In this guest post, Stefan Wälde of AirPlus offers a primer on Request to Pay and highlights its potential for commercial transactions.
In the digital age, customers have many options for paying for their products and services. For this reason alone, it was important and right that the European Payment Services Directive (PSD2) was implemented three years ago and has been regularly adapted since. As a result, beyond the new rules for payment transactions within our industry, we now also see new solutions driven forward in the market. This was one of the EU Commission’s objectives. After all, PSD2 is not only intended to regulate, but also to create the opportunity for innovation and promote competition between banks and fintechs.
One example is Request to Pay (R2P), a type of messaging service that allows a payee to digitally request a payment from the customer and the to customer confirm it. The payee can specify in their request both an expiration date and time and a desired execution date and time. Mastercard in April announced the launch of its own R2P service. Experts expect more R2P-based market solutions to emerge this year.
Competition For The Classic Credit Card
The principle behind R2P is not new. Some banks already support it as a service to make payment processes more efficient. However, there had not yet been a uniform standard for this exchange between customer and payee for the European payment area. On June 15, the European Payments Council’s Single Euro Payments Area Request-to-Pay scheme took effect. It is intended to lay the foundation for catching up in terms of digital competence with the top dogs from the United States, such as PayPal, Apple and Google.
What do financial service providers think about this new idea? I think that R2P will compete with the classic credit card in the future, once the legal framework has been clarified. This service will eliminate the need for consumers to carry cards or large amounts of cash. You only need your phone to receive the digitalized payment request and submit authorization; the merchant gets a guaranteed payment. In principle, this is nothing more than the binding promise of a payment, thus comparable to the authorization of a credit card payment.
Friend Or Foe?
What does that mean for companies that specialize in the credit card business? Solutions like R2P can open additional opportunities and possibly affirm the current path. With virtual cards, we already see that analog payment processes can be handled completely digitally and securely.
This is probably one reason why I see the EU solution as an opportunity for players in the space to drive forward the future of payment processes and resolve issues of security and transparency. R2P can help to digitally represent, execute and secure pre-existing business models and processes, and offer design opportunities for new models.
This is crucial for companies. By relying on fully digitalized invoicing, they can make their process more efficient and cut costs. I think of the largely automated accounting systems, business analyses, archiving solutions and more. If R2P becomes established at the European level, it would be a major step forward for the payment industry and a great opportunity for companies.
No More Authorization Back-And-Forth
In consumer business, the topics of R2P and instant payments are closely linked. In many scenarios, immediate payment promises great advantages. However, I question whether this is also the case for corporate business. For that, we need models that cover the different needs of the payers. Some want to pay immediately, but with a discount. Some want to pay later. Some in several installments. One company pays each invoice individually, while another relies on collective invoices. In B2B business, instant payments probably won’t become an exclusive method. If, on the other hand, there are several possible paths that customers can take, then all market participants will benefit: merchants, payers, cardholders and payment service providers.
This can mean integrating R2P into existing ecosystems, and at interfaces where the payment request can be triggered by the payee and processed and paid by us on behalf of the client as a licensed partner.
Another advantage is that the current, often very time-consuming “back-and-forth” of a non-digital authorization is no longer necessary. Instead of getting lost in the ping pong of request, approval, verification, etc., the process would save valuable time. In addition, there can be no charges for chargebacks or reversals on credit cards if Request to Pay is considered a substitute for the credit card authorization process.
Incidentally, according to a consumer survey by Mastercard, 40 percent of Europeans want a secure platform that allows them to view, store and pay all their bills in one place. We should no longer be concerned with the “why” behind solutions of this kind, but only with the “how” and “when.”
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