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Will SCA delays stall Request to Pay’s momentum?

Will SCA delays stall Request to Pay’s momentum?

Request to Pay (R2P) services originally scheduled to launch later this year have been expected to play a major part in transforming the UK and EU’s payments ecosystem.

On 14 April 2020, Pay.UK announced it would delay the publication of its R2P framework (the message standards, rules and terms and conditions) which had originally been planned for an April 30 release.

Citing the difficulties being faced by businesses brought on by Covid-19, the organisation said it does not “want to increase the load on the wrong people at the wrong moment” and are seeking stakeholder engagement to determine a new appropriate publication date.

Further, the FCA’s decision to delay implementation of Strong Customer Authentication (SCA) due to pressure caused by the pandemic, indicates that Europe will likely follow the UK’s suit with an SCA extension. Given the central role two-factor authentication plays in instant payments, such a delay could have a significant impact on the expected project timelines for R2P across Europe.

What exactly is the R2P attraction?

R2P requests involve a request for payment sent by the payee which can be instantly approved by the payor, exponentially expediting the billing system for both parties to the transaction.

In a 2019 report published by EBA Clearing, the organisation describes R2P as a key step towards unlocking the enormous potential that instant payments hold for both consumers and businesses.

“Many payments professionals consider Request to Pay to be the missing link between the instant payment clearing & settlement infrastructure and innovative customer solutions.”

Demand for R2P is expected to boost uptake of instant payments which will work in a “virtuous circle” as banks are able to send and receive funds using a smaller amount of liquidity.

R2P will also allow the reduction of manual workloads, enable more streamlined reconciliation processes and improve communications with customers by moulding payments into a form of transactional conversation where businesses can better anticipate and support their customers.

While the demand for R2P is evident across markets, the approach to achieving R2P has not been entirely consistent. Ireti Samuel-Ogbu, EMEA head of payments and receivables, treasury and trade solutions at Citi, told Finextra Research: “I think it's fair to say that the way the UK is looking at R2P differs from how the EBA is looking at it, because this seems to be more of a bill presentment type of Request to Pay, rather than an e-commerce use case.”

She added that this isn’t altogether surprising given Open Banking in the UK is one of the most successful Open Banking regimes, which can be used in an e-commerce scenario.

A few hurdles to conquer

Samuel-Ogbu argued that the difficulties lie in the context of Open Banking. “The first challenge is that in Europe, there isn't a standard API for the 4000 or 5000 banks in the region, which means that they really haven't progressed with R2P through Open Banking. This is unlike the UK which has developed one standard. You could therefore argue that this helps to paint the UK as the poster child for successful implementation of Open Banking.”

Further, the need for strong customer authentication (SCA) causes friction in the system. “As we don't have unified digital identity in Europe, a two-factor authentication is required. This means it's not just a matter of logging in, you also need to either use biometrics or you need an additional one-time password for example.”

While added friction in the system may instinctively be viewed as a hindrance, Samuel-Ogbu observed it differently: “The clunkiness of the process shows just how good the consent is.”

Given the FCA’s recent announcement to delay the deadline for implementation of SCA to 14 September 2021, a further six months, there is growing pressure on the European Banking Authority to follow suit. EBA CLEARING currently maintains their R2P ‘go-live’ date as November 2020, however if SCA implementation is delayed, it remains to be seen just how significantly this will impact R2P projects during 2020 and 2021.

Not everyone is open to Open Banking

While Open Banking was introduced as a means of strengthening digital security for an increasingly online banking landscape, and to farewell processes including the widely criticised screen-scraping, many fear that the further automation of payments risks exposing sensitive consumer data.

Samuel-Ogbu countered: “I don’t think it exposes, if anything it protects the consumer. Within Open Banking you willingly give information to third parties for specific purposes, and this consent is very firmly in the hands of the consumer. I don’t see a conflict with GDPR, actually I view it as an enable that help corporates and individuals actively control their data.”

“What’s more, is that consumers aren’t limited to what their bank provides, they are able to leverage their data and ensure they are getting the services they require.”

This high benchmark for service and delivery is more effective the more adoption of Open Banking occurs. Samuel-Ogbu noted the European Banking Association’s R2P is a very good example of enabling adoption of payments through bank accounts with the market players pursuing and implementing R2P.

We await announcement from the European Banking Authority as to whether SCA will be delayed across Europe and EBA Clearing’s response. From that point we will be able to generate a clearer picture of the status of R2P and its presence during 2020-2021.

You can find more in-depth coverage of Request to Pay here.

Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 15 May, 2020, 09:32Be the first to give this comment the thumbs up 0 likes

"Request to Pay" - or PULL mode - solves a somewhat outlier use case but creates a massive fraud vulnerability in an Account to Acount Real Time Payment that's irrevocable and provides zero fraud protection. R2P feature is the single biggest source of fraud in UPI, India's A2A RTP. 

I've been saying, half jokingly, that the regulator should use the pandemic as the fall guy to pull the plug on SCA, which kills conversion and boosts blood pressure but I'm dead serious in advocating that course of action for R2P. The risk-return of R2P makes absolutely no sense and I expect R2P fraud to be many times that of APP fraud in UK. 

Dimo Iliev
Dimo Iliev - First Data - Ireland 15 May, 2020, 10:17Be the first to give this comment the thumbs up 0 likes

"Request to Pay" is PUSH payment transaction.....not PULL ( e.g. direct debit)

With "Request to Pay" the merchnat sends the e-invoice, however it is the payer that initiates the transaction

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 15 May, 2020, 11:13Be the first to give this comment the thumbs up 0 likes

"R2P requests involve a request for payment sent by the payee...".

Ergo initiated by Payee. Ergo PULL. Need for approval by Payor does not change that.

If Payor were to initiate the transaction after receving the e-invoice from the Merchant, the feature would be called, simply, PAY. Payor is not making any request, so question of REQUEST2PAY doesn't arise.