Disrupting The Payments Landscape: How Messaging Schemes Will Transform Request to Pay

 Sarah Barslund Lauridsen, Head of Product & Solutions at Banking Circle explores…

Request to Pay (R2P) is proving to be one of the most exciting technologies in the payments sphere, drastically enhancing the business and consumer experience when making a purchase. It is already thriving as a user experience. Notably, iDeal – the R2P payment solution created by a group of banks in Holland – has been widely adopted and around 70% of the country’s e-commerce flow is now settled using iDeal’s solution. There has also been a large uptake in Poland where the local R2P solution, Blik, accounts for the majority of e-commerce payments.

To understand how R2P works and how it is currently being used, imagine that you buy a pair of shoes from an online merchant. There are a number of ways to do this like using a credit card and typing in your details. Or you could use account-to-account payment methods (where you move money directly from one account to another without the need for additional intermediaries) which is a great alternative. If you are paying with an account-to-account method, ordinarily, you have to go into your banking app, type in the bank details of the store, ensure it’s the right amount and so on. It’s a cumbersome experience.

R2P today is an offset of account-to-account payments where all of these steps are combined into one solution, so the consumer is simply presented with an option to either accept or decline. Once you have gone through a swift authentication via your own bank, the payment is made safely, at top speed and with minimal faff. What’s more, compared to card payments – R2P is generally cheaper, and the consumer can see the payment on their bank statement immediately.

Behind the scenes, R2P is primarily done via one of two ways. One option is an Open Banking based solution where  FinTechs aggregate the Open Banking APIs from banks to simplify the process of integration for e-commerce merchants. Or a local national scheme like iDeal in Holland, which is a messaging scheme only catering for a specific and small geography. Some incumbent banks offer this solution too, but it’s less common. If you’re a payments business or a FinTech looking to break into the space today, you can watch our ‘Introduction to Request to Pay’ video here.

Despite all this, the R2P revolution is only just beginning and with the advent of formal, standardised messaging schemes the potential is huge.

Understanding messaging schemes

R2P solutions have already proven their value, with iDeal as the perfect example, but R2P is still in its infancy. Its impact on the payments landscape will be shaped by public, payment authorities building messaging schemes to standardise all communications.

There are already a number of organisations committed to this including PayUK for the UK, the European Payments Council (EPC) for the SEPA region and P27 in the Nordics. Their role is to support experiences, standardise the service and ensure it is as safe as possible. This standardisation will then make R2P builds much stronger, integration for FinTechs more seamless and open up the market by levelling the playing field.

To date, these messaging schemes are developing in slightly different directions. PayUK has been very focused on bill payments and invoices whereas EPC focuses on use cases more broadly (including e-commerce, billing, peer-to-peer and even point of sale payments too). Interestingly, in a recent Banking Circle poll, 61% of participants believed R2P has the biggest potential to facilitate change with invoicing, followed by 24% of those who said e-commerce. Clearly, both support very valid use cases for R2P. Over time and as the schemes develop, we could see these priorities overlap.
It’s relatively early days for these schemes so they aren’t widely adopted yet. The real question is, who will drive this adoption? The players currently leading the way with R2P user experience solutions built on other technologies, are in pole position to be the future providers for merchants and consumers, as they evolve off the back of the standardisation offered by new message schemes. On the infrastructure side, tech-first payments banks are well placed to lead the way.
These banks – with prior knowledge of the space, links to local payment schemes and the infrastructure and tech capabilities to offer access to the message schemes – stand to play a core role, as they combine messaging with the associated payouts and collections.

The future of Request to Pay is standardisation

Standardisation through messaging schemes is important because it’s like a handshake between the different parties using it. Standardisation means fully understood use cases, clearly defined features and options. In short, it makes it generic, so everyone complies with the same format and is able to speak to each other. And as a result, it’s easier to build R2P.

It is too early to know the full impact R2P will have on the payments space, but with predictions like that of PayUK which estimates the service could save the UK economy over £1.3bn a year, it is sure to be a key payment solution. What we can expect to see with standardisation is potential mass adoption. Where R2P already exists as a user experience (thinking again back to iDeal), it is massively successful and in demand – so imagine a world where R2P crosses borders. The future is incredibly exciting.

To find out more, download the whitepaper: Are you Request to Pay ready? Why Banks should prepare now