Chances are you’ve been faced with that infamous question when standing in front of a supermarket checkout to make a payment – Cash or card? well, there will soon be a possible 3rd option which I think will bypass the 2 known options. So what is the alternative payment option – where there will be no cash, no card, just a smartphone and an app that will allow direct payment from your current account to the supermarket account probably in time real if the journey is frictionless. (A2A payments).
The 3rd option is “Request Payment” – not too far as there is a major hurdle to clear! most supermarkets have already invested heavily in card machines to collect your payments. The product is not new, it is called Request for payment worldwide – the supermarket (recipient) requests payment from you (payer), the payer accepts and pays now or later depending on the financial situation. Some countries currently use R2P in the more peer-to-peer segment. eg Tikki by ABN AMRO Netherlands – Tikkie is an online payment application that allows you to forward payment requests to people via WhatsApp, or pay via QR code and pay the similar version introduced by Natwest in the UK. The volume appears to be steadily increasing, which is an indication of the rate of consumer adoption, which will result in more banks starting to provide R2P services.
There will be a big clash between card payments and alternative payment options such as request payment. The merchant has to invest in the card machine, pay fees and commission to the vendor, while R2P facilitates the approach that anyone with a smartphone is a merchant and can now collect payments from the consumer. R2P can be a low-investment option for merchants because payments leverage existing payment rails for the movement of money from account to account, unlike cards. It’s worth waiting and watching this space because Cards is also building a similar payment request proposition within the Cards network.
The use case for R2P goes beyond the peer-to-peer or merchant or micropayment segments, there is an elephant in the room – B2B and B2C payments, e.g. corporate cash payments , electronic invoicing, government payments, etc. The B2C use case of the utility payment use case is an even stronger proposition for R2P to challenge because we know Direct Debit is a bit clunky. I’m a big fan of existing direct debits, but once in place there’s little chance of changing the terms which are frictionless for ever-changing consumer needs. This is where R2P comes in by giving consumers enough power to pay now, pay later at a convenient time, or pay in 3 or 4 options. Moreover, for the biller, there is a dialogue with the consumer that has never existed.
The Bpay in Australia is one of the best living examples of NPP real-time payment based utility bill collection where the utility billing company and consumers exchange secure messages and payments within the framework of the secure payment request that supports money orders. US, UAE, Europe, Nordics, UK and Asia-Pacific all have their versions of Request to pay to focus on bill payment segment due to the natural transition and proximity to the peer-to-peer model. the number of payments from the mobile phone application and instant payment rails are two basic infrastructures that require the domestic consumer payment segment. E-commerce or m-commerce where shopping on super apps by Millennials is a growing market can also start providing payment in 3/4 options directly to the consumer without the need for the help of an additional third party to provide the notorious/infamous BNPL payment models.
B2B will be the next step in the adoption process, adoption of e-invoicing is mandated in some countries to combat VAT leakage. Governments have started to realize the importance of tackling indirect taxation which is missing due to the lack of infrastructure to adopt e-invoicing and VAT reporting by small and medium enterprises. please refer to the previous article on the amount of VAT leakage faced by governments.
So what is at stake at the moment for the adoption of R2P by banks?
The answers will be familiar to most of us, there is an overload of regulatory changes that consume bank resources to support ISO20022, which is by no means a small change for a bank of any size. There is an ever-increasing technical demand to upgrade infrastructure to support ISO20022 formats, which is a contributing factor for products such as Request for Payment to support these changes. R2P is built on ISO formats in most systems around the world. All we need is foresight to see where the business is heading and to invest in the right strategy. It’s time for banks to implement a “request to pay” budget strategy to implement payment request solutions! As payment purists say, the status quo is a threat.