Is there more than one way to skin a cat? A peek under the hood of Pay.UK’s and EBA Clearing’s respective Request-to-Pay models shows that indeed there is.
Request to Pay has widely been touted as the missing piece of the instant payment puzzle. At its core, Request to Pay is the idea of pushing transaction details from a payee to a payer’s device and into the chosen payment flow. This allows the payer to authorise
the payment without having to enter details from scratch, saving time, increasing security and opening up a world of opportunity for UX innovation.
Why the need for clarity?
While it is broadly referred to as Request-To-Pay or RTP in Europe, Faster Payments in the UK historically referred to the messaging capability as Request-for-Payment (RfP), but Pay.UK now refers to it as Request to pay (RtP).
As both Request-To-Pay and Real-Time Payments (RTP) are naturally discussed in similar contexts, this distinction is vital. In an effort to avoid confusion, when discussing the Pay.UK model we will use RtP, using R2P only to discuss EBA Clearing’s model.
While the two approaches seek to deliver the same payment service, given the contextual and timeline differences from which the two approaches have emerged, the method of delivery is inconsistent. Without seeking to identify a superior product, this piece
intends to explore what exactly the differences in approach to Request to Pay between the UK and Europe are, and why they eventuated.
Paul Horlock, CEO, Pay.UK
explained the breadth and success of Pay.UK’s pilot immediately prior to the Framework launch: “The huge variety of companies that have been involved in Request to Pay's development and testing phases – more than 400 in all, from start-ups to large payment
service providers – is a clear demonstration that there is market appetite.”
The European Payments Council (EPC) has developed a Request to Pay Scheme rulebook, the first version of which is currently out for public consultation, with a final version expected to be published in November 2020.
EBA Clearing is currently the only pan-European platform set to deliver R2P functionality in 2020 in line with the EPC’s SEPA Request-to-Pay Scheme, with 27 leading banks from 11 countries invested in the project to-date.
Erwin Kulk, head of service development and management, EBA Clearing, tells Finextra Research: “We started with R2P in the second half of 2018, after blueprinting the infrastructure solution with a number of our banks from different countries. We secured
funding for this, which created the mandate for us to deliver our infrastructure by November this year. This is all on track.”
In fact, EBA Clearing recently confirmed that its infrastructure solution for processing instant SEPA credit transfers across Europe, RT1, has seen a significant Europe-wide ramp-up since its go-live in November 2017, with processing volumes of over one
million on peak days. The system has now also
reached critical mass in France, after doing so in Austria, the Baltics, Finland, Germany, Italy and Spain. This progress serves to build momentum and lay the foundation for R2P, with the European
firm announcing on 23 June that the testing phase of the service has commenced.
The European Payments Council’s Multi-Stakeholder Group explains that SEPA Request-to-Pay is a messaging functionality. It is not a payment means or a payment instrument, but a way to request a payment initiation. This clarification is fundamental to understanding
the difference between implementations in the UK and that being launched across Europe.
The UK and Open Banking
Pay.UK’s Framework operates as a communication tool which is overlaid on existing payments infrastructure and gives billers the ability to request payment for a bill rather than just sending an invoice. While it boasts clear merit for individuals working
on a freelance basis, the service will also allow organisations to incorporate it into their own apps and services, sitting alongside Direct Debit and other existing bill payment methods.
Pay.UK notes that not only does RtP hold the potential to deliver £1.3 billion per annum in reduced billing costs, it offers a helping hand to those that need flexibility in how and when they pay.
The Request to Pay process is initiated when the payee biller sends a request for payment to the payer through RtP. The request can include amount, payment reference, due date and any attachments (e.g. invoices). They can then choose from five payment options:
- To pay the entire outstanding bill;
- To pay part of the outstanding bill;
- To request an extension;
- To decline payment of the bill; or
- To send a direct message in response to the bill.
Following this, the biller can choose to grant an extension to the payment, discuss the bill further (via messaging), or to close the request once the payment has been received. The payment itself is defined as being ‘agnostic’, that is, it could be a Faster
Payment, Direct Debit or a Payment Initiation Request via Open Banking.
As pictured in the graphic above, Pay.UK is responsible for the central administration of the RtP Framework. However, the competitive space with Request to Pay means that the services delivered in the user front end and repository layers will remain the
realm of financial institutions, fintechs, utilities and retailers to develop and offer unique products to the consumer.
Earlier in the year, Pay.UK had announced a brief delay to the R2P Framework launch due to Covid-19, however a spokesperson from the authority notes that Pay.UK’s decision to delay provided valuable time to ensure that the introduction of the RtP Framework
would not have any detrimental impacts on organisations. Their research found that it would not bear any negative impacts and as such the Framework was launched on 29 May 2020.
The Pay.UK spokesperson observed: “We have not seen any negative impact on the appetite for the RtP Framework, as a result of Covid-19. Probably, the opposite has occurred with organisations seeing the potential opportunities for the Request to Pay Service,
that have become more apparent as a result of the Covid-19 lockdown.”
Visa worked closely with Pay.UK during the RtP pilot and facilitated the first pay message sent and received over the Framework earlier this year. For the pilot, Visa tested over 100 biller and consumer use cases and over 40 exceptions.
Mat Lane, head of Europe real time payments & global applications, Visa, explains that “developing new payments products and services across different rails to provide increased choice to consumers and business is a challenge we relish. It isn’t merely a
question of the technology; it also requires us to consider the payment flows, the exceptions, and the end user experience.
“Ultimately it requires us to bring together various disparate factors to ensure a fully interoperable service. The Pay.UK request to pay pilot has allowed us to work through these considerations and create a vision of how the service will work when it rolls
out more widely.”
