The evolution of the payments infrastructure now brings us to an era where convenient, secure, and agile payment solutions are revolutionizing the way money is exchanged and business gets done. That evolution was progressing in a predictable path, pre-COVID-19. Given the new realities of the current COVID-19 crises and the likely liquidity and risk management challenges to follow, the value of real-time payments will only increase while its spread accelerates.
For those in the payments space, 2020 began with the conversation increasingly focused on what banks, businesses, and consumers can do in real time, as well as continuing the shift from cash to digital methods. 2020 will end with immense pressure to enable real-time payments along with multiple adjacent value-adds.
One such solution high on the payment industry’s roadmap is Request to Pay; referred to as RTP in the U.K., Request 2 Pay (R2P) in Europe, Request for Payment (RfP) in the U.S., and UPI payments in India. This new payment solution is set to positively change the direction of all payments, including digital. Why? Because the reason for the request from the payee is central to the transaction, and communication between payee and payor is the key to unlocking widespread adoption.
Messaging meets payments
Back in the 90s, when text messaging was introduced, few thought that one day short messaging services would become the world’s favorite mode of communication. The current popularity of platforms such as Slack, Facebook Messenger, and WhatsApp is an indicator of the change in social behavior and it shouldn’t come as a surprise that payment transactions are now taking place on these messaging platforms.
Peer-to-peer payment services integrated with messaging platforms, such as Venmo in the U.S. or Tikkie in Europe, are growing in popularity. But in these cases, two separate platforms are used: one to create the payment link or invoice and another to share the link using a messaging platform. Request to Pay is a big improvement in this regard. It is a messaging platform that includes billing and payments capability, all rolled into one unified platform that enables an end-to-end audit trail.
The potential for a thriving payment ecosystem
Request to Pay will be a new, flexible way for bills to be managed between people, organizations, and businesses. It has been created to complement the existing payments infrastructure with messaging services and gives payees the ability to send a ‘request’ message (with details or attachments) for a bill rather than simply sending an invoice. For each request, customers will typically be able to pay in full, pay a partial amount, request an extension, decline, or contact the payee.
Not only does Request to Pay offer a great customer experience, it also relieves various pain points for both individuals and businesses. And it works on an open standard, which means that the solutions developed and maintained are done via a collaborative process to facilitate interoperability and easier data exchange among different products or services. This should simplify the continued rollout of Request to Pay and enable widespread adoption.
Benefits to individuals, businesses, and banks
Flexibility and control for individuals
For individual payors, Request to Pay brings the convenience and the flexibility of partial or even split payments (when applicable), offering an increased level of financial control. In instances when payors are short on cash, they have the option to communicate and ask for an extension or to make a partial payment. This not only helps individuals avoid fees, it also offers a greater level of control over managing their credit score and banking relationships.
Clarity and cash flow for businesses
Request to Pay provides a well-rounded solution designed to help businesses overcome various challenges. First and foremost, with Request to Pay, businesses can improve the speed of payments (straight through processing) and have visibility over the entire audit trail – from sending bills and invoices and minimizing errors in managing payments, to getting insight into cash flows with partial or delayed payments and hassle-free reconciliations. By analyzing data on this end-to-end audit trail, businesses can gain a greater understanding of their liquidity, giving them the opportunity to optimize operations or course-correct when need be.
According to a report by Pay.uk, billers in the U.K. will save up to £1.3 billion per year in billing costs alone. Additional efforts around chasing late payments, sending follow up statements, awaiting replies, and other time delays add up to staggering amounts. A Request to Pay solution can curtail these costs with its clear audit trail, and reconciliation also becomes easier for the same reason. Lastly, the visibility afforded by capturing customer preferences enables businesses to take preemptive measures and create programs or services that offer a better customer experience, which may help improve brand loyalty.
New opportunities for financial institutions
Request to Pay creates opportunities for FinTech companies and other financial institutions to provide overlay services. Banks can provide revenue-generating micro loans to customers who are falling short on cash and have a fast-approaching deadline. And third-party providers could also offer aggregation services using open banking APIs (e.g. Yolt), providing users with a view of all pending payments associated with their linked accounts. Such a feature would create opportunities for better cash forecasting and other value-added services like recommendations (e.g. cancelling unused subscriptions), as well as hints and nudges (e.g. cash availability projections based on bill payment dates).
Request to Pay can also provide rich data about customers such as their spending habits and preferences. This data can then be used for cross selling new or preferred products or services, which creates the potential for new revenue streams.
The impact of COVID-19
An immediate and direct effect of the COVID-19 pandemic on payments has been the reduction of cash, check, and even card transactions while people practice social distancing. The implications of this event will be long-lasting, and the economic landscape may change significantly in the light of the forecasted recession to follow. Request to Pay seems to offer an even greater value-add given this new reality.
Another factor to consider is the changing nature of work. Many people experience irregularities in working patterns, especially as we see self-employment and hourly gig-work on the rise. This all leads to inconsistent cash flows, which we are likely to see more of in the near future. For the second half of 2020, as businesses strive to stay afloat, liquidity and solvency are going to be all the more important.
Request to Pay may prove an easy-to-adopt and convenient solution for businesses and individuals alike. Given the unique needs brought about in these unprecedented times, the global push for continued digitization, and the emergence of its extended value propositions, Request to Pay is poised to see the mass adoption that was promised and hoped for. And with that, its popularity should increase around the world.