Request to Pay through open banking - Realising the potential of PSD2 and instant payments
Consumers across the globe might have fallen in love with card payment and e-wallet solutions, but the same cannot be said for treasurers, who have to deal with the strains they place on their business. Costly interchange fees, long processing times, heightened risk of fraud, and complex reconciliation are just the beginning of a long list of pain points. Fortunately, request to pay – the new, fast, irrevocable, and cost-effective payment method – is on hand to close the gap
In recent years a number of new solutions have emerged under the umbrella definition of “request to pay”. So far, the solutions – promising quick, safe and standardised payments – have been championed by institutions such as EBA CLEARING and SWIFT. Alongside these, the implementation of Europe’s second Payment Service Directive (PSD2) and the advent of open banking have given rise to another type of request to pay solution, based on open banking. Drawing on both instant payments and PSD2's provision for licensed third parties to access and service accounts held by other banks, this open-banking approach to request to pay means merchants can empower a payments service provider to instantly and irrevocably make and receive payments directly between their accounts and those of their customers.
The corporate conundrum
Picture the scene: a corporate company with a large online presence accepts millions of card and e-wallet payments every year. Depending on the provider of these payment services, the company is charged rates of between 1% and 3.5% in fees, amounting to millions in yearly costs. Once approved, these payments can often take several days to process, holding up the final settlement of funds. In some cases – for example due to fraud – payments via card or e-wallet simply fail to process after the goods have been dispatched, prompting the company to enter into a costly and time-consuming recovery process. And even once the payment has been received, corporates must undergo complex and costly reconciliation processes.
In a booming market for low-value payments, where process efficiency is a top priority, these are frustrations today’s treasurers are no longer ready to endure.
For many businesses, an open-banking based request to pay solution could prove a timely and profitable intervention. Incurring just a small flat fee per transaction, they can help diminish costs by replacing commission-based intermediary card acquirer fees and ensuring funds are received instantly, while also ridding businesses of long processing periods and the associated risk of non-payment.
The benefits for businesses are clear, but they are not the only parties that need convincing. To realise the advantages, businesses’ customers must choose to pay this way themselves. Encouraging this customer adoption of request to pay may involve devising creative incentives, such as bonus schemes, but the value of doing so is beyond doubt.
Initial forays into the solution are now well under way, promising significant benefits and sizeable cost savings. As more companies embrace the solution and overcome the barriers, the advent of request to pay looks set to stand as a milestone in advances driven by PSD2 – and an exemplar of creative interplay between regulation and innovation.