Lane believes there are multiple elements of Visa’s offering that will be boosted by RtP into the future:
- we can protect consumers, merchants and financial providers through our expertise in authentication and identity;
- we can ensure that the sharing of data and financial transactions remains secure by applying our deep experience as pioneers of risk and security technology;
- we can help consumers gain access to personalised products and services from our partners by providing the base of innovation and extensive analytics of our network; and,
- we can give consumers and businesses peace of mind that their information and payments are safe thanks to our 60 years as a trusted brand at the heart of innovative payments technology.
Lane concludes that “Visa’s participation in Request to Pay services is a natural extension of our existing role as a global and open payments network. Our involvement is part of our strategy of using our network to support partners who want to build new
and innovative payments products and services.”
The liquidity benefit afforded by RtP will no doubt prove invaluable to UK SMEs, particularly in the context of Covid-19 induced cash-flow tightening. Waiting for payment or having to manage late payments can sound the death knell for small businesses reliant
on timely receipt of funds. RtP not only improves access to instant payments, it removes the need for and cost of invoice discounting or factoring services, allowing firms to negotiate, chase and confirm payments efficiently and on their own timeframe.
Pay.UK's R2P model allows for immediate functionality, meaning that the delayed-payment headache needn’t cause undue stress during the pandemic. As outlined above, this approach means a payment is initiated by a third party, necessitating a new or different
customer experience with each new request. The situationally driven approach means that rather than having a consistent, familiar interaction with a single institution (such as their own bank), customers must acclimatise to being presented with requests that
are visually unique.
The 4-corner Continental approach
EBA Clearing is championing a different version of Request to Pay for Europe, known as the ‘4-corner model.’ The objective of achieving request for payments remains the same, however the way in which this is built and will be implemented varies.
Recently announcing the punctual start to its testing phase for a pan-European request to pay infrastructure, EBA Clearing anticipates that the go-live date is on track for November 2020, in line with the launch of the SEPA Request-to-Pay Scheme by the European
Payments Council (EPC).
Francis De Roeck, global cash management, payment regulations, BNP Paribas and member of the EPC’s Multi-Stakeholder Group on R2P speaks to the differences of EBA Clearing’s 4-corner model and the Open Banking approach to R2P.
De Roeck explains: “in this model you have 4 corners: the payer and the payee, the payee’s bank and the payer’s bank. This is where the R2P message goes (across the four corners) as the payee sends the request to his bank, the payee’s bank send it to the
payer’s bank, the payer’s bank raises the question to the payer. Finally, the payer accepts or denies the transaction and then the money is transferred or it is not transferred.”
Image: Pan-European Request to Pay approach – standardised interaction for providers and maximum flexibility for end-user solutions.
“The R2P 4-corner model is completely payment agnostic. It is completely different from RtP Open Banking, whereby intermediary parties launch payments on behalf of the merchant.”
De Roeck states that while the 4-corner model boasts many advantages compared to the Open Banking model, the central pitfall is that for the 4-corner model to succeed it must have reach. That is, “if there is no adhering payer bank then you are alone in
the desert, you can’t send your request to anybody. Conversely, if you have enough reach, you will have a unique experience. You can reach the whole market, all of the connected payer banks.”
EBA Clearing already has a healthy raft of 27 sponsor banks on board and the specifications for the future service have been shared with many other institutions across Europe, as Kulk related.
This requirement for reach differs from the Open Banking model as, by definition, access to all banks is a prerequisite for Open Banking functionality. De Roeck explains that while this reach is achieved at the outset for the Open Banking approach, what
is lacking is universality of experience because of diverse APIs. Through the Open Banking model firms must connect to the 4,000 or so different APIs of the 4,000 or so payer banks – a cumbersome task.
Kulk concurs that achieving reach is a critical factor for the 4-corner approach, however, he argues that, thanks to the real-time messaging rails rolled out for instant payments, the ground work is complete and firms are well-positioned to reap the associated
opportunities.
“EBA Clearing’s 4-corner model allows the required transactional information exchange for R2P over the messaging infrastructure in a standardised way while also allowing banks and other service providers to develop their own value propositions for end users
and therefore compete around those propositions,” explains Kulk.
For example, one PSP may focus on creating the best user experience and the other may focus on reconciliation or providing a credit facility allowing specific transactions to be paid later. Such product characteristics can be developed by PSPs independently
by leveraging existing building blocks such as the instant payments infrastructure, internet banking apps and strong customer authentication.
“There will be quite an impact on the market,” furthers Kulk. “But since it is based on an evolution rather than a revolution, request to pay is excellently placed to become the true enabler of instant payments in Europe.”
De Roeck elaborates on the 4-corner model’s insofar as consumer trust. Primarily, the fact that it is always the payer’s bank who will contact the payer to ask whether they do or do not want to approve the payment request means they needn’t interact with
third parties or share details with anyone other than their personal bank or PSP.
“This is completely different to the Open Banking model,” De Roeck explains.
“In an Open Banking R2P model the payer’s bank would be notified by the TPP as a third-party provider which contacts you for a payment initiation. You don’t know who this is – you only receive a number. While the bank verifies the other party on the individual’s
behalf, the individual does not. This inevitably leads to a fundamentally difference customer experience.”
Naturally, whether the Open Banking or 4-corner model will garner more success for the financial institutions and PSPs delivering through the respective systems remains to be seen. As De Roeck mentioned, the lag in ensuring every institution is able to connect
to the platform will bear a significant effect on the ability of the pan-European model to take off quickly. That said, a slow and steady approach leaves space to tweak tools and comprehensively bed-down processes.
It is heartening to hear EBA Clearing repeatedly affirm their November launch date in the face of Covid-19 pressures, and given the potential R2P holds for firms to build out value-generating services, we hope that nothing arises between now and then to
impact the timeline.