The new communication layer called Request-To-Pay will offer banks and merchants new possibilities.
Payments industry is experiencing radical transformation. The rapid development of new payments technologies is dramatically reshaping how banks and traditional payments providers think about their payments businesses today. Traditional players should urgently re-assess their existing payments strategies and operating models, and decide on the most effective way to transform their approach, in order to ultimately offer “value beyond payments".
One of the irreversible payment trends in 2024 is Real Time Payments. Their deployments are due to innovations in technology, changes in regulations and customer demand for easier access to funds. Value-added services, commonly referred to as overlay services, have proven to be effective at helping real-time payment networks scale and deliver on their value propositions. SEPA Request-to-Pay is such an overlay service.
What is SEPA Request-To-Pay?
SEPA Request-to-Pay (SRTP) is a frictionless and immediate payment framework that enables European businesses to request payments, whether physical or online, from customers. SRTP specifically aims to establish a standardized model for request-to-pay, aiming to encourage businesses to implement it on a broader scale. The service is already a widely-adopted concept with peer-to-peer platforms – such as Venmo.
SRTP is not a payment method or a payment instrument. It rather serves as a way to initiate a payment request or communication layer.
Request to pay, also known as R2P or RTP, can also be named “a messaging service” designed to simplify payments and be more flexible for businesses and consumers. It is cheaper and easier to manage for the financial institutions and merchants involved in the payment journey.
Request-to-Pay promises to give consumers more choice and flexibility in how and when bills are paid. It isn’t a new payments rail, but rather a specification for a secure, real-time messaging service that will sit on top of the existing payments infrastructure, notably credit cards and Faster Payments. The service will allow organizations to communicate with their customers, providing more options for how they wish to meet their payment obligations.
How does SEPA Request-to-Pay work? What is the request to pay process?
SRTP isn’t a way to make payments, but rather a tool for sending messages that ask someone to start a payment using SMS, WhatsApp, or email. With SRTP, you can ask customers to pay you instead of waiting for them to do it, making the payment process quicker and easier. It comes in between the business transaction and the actual payment, helping the whole digital payment process move along smoothly. This system is designed to be open to certain groups that aren't officially regulated, like e-invoicing services and commerce platforms.
The SEPA Request-to-Pay scheme involves 4 main players: the person receiving the payment (Merchant), his SRTP service provider or Merchant’s bank, the person making the payment (Client), and the client's SRTP service provider or Client's bank.
The Merchant or online seller can use information provided by the buyer or Client – such as their name, account details, price, and item – to create a payment request, called a "Request-to-Pay," following SRTP rules. The payee's SRTP provider (or Merchant’s bank) helps convert this data and sends it to the payer's SRTP provider.
The client then gets the Request-to-Pay on their device within seconds. How this message is received – like via email, mobile notification, WhatsApp, or via a third-party fintech – depends on security measures and agreements between the client and their SRTP provider. SRTP rules don't specify the communication method or channel.
The merchant can also suggest how the payment should be made, like through a standard SEPA bank transfer or a faster SEPA Instant Transfer.
The payer can then accept the request, decline it, pay in full or in part, or delay the payment. Organizations will need to take decisions as to how they wish to cope with the variety of responses given.
If the payer declines, the merchant gets an instant notification. If the payer accepts, they can initiate the payment – like through online banking – without having to enter the amount, merchant's account details, or any invoice number. However, the actual payment process isn’t part of the SRTP scheme but ideally is teamed with it.
What are the benefits for merchants for accepting SEPA Request-to-Pay?
Request-to-Pay promises multiple benefits for businesses, charities and not-for-profit organizations, as well as freelancers and consumers, with improved communication, reduced admin and streamlined processes. For businesses, it theoretically reduces the risk of failed payments and the time taken chasing them, assuming that consumers co-operate fully. For charities, it can increase donor retention by offering donors flexibility in their payments. And for freelancers and a new generation of workers on more variable income streams, it enables easier budget and cash flow management by providing the ability to stagger payments over time rather than meeting bills upfront and in full on an inflexible schedule.
