth it? Well, keep reading to find out. Or keep ignoring Request-to-Pay (at your own risk!).
On the 30th of November, the European Payments Council has published the first version of the Single Euro Payments Area (SEPA) Request-to-Pay scheme rulebook. Adherence to the scheme is for the moment voluntary and will be effective on the 15th of June 2021. Even without regulatory deadlines, around the world, Request-to-Pay is getting serious attention, including in Canada, the United States, and Vietnam. In fact, it has been implemented in the Nordics for some time now. The UK has also published a framework in May 2020 and are expected sufficient capacity during the first half of 2021. But, what is Request-to-Pay?
Request-to-Pay is an overlay messaging functionality on top of the existing payment infrastructure. It allows to manage and settle bills between two businesses or organizations, two people, or a person and an organization. With Request-to-Pay, the payer and the payee have a strong framework to agree on the payment terms before initiating and settling the payment through any payment schemes.
Currently, the initiative is non-mandatory. Additionally, making the business case for another payment project can be challenging for banks, particularly with ISO 20022 already taking up a significant portion of the budget, and Open Finance around the corner. However, the benefits of Request-to-Pay are too significant to be ignored. So, with no further hesitation, let's take a look at them!
1. Increase customers' loyalty by providing a seamless payment experience.
To explain this, let’s look at some stats:
🔺 27.7 billion B2C electronic bills will be generated by 2024
🔺 4.7 million workers are part of the gig economy and need an easy way to get paid (think of Uber drivers!)
🔺 2.3% of invoices in Europe are never paid*
🔺 £4.4 billion are spent every year in the UK to collect money owed.
With Request-to-Pay banks could tackle these issues and offer an embedded seamless experience to their retail and corporate customers! Imagine if the payment could be requested through open banking – after the payer and payee have agreed on the payment terms - and settled through SEPA instant or Faster Payments!**
2. Increase the return on investment of SEPA instant scheme adherence
Supporting the scheme has required a major investment from banks. But the volumes of instant payments remain low. According to the European Payments Council, in Q3 of 2020, only 7.47% of the total credit transfer volumes were instant payments.
With the European Commission thinking about making instant payments mandatory, quite a few banks will need to invest in this payment scheme. Request-to-Pay can help banks create returns on investment and bring more volumes, particularly after the migration to ISO 20022. Since all the elements of the chain will be built on the same standard, banks could create new product propositions, like reconciliation services, or offer new and more reliable ways of assessing credit worthiness. For more details, make sure to check out our video “5 things you should know about ISO 20022”.
3. Create an alternative solution to cards.
Increasingly more banks are looking at ways to disrupt the cards space by, among other things, providing Request-to-Pay solutions. For example, take a look at these solutions:
By combining Request-to-Pay with instant payments, banks can really get back in control of a streamlined chain while offering contact-free payments – something quite key in the post-COVID-19 world! As you can see, understanding how Request-to-Pay works and what opportunities it brings is not really an option!
Mass adoption is deemed to happen and, in 2022, Request-to-Pay will be part of corporates and consumers day-to-day life. So, it is time to look at the document published by European Payment Council or by Pay.UK and prepare the business case for it! If you need help, RedCompass Labs can support you in this exercise!
RedCompass Labs also provide workshops for banks to help them understand the impact of major payments changes like ISO 20022, Instant Payments, and Request-to-Pay, and to build a proper payments roadmap & data strategy that maximise opportunities. Don’t hesitate to get in contact if you wish to book a workshop or to get support in building a business case for Request-to-Pay.
* EBA Webcast on "Enhancing liquidity management with the support of advanced data analytics", November 2020
** The case described is just an example. In fact, Request-to-Pay is an agnostic scheme, and as such it can be plugged in into any payment scheme.