Instant Payments may sound familiar to many, Instant Collections surely not that much. There is however, an increasing number of ‘Request to Pay’ — Instant Collection schemes surfacing across many different countries. The objective is to meet consumers’ expectations of convenience, speed, choice, and the increasingly irregular incomes resulting from working in the gig economy.
What is it?
In simple terms, ‘Request to Pay’ is a service allowing a payee to request a payment from a payer. The service enables requests to pay from an individual to another individual, a business to another business, a business to a consumer, or even from tax authorities to persons or to businesses.
How does it work?
The payee initiates the request to pay which is sent over to payer’s bank. Payer’s bank presents the request to its payer who by means of any of her e-banking channels decides whether to accept, accept partially, ask for extra time in case of lack of funds, or simply reject the request.
Thanks to recent open banking regulations, ‘Request to Pay’ can be supported either through a secure open Application Programming Interfacing (API), connecting banks to each other, or through a central clearing and settlement infrastructure underpinning the service. In the latter, ISO 20022 formats such as pain.013, request for payment, & pain.014, response to request for payment, make the conversation possible between payers and payees.
In a happy scenario, a request to pay ends up with the payee being advised of request acceptance and the reception of a real-time payment in return.
What are the benefits?
It is not difficult to imagine some of the direct benefits this service can provide to all market participants.
- Utilities companies and merchants
As payees, these can benefit from faster collection times and a more efficient management of their working capital, while avoiding the painful process of manual invoices reconciliation and payments tracking. In other words, operational costs reduction and an increase to businesses’ bottom line.
Recurrent collections can also be set up without involvement of burdensome mandate signing process for the payer. The richness of data provided through interaction of participants in the scheme can also be exploited by payees to gather insights on payers, which are crucial to improve bills early warning and recovery processes among other things.
E-commerce and Point-of-Sales payees can benefit from customer authenticated and approved instant payments, thus preventing payments revocation and reducing the risk of fraudulent transactions being released and refunded later on.
Push payments enhance the consumer experience by providing better control over the payment process in terms of convenience and security. Consumers can choose what payment method they prefer to use, decide when to pay or decline the request to pay, all this quickly and easily with a few clicks away on their smartphones.
Card payments can be removed from the purchase equation and in some solutions, account details may be ‘tokenized’ that is, being replaced by ‘proxy’ account identifiers (phone number, e-mail address, tax ID, etc.), thus limiting risks derived from identity data breaches.
What are yet the pain points?
Customer authentication remains one of the key pain points as consumers need to go through the authentication and approval process each time a new request gets received. More importantly, card schemes provide reliable chargeback mechanisms protecting customers in situations where products and services they have paid for are not received. There is big room for improvement in this space for request to pay schemes to be rolled-out.
But perhaps one of the biggest scheme downsides is that only processing of domestic currency transactions is allowed, meaning they will likely fall short of the global merchants expectations owning a large international customer base.
The future of ‘Request to Pay’
After the advent of the Instant, the ‘Request to Pay’ service has enormous potential to catalyse a step change in payments provided that merchants, regulatory bodies, banks, fintechs, and the community of technical experts, collaborate to develop solutions with potential to reach scale and broad market adoption.
Thinking beyond the minimum usable subset of requirements, there is a world of additional innovative services that can be built on top of ‘Request to Pay’, spanning from business financing solutions to trade finance and beyond.
This is why enthusiasts of disruptive innovation like me, will be closely following the evolution of this service in months to come.