REGULATORY / FRAMEWORK CONDITIONS FOR PAYMENT INITIATIONS WITH REQUEST TO PAY (RTP)
Since 2016, both the regulator side and representa-tives of the invoicing suppliers have undertaken var-ious attempts at implementing the R2P processing.2
During a workshop in November 2018, the Euro Re-tail Payments Board (ERPB) initiated an expansion of the request for payment.
Led by the European Payment Council (EPC), a task force was founded in order to prepare a legal frame-work and assess its effects. The EPC scheduled the initial framework to be completed in May 2020 and, subsequently, a phase for additional consultations regarding the framework to take place; they were fi-nalized end of August of this year. The revision and publication of the final framework is currently tar-geted for November 2020.
Presently, the remaining issues to be discussed are mainly the development of data formats (“implemen-tation guidelines“), questions concerning the acces-sion process for market participants (e.g. conditions for participation / admission), and the development of a risk management annex (RMA) targeted for completion by summer 2021.
TECHNOLOGIES / FUNCTIONALITIES
The main actors in the regular R2P settlement pro-cess are illustrated in the familiar four-corners model.
Fig.: RtP in the 4-party model
The processing model is mainly determined with re-gard to the actors involved. Consequently, there are three viable options based on the EBA Clearing In-frastructure:
▪ Four-corners model (payee, payer & 2 PSPs)
,▪ Three-corners model (payee, payer & 1 PSP)
,▪ Two-corners or direct model (payee & payer)
.The current framework contains a recommendation for processing which is to be implemented using the international payment standard ISO 20022
Fig.: Message exchange RtP
The respective R2P Payment Service Providers (PSPs) may also use alternative formats for ex-changing information between payee and payer.
Further functionalities, e.g. pre-authorizations in-cluding guarantee of payment, are already provided in the current draft as well. Using R2P in physical stores at the POS or on the internet requires a sep-arate implementation.
2 See the law implementing Directive 2014/55/EU on electronic invoicing in public procurement.
USER EXPERIENCE IN PAYMENT INITIATIONS WITH REQUEST TO PAY (RTP)
From a payer‘s perspective, the UX depends on the individual implementation by the payer’s PSP (i.e. generally the bank in charge of an account). Reso-lutions may be developed on an existing online banking or banking / payment app.
Connected with a smartphone that is compatible with NFC, a banking app without additional login en-ables a UX that would prove successful at a physical POS. This could not be achieved if an additional login for the app was required. In any case, online banking and app solutions are deemed apt for initi-ating payments for e-commerce purchases
.A separate implementation is required from the payee’s perspective. Technically, it can be built on existing infrastructure of terminals or existing e-com-merce payment solutions. The payee’s UX in the in-itiation of a payment is therefore comparable with current payment methods
.By transmitting additional (purchase) information, R2P enables, amongst others, the development of new and/or the digitization of existing functions and processes with UX advantages for all parties in-volved in the process
.In addition to merely defining UX needs, the chal-lenge regarding Germany consists in penetrating the end consumer market. As little as 60% of German customers are currently using online banking.3 The percentage of using mobile services for daily bank-ing services is slightly lower at 58%. It remains yet to be seen in the next months whether this fact will change short-term in view of the coronavirus (COVID-19) pandemic
.Security standards and, subsequently, security per-ception will be designed – both for payer and payee - along the lines of existing payment solutions
.The legal commitment to processing a given trans-action and, if need be, the mechanism for objecting to it are of special relevance to both parties. In gen-eral, these aspects are determined by the format of payment (e.g. SCT Inst) that the transaction is based on. However, any format of payment lacks function-alities for RTP cancellation and request for refund – an experience customers might be familiar with after having entered an erroneous amount at the card ter-minal.
3 Cf. Statista on the penetration of online & mobile banking in Germany 2019
STRATEGIC POTENTIAL OF REQUEST TO PAY (RTP) PAYMENT INITIATIONS
R2P is an additional mosaic stone in the European Strategy of Payments. Payment formats alone do not represent a payment system – this applies to SCT Inst, too. In order to establish itself in the long term, a payment format needs to provide easy ac-cess and prove to be useful in everyday life. In its digitalized version, the money transfer form used decades ago does not fulfil today’s requirements for online banking. In this regard, R2P opens new op-tions.
In combination with a good app implementation and SCT Inst, R2P constitutes an alternative to elec-tronic direct debiting (e.g. German ELV), even guar-anteeing the payment. In other words, it is a means of payment suitable for POS and e-commerce. Un-like electronic direct debiting, the merchant side does not have access to an account interface yet – which, for electronic direct debiting, is the debit card. Therefore, merchants, PSPs and acquirers depend on the customer’s bank to develop a good app solu-tion.
In contrast to real payment systems, both a return process (claim and dispute process) for everyday use and a solution for reimbursement to the payer’s account leading bank (interchange) are lacking. As a logical consequence, a general dispute solution is part of the communicated European payment strat-egy.
With regards to interchange rules we do not expect a European solution. Compared to international card schemes the lack of transaction fees could at least partially compensate for lower yields.
This might be one of the reasons why both bigger merchant groups and the European Payments Initi-ative EPI are showing big interest in combining R2P with SCT.
While innovative challenger banks might already be in a position to implement appropriate app solutions at short notice, we expect a relevant distribution in the market of the established payer banks to take place rather mid-term, i.e. within the next three to five years.
However, the distribution in retail will be more deci-sive. This aspect has recently posed a major chal-lenge to initiatives such as Monnet or paydirekt.
Taking electronic direct debiting’s multiannual mar-ket penetration in regard to girocard as a bench-mark, and considering the positive effects of Instant Payment’s guaranteeing for payment transactions as well as R2P’s suitability with eCom, we attribute a disruptive potential to R2P in the European pay-ment market.
Back to account payment.