Overview:
Globally financial institutions are innovating and improving their capability to address evolving consumer expectations, razor-thin margins, and increased competition. With the continued adoption of real-time payment schemes across the globe, a set of overlay services are also being developed in parallel, to leverage the low-value instant settlement capabilities provided by the real-time schemes. An overlay service that is gaining a lot of ground is Request to Pay. The service not only enables businesses to manage cashflows more efficiently but also enables payers to have more control over their payment obligations.
Current Pain Points:
- Cash flow management: Some businesses accept partial payments to have greater control over their cash flows. However, in many cases, businesses do not have proper systematic architecture and enabling processes to receive partial funds, reconcile against underlying unique transactions and track the next payment due date details, etc.
- Optimization of working capital: Often in credit card payments, after authorization of payment by the payment provider, transactions take several days to process and settle. Also, charges associated with the processing of transactions are high, which can end up costing millions each year and delaying the final settlement for the merchant.
- Direct debit payments: Used typically for recurring payments like household bills, subscriptions, memberships, charitable donations, etc. Organizations debit the customer account on an agreed date. However, the service generally takes more than two to three working days to process the payments.
What is the Request to Pay?
Request to Pay can be defined as allowing a Payee (or creditor) to claim an amount of payment from a Payer (the debtor) for a specific transaction. Request to Pay is an enhanced messaging service that can facilitate real-time payments by supplementing the existing payments infrastructure to provide more flexibility to businesses and consumers.
How does it work?
Request to Pay acts as an overlay service that provides the ability for consumers or businesses (acting as a payee) to send a payment request to consumers or businesses (acting as a payer).
The payer can access the payment request details including reference number, amount, and due date, and act on the request, including choices to make the full or partial payments, and choose a payment date (if allowed).
Additionally, the service can be enhanced to have features such as
Status report: On acceptance or refusal by the payer, the status would be sent back to the payee via the payee’s payment service provider.
Choice of Payment Method: Making the requested payment via an instant payment scheme might be the most efficient method. However, in some instances, the payment may need to be paid via other payment methods.
With the objective of a real-time and payment scheme agnostic process, Request to Pay can be used to supplement the existing payment methods to provide more control and flexibility to both corporate and retail customers.
Hence this versatile overlay service has the potential to improve service levels in many different contexts like
- Customer-to-Business (C2B)
- Business-to-Customer (B2C)
- Business-to-Business (B2B)
- Person-to-Person (P2P)
- Government-to-Customer (G2C)
- Government-to-Business (G2B)
- e-invoicing
- online commerce
Request to Pay business scenarios
The scope of the Request to Pay standard framework can support a range of payment scenarios, which can cover generic, region, scheme, or business-specific use cases. A few of the scenarios are illustrated below:
A Payer can ‘Accept’ or ‘Decline’ the Request to Pay instruction.
As part of acceptance, the payer can pay immediately or on a future date, if the payee allows.
For both the above payment options, the payer would have the choice to choose a specific payment scheme to initiate the payment, such as low-value ACH, high-value wires, or Instant payment.
Additionally, the payee would be allowed to modify the amount indicated in the Request to Pay instruction.
Payer acceptance or refusal can be transmitted to the Payee via a status report message.
Logical business models
Request to Pay functionality can be achieved by multiple frameworks and established models. The models illustrated below provide a view of the actors involved and the overall ecosystem.
o Banks or PSPs are connected to the national clearing system.
Illustration of Request to Pay regulated by a clearing scheme.
o Banks are publishing standardized open banking APIs (application programming interfaces) which can be accessed by fintech use.
Illustration of Request to Pay initiated from Open Banking API.
Standard messages for Request to Pay
Most of the payment schemes consider standard ISO20022 XML format to build Request to Pay framework more or less with same message type including some variations.
- Request to payment to the payer: pain.013 (Creditor Payment Activation Request)
- Response to Request for payment: pain.014 (Creditor Payment Activation Request Status Report)
Applications impacted
Implementation of Request to pay may impact several banking applications as below.
- Core banking system
- Mobile/Web-based application
- Payment processing application
- Sanction/AML/Risk application
- Report/Advices application
Countries adopted R2P
Request to Pay overlay services has been adopted by several real-time payment schemes across the world. For Example, UPI/IMPS (India), TCH RTP (US), SCT Inst (EU), Faster Payments (UK), NPP (Australia), and FAST (Singapore) to name a few.
Additionally, SWIFT gpi (SWIFT Global Payment Initiative), which ensures that globally cross-border payments meet the industry’s expectation with respect to speed, traceability, and transparency, also support R2P implementation.
Benefits
In general, Request to Pay helps improve transparency, improve controls around payment execution and enable smoother end-to-end processing and reconciliation.
The speed, security, and convenience of Request to Pay is expected to provide real value to consumers, and businesses, specifically small and medium-sized enterprises.
Receive authorization from Biller and pay the bill revised future date.
Receive authorization from Biller and pay the bill revised future date.
Explain the problem and request Biller for additional days to pay the bill.
Bill payment is pending due to their busy life or insufficient funds.
Consumer
Allow donating a later full, or partial amount as per the donor’s convenience
Lack of flexibility for recurring or partial payments for donors to donate to Charity.
Non-profit organization
The flexibility of payment with real-time status updates keeps up the connection with donors.
Small Business
Due to delays in payments cash flow challenges and follow-ups with vendors.
Request to Pay can help to build communication between the parties.
Flexibility to pay bills upfront in full or in installments and track those payments in real-time.
Large Business
Payment requests and transactions contain customer reference and remittance information.
Reconciliation of High-value payments is expensive and often takes more time.
Simple, easy, cost-effective, and time-saving reconciliation process.
