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

Request to pay, also known as R2P and RtP, is a new secure messaging service designed to make payments simpler and more flexible for businesses and consumers, as well as cheaper and easier to manage for the financial institutions and merchants involved in the payment journey. Alongside buy now pay later (BNPL), R2P is emerging as a cornerstone of payments in the digital era.

Complementing existing payments infrastructure, sitting alongside Direct Debit and other payment methods, R2P gives companies that have, historically, relied on invoicing for payment – and all the time, admin and delays that entails - the ability to turn the tables and request payment for a bill. The advantage for the seller is clear; the advantages for buyers are also considerable. On receiving a ‘request to pay’, a customer can quickly and easily pay in full or in part, opt to communicate with the biller, ask for more time or even decline to pay. And this means more flexibility and control over how they manage their finances.

Around the world, R2P is in its early days – according to a recent study fewer than one in five European banks currently offer R2P solutions although this is expected to reach one in two by the end of 2023. But as a payments innovation that is fit for purpose for the future it is already showing tremendous growth, indicating the enormous appetite for a flexible, low cost and secure new way to manage regular or one-off payments.

The global picture

In the UK, R2P is PayUK’s inaugural output, with the organisation quoting impressive economic benefits: “It is estimated that it could save the UK economy £1.3 billion per year. However subsequent research to that which was carried out in 2016 and 2017 would now suggest that this is a conservative figure, and it is
more likely to be between £2 and £3 billion.”

UK fintechs and banks have launched R2P offerings for invoicing, personal and Peer-to-Peer (P2P) payments, with R2P seen predominantly as an opportunity within the business-to-consumer (B2C) and  consumer-to-business (C2B) fields, especially within e-commerce. However, in Northern Europe the peer-to-peer capabilities of R2P are being used where relatives are asked for money, or to pay bills. Denmark is a great example of this use case.

Currently most R2P schemes are built as a national model designed to be connected to regional interfaces such as P27 in Northern Europe. Indeed, R2P frameworks are already established in the UK, EU, Australia and the Nordics with one US scheme having gone live in 2021 and second estimated to go live in 2023.
In some regions, and when coupled with instant settlement, R2P is used as an alternative to DD. However, whilst this is a potential use in some specific cases, it is not wholly accepted and cannot compete directly with the classic use of DD – certainly not before R2P and open banking allow mandates and recurring payments. In situations where DD is used as an alternative to card payments, however, we do expect to see R2P rapidly gaining momentum in the coming months and years.

In the UK banks and consumers view DD as a superior payment solution due to the security and convenience it provides by making payments invisible: the due date is scheduled and automated. It will take time, therefore, for R2P to gain ground in the UK market that is currently held by DD. The picture is different in Portugal, though, where DDs are perceived as ‘suffered’ by the consumer. In Germany, SEPA DD is preferred even as a payment method for e-commerce.

Most regions are utilising a convenient one-to-many platform for merchants and banks, through which banks access a suite of standardised, robust R2P services. The platform model empowers payer and payee by providing a central overview of transactions and real-time insights into flow of funds.
Another option, however, is where payments are handled via a single integration between a third-party provider and the bank’s API architecture.

Customers provide the third-party with their username and password for each transaction, and the third-party accesses the bank account to retrieve the funds. Exchange of funds occurs via the same rails as if the customer made the transfer themselves, and security is assured by the requirement for the customer to input their bank log-in details for every transaction.

Security and cost benefits

R2P offers many advantages for banks, merchants and their business and consumer customers, but security improvements are probably some of the most important benefits. Consumer authorisation happens within a bank’s app or website, meaning that R2P transactions are protected by bank-level security. This can include two-factor authentication and the Strong Customer Authentication protocols mandated by the EU’s second payment services directive (PSD2), where appropriate.

Also valuable for merchants, is the lower cost of R2P versus card payments. For businesses currently reliant on card payments, R2P offers an alternative that bypasses the card rails and associated interchange fees, dramatically reducing the cost per transaction.

Consumers and businesses alike are also attracted to R2P’s potential for instant settlement, although that depends on the method adopted by the banks involved in the transaction. R2P is already proving popular for speeding up the cashflow of micro merchants and ‘gig’ economy workers, and for removing the friction in bill payment for the 18-34 demographic.

All part of the digital shift

R2P clearly demonstrates the potential of a flexible payment system based on Open APIs and designed to fit the needs of users in the digital era. It fits perfectly within the industry-wide shift to digital services, providing a more accessible payment solution. It makes sense, therefore, that banks looking to modernise their payment platforms by launching R2P solutions decide whether to adopt the third-party or platform approach.

It is likely that the national and international one-to-many platforms will prove cheaper and more efficient than integrating third parties, as already being demonstrated in the Nordic and UK schemes. They will also be more easily connected across borders, bringing vital interoperability capable of increasing both the potential and the use cases of R2P.

It will undoubtedly take a few years to reach its potential, but once R2P is adopted and secured it will have the capacity to become an international payment model. And linked to digital and mobile uses, it is likely to represent a viable alternative to international payment schemes.