We could summarize the benefits of RTP the following way:
· Security: The RTP uses the SEPA (Single Euro Payments Area) payment system to ensure the security and reliability of transactions. SRTP instant payments prioritize security, providing a robust framework that safeguards transactions and sensitive information.
· Flexibility: SRTP gives your business the flexibility to choose how to make or receive payments, which caters to varying customer preferences and needs.
· Seamless cross-border transactions: SRTP facilitates hassle-free cross-border payments, breaking down geographical barriers and expanding business reach internationally. It also streamlines the payment journey for the customer by providing a direct link to the invoice, eliminating the need for manual input of payment details
· Real-time, around-the-clock transaction processing: With SRTP, payments are processed in real-time, ensuring that transactions are quickly completed regardless of the time or day, improving overall efficiency.
· Instant access to funds: When completing a transaction, the funds become immediately available, which can be crucial if your business and will improve the company’s cash flow management.
· Suitable for different business models: SRTP offers the convenience of requesting payments both in-store and online, accommodating different business models and sales channels.
· Cost-effective: If banks offer competitive pricing, SRTP has the potential to be a more cost-effective and secure payment option for your business compared to others.
· Easier reconciliation: With standardized and structured remittance information with each transaction, you should find it easier to reconcile payments.
Since Request-to-Pay requires authentication after every transaction and opens a direct communication channel with every consumer, it could create as much admin as it promises to reduce. There are no in-built restrictions on how many times a payment request can be made, potentially encouraging toxic relationships between business and consumer.
Request-to-Pay has some similarities with Direct Debit. In the U.K., there is a general perception that direct debits provide a superior payment solution due to the security and convenience they provide by making payments invisible. The due date is scheduled and automated, so it does not require any manual intervention from the consumer. It will take time for Request-to-Pay to gain ground in the U.K. market, which direct debits currently hold. However, this is different in Portugal, where direct debits are perceived as 'suffered' by consumers who find them inconvenient.
SRTP Use Cases or Who Uses Reques-To-Pay?
Billers, merchants, corporates, and other large and small businesses can use Request-to-Pay for a variety of reasons, including bill payments and eCommerce and mCommerce transactions.
The use cases involving SRTP can be categorised by multiple criteria, depending on the perspectives the analysis is focused on. These criteria and the related specific use cases covered are:
· Type of possible use cases: physical commerce, online commerce, Person-to-Person, e-invoicing, collection of taxes or levies, utility payments like water, electricity, gas, etc. bills.
· Segments: Business-to-Customer (B2C), Business-to-Business (B2B), Person-to-Person (P2P), Government-to-Customer (G2C), Government-to-Business (G2B).
· Payment instrument used after the SRTP, if any: SCT, SCT Inst, High Value Payment, other type of credit transfers.
· Timing related criteria: acceptance and payment time: immediate (“now”) or deferred (“later”).
· Special conditions or functions (for example anticipated payment, payment of different amount, etc.).
SEPA Request-to-Pay is a relatively immature and evolving concept in the world of payments. It is crucial to pay attention to the specifics and how it's put into action, as they might differ depending on the country and the specific bank you're dealing with. However, if you're seeking seamless and secure payment solutions, VR Team is here to help you find the perfect fit for your specific needs. Book a call with us to find or fine-tune the payment solution for your marketplace or platform: http://bit.ly/book-vrteam or reach us @ email: firstname.lastname@example.org.
Sources and inspiration by:
1) Earns & Young - The rise of PayTech — seven forces shaping the future of payments: https://assets.ey.com/content/dam/ey-sites/ey-com/fr_fr/topics/financial-services/ey-the-rise-of-paytech-seven-forces-shaping-the-future-of-payments-20221202.pdf?download