Despite Increasing Interest, Request To Pay Remains ’Under The Bonnet’, Study Finds

January 20, 2022
Although market participants recognise the potential in Request to Pay, a new study finds they have done little to deploy and adopt the overlay service. Yet.

Although market participants recognise the potential in Request to Pay (RTP), a new study finds they have done little to deploy and adopt the overlay service. Yet.

According to a survey conducted by Icon Solutions, banks and payment service providers (PSPs) largely understand the benefits that RTP could deliver and recognise the potential in the service, but their actions to adopt the feature are limited.

RTP is an overlay service that enables secure messaging between a payee and a payer, enabling the payee to initiate a transaction. The feature offers a wide range of use cases for various participants in the payment process.

In the survey, Icon Solutions found that market participants largely understand the benefits of the service and 69 percent of banks and payment processors surveyed recognise the potential of the service. However, it concludes “this has not yet translated into meaningful action”.

RTP can offer various use cases to the different participants of a business payment cycle. Following an initial momentum for retail consumers, there is a growing sense that demand from corporate customers and merchants is growing.

Respondents of the survey largely believe that corporates (75 percent) and merchants (70 percent) could gain the most from RTP.

The most frequently cited use cases for corporates were reduced cost of reconciliation (73 percent), better visibility of real-time cash flow (63 percent) and lower costs (56 percent).

Top benefits for merchants included reduced dependence on cards (71 percent), reduced cost of reconciliation (63 percent), and improved payments choice for customers (62 percent).

In spite of that, only 18 percent of the banks and PSPs said they offer RTP services and only a further 27 percent said they plan to offer it within the next 12 months. Meanwhile, only 49 percent of respondents said they have a clear strategy on request to pay.

Icon Solution concludes in the study: “Despite the potential to change payments behaviour, Request to Pay is unlikely to become a branded, end-user facing solution in the mould of direct debit and payment cards. Rather, it will remain ‘under the bonnet’ as a service enabler, supporting new and emerging use-cases.

"And, like any new payment method, it will take time for adoption to build. Nevertheless, it is clear that the industry expects Request to Pay is here to stay.”

An alternative to direct debit

Direct debit is not only a widely used form to pay bills in countries where it is established, such as the UK, but in general, both billers and consumers are satisfied with the service. It offers a low-cost service for the biller and, at the same time, it provides a convenient solution for the customer.

However, it has its limitations.

The study finds that 87 percent of the surveyed banks and payment firms agree that RTP is a good alternative to direct debits and it concludes RTP is set to challenge traditional payment methods.

Direct debit is well established, widespread and a very efficient form of bill payment, but only for those consumers who are able to use it, Andrew Ducker, payments consulting expert at Icon Solutions, told VIXIO.

One of the challenges that billers have is that they cannot reach some segments of customers, such as low-income customers or gig economy workers who cannot set up a direct debit order because they do not have the necessary funds available on their accounts when the payment is due.

“If a biller wants to reach out to a larger customer base, they potentially need to have additional payment methods alongside direct debit,” Ducker added.

In this sense, RTP can be an alternative to direct debit, which offers a complementary solution, instead of just driving customers away from using direct debit, he explained.

At the same time, there is a segment where RTP could compete with direct debit, such as some mainstream customers who may wish to have greater control or visibility of their payments, Ducker pointed out.

RTP, by asking the consumer to authorise a payment, gives consumers a degree of control, whereby in direct debit the money is taken out in the background.

For instance, direct debit allows utility companies, such as a heating company, to take off a fixed amount of payment each month even during the summer when the consumer does not use heating at all.

“It is nice for the biller because it helps the cash flow, but it is not necessarily what the consumer would choose to do,” Ducker explained.

“With 9 out of 10 adults in the UK having at least one direct debit, and it accounting for 22% of all payments within the Euro area, this could represent a significant potential shift in behaviour,” the study highlights.

Avoiding card rails

High fees in card payments have been a significant pain point for merchants for years.

Early last year, Mastercard and Visa increased their cross-border interchange fees by 400 percent for UK payments sent to the EU, and large card fees hit the news again when Amazon almost banned Visa payments in the UK.

In an effort to circumvent card rails, the “combination of instant payments rails, open banking APIs and Request to Pay services presents a huge opportunity for merchants to drive customers towards cheaper account-to-account (A2A)-based payment options”, the survey says.

According to the UK's Payments Systems Regulator (PSR), the average merchant service charge as a proportion of card turnover was roughly 0.6 percent. Based on the average value of a card transactions in 2020, VIXIO estimates that the average processing fee merchants pay is roughly 27p. Of course this will vary significantly depending on the size of the retailer. Small retailers with less negotiating power can pay around 1.9 percent on average according to the regulator (or 87p based on the average value of card transaction).

By contrast, VIXIO understands the typical cost of initiating an RTP transaction, which runs on the instant payment network, is 20p. This fee, however, will likely become lower with time as competition grows, Ducker said.

Meanwhile, merchants switching from card rails to account-to-account payments may also have an impact on banks that typically derive a significant part of their revenue from card payments.

“Banks have to recognise that a lot of payments innovation is bringing products which can be used in scenarios where cards have been used historically,” Ducker said, stressing that “payments innovation is happening now”.

“We have had open banking with payment initiation services, we have already got Tikkie in Holland and Swish in Sweden who offer account-to-account payments that can be used in more mainstream scenarios.

“There is a competitive dynamic where technology and the regulatory drive to open banking and innovation are encouraging a lot of new payment services, some by incumbents but many by fintechs and new entrants.

“Banks have to understand that the card payment revenues are going to be under threat and they can either stay strong in a declining market or offer new services and try to have their share of these new services.”

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