Long reads

Instant payments and request to pay – on their way to mainstream

This is an excerpt from Finextra’s report, ‘The Future of Payments 2022: The cutting edge of digital payments’

Instant payments and its most important application, request to pay is set to revolutionise the payments space and the way we conduct business.

Request to pay is, in fact, already live in the UK (using open banking) and is being rolled out across the Eurozone (using XML messages). It is the ability to make a request for payment electronically. On receipt of the request to pay message, the payer can respond by paying in full, declining payment, making a partial payment, or entering a dialogue with the payee who sent the request for payment.

By linking invoices to request to pay messages efficiency savings can be made in areas such as reconciliation of issued invoice against settling payment and the ability for small businesses to analyse the speed of payment from their customers. However, it is when requests for payment are combined with instant payments that new business opportunities open-up, and many existing processes are streamlined.

Combining instant with request to pay

Take the example of a corporate business that is approaching its credit limit. Rather than doing nothing a bank can send a request for payment message to the corporate customer. If they respond with an instant payment, then this can avoid them exceeding their credit limit and having payments rejected as a result. This safeguards the reputational damage of the corporate customer and provides a better customer experience. Similarly, a rejected direct debit could trigger sending a request for payment which would allow the customer to make an instant payment to cover the shortfall if they had funds available in another account.

However, where instant payments combined with request to pay is most likely to become mainstream is the ability to make a payment based on a triggering action such as a delivery of goods or use of a service.

Take the example of a pizza delivery. When an order for pizza is placed it has either to be paid upfront by credit or debit card (which runs the risk of non-delivery) or to be paid by cash on arrival. This process can be improved by combining request to pay and instant payments. When the order is placed a request for payment can be made. When the pizza delivery arrives at its destination, the customer can make an instant payment in response to the request for payment. As the request to pay message is linked to the order the deliverer can be alerted (by text or app) that payment has been made and the pizza can be handed over. Obviously, the customer does not have to wait for the pizza to arrive to make the payment, they can make the payment immediately, but if they want the extra safeguard, request to pay provides that.

On a larger scale, this request to pay model can be used for any delivery versus payment scenario: be it a delivery of flat packed furniture at a home, a container at a warehouse or a ship at a port. The use of instant payments in these scenarios gives payment certainty to the business making the delivery, so the process or delivery and payment is simultaneous.

The added value

The added value of request to pay in such a scenario is that the message can be accompanied by an electronic invoice which records what the payment was for. Not only does this provide instant reconciliation but also allows any returns of refunds to be managed electronically rather than customers hunting for paperwork.

The business models discussed so far are dependent on the payer pushing a button to make a payment. Looking to the future, request to pay could be linked with the internet of things. For example, when a car is parked, the car parking can be paid for electronically (by linking a number plate to an account for example). This can be triggered automatically but obviously there is some nervousness with payments being automatically being debited from an account. At the same time, this sort of technology provides a better service than fumbling for coins in the rain to put into a parking meter. Request to pay provides an added layer of security to the process. If instead of automatically debiting the payment for parking a request for payment was sent, then the driver could verify the amount before making an electronic payment.

The next step of course would be the option of automatically fully paying requests for payment from certain pre-validated businesses. For example: the car park you use for work, the supermarket that delivers your weekly groceries or even the local pizzeria. Request to pay could give customers control over the internet of things by allowing them to control which requests to pay automatically and which request need approval from the account holder. By providing the opportunity of a one-click lifestyle request to pay and instant payments hold the promise of going mainstream and becoming part of our everyday lives.

Comments: (0)