Request-to-Pay as a pillar of the digital payment revolution

Request-to-Pay (R2P) is a secure messaging service designed to make payments both easier and more flexible for businesses and consumers. In addition to Buy Now Pay Later (BNPL), Request-to-Pay is emerging as an important payment pillar in the digital age.

Request-to-Pay complements the existing payment infrastructure and payment methods. Businesses have always relied on billing for payments, with all the work and time involved. Now they can turn the matter around by asking for payment in return for a bill. The benefit to the seller may be obvious, but it also provides significant benefits to the buyer. A customer who receives a payment request can quickly and easily pay all or part of the amount, choose to talk to the billing party, request more time or even completely reject the payment request. This gives them more flexibility and control over their finances.

R2P is still in its infancy. According to a recent survey, less than one in five European banks currently offers an R2P service. However, half of all banks are expected to do so by the end of 2023. The rapid growth of technology reflects the huge need for a flexible, cost-effective and secure way to handle recurring or one-time payments.

The global picture

Request-to-Pay is primarily seen as an option in business-to-consumer (B2C) and consumer-to-business (C2B) markets, especially e-commerce. In Northern Europe, R2P’s peer-to-peer (P2P) functions are mainly used to ask family members for money or pay bills. Denmark is a good example of this. UK fintech companies and banks have introduced Request-to-Pay solutions for billing, private payments and P2P payments.

Most existing R2P schemes have been developed as a national model that can be linked to regional interfaces, such as P27 in Northern Europe. Such frameworks have already been established in Australia, the EU, Scandinavia and the United Kingdom. The first U.S. system went live in 2021. Another is expected to be deployed in 2023.

One-to-many platform

Most regions use a convenient one-to-many platform for retailers and banks, giving the latter access to a powerful suite of standardized R2P services. This platform model gives the payer and the payee a central overview of all transactions and real-time insight into their cash flows.

Another option is to process payments based on an integration between a third-party service provider and the bank’s API architecture. For each transaction, customers provide their username and password to this external party, which gives them access to their bank account from which the money is withdrawn. These transactions take place on the same payment rails, so it seems as if the customer has transferred the money himself.

Improved security and cost-effectiveness

Request-to-Pay offers banks, retailers and their customers several benefits. One of the most important is increased security. Consumer payments are approved in their bank’s app or website. R2P transactions are thus protected by high-quality banks’ security systems. Where necessary, two-step verification and the Strong Customer Authentication protocols required by the Second EU Payment Services Directive (PSD2) may be used.

A major benefit for the seller is the lower cost of Request-to-Pay compared to credit card payments. R2P offers an alternative to bypassing credit card rails and associated exchange fees.

The possibility of direct settlement of payments is attractive to both consumers and businesses. R2P has already proved popular in practice for improving the cash flow for micro-retailers and concert staff and simplifying bill payment for people between 18 and 34 years of age.

Part of the digital transformation

R2P clearly has potential as a flexible payment system based on open APIs. It fits perfectly with the needs of users in the digital age and the industry-wide transition to more accessible digital services. For banks that want to modernize their payment platforms, it is therefore a logical move to introduce Request-to-Pay solutions. They then have to decide whether to choose the platform approach or an integration with an external party.

In practice, the national and international one-to-many platforms will probably be cheaper and more efficient than integrations with external parties. This is already apparent from the British and Scandinavian systems. These platforms can also be more easily connected across borders. This will contribute to the interoperability needed to expand the Request-to-Pay application capabilities.

Although it will probably take several years before the full potential of R2P is realized, I expect this technology to grow into an international payment model. And when paired with digital and mobile application scenarios, Request-to-Pay can serve as a convenient alternative to international payment systems.

An article by Michael Boel, Head of Local Clearing at Banking Circle. Do you know more? Click here.

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