Request to Pay: The Next Chapter in Collections Innovation

While the media may be full of talk of cryptocurrencies and blockchain, a quiet revolution in payments is gathering momentum: the emergence of real-time Request to Pay (RTP) collections. Regulators are creating open digital markets, merchants are reducing the friction and cost of collections, financial technology companies are building new services on top of banking rails and financial institutions are exploring new ways to deepen and enhance the customer relationship. Although the value proposition of RTP schemes may be significant for many corporations, particularly those engaged in eCommerce, they will be successful only if they meet the detailed needs of payment system users. Consequently, it is essential that treasurers engage with the wider industry to influence their development, with the potential to transform both C2B and B2B collections.

RTP in practice

RTP is a collective term for schemes that trigger payments from bank accounts. In contrast with direct debits, RTPs are real-time and suitable for single or ad hoc payments. They do not require a static upfront mandate from the payer and are not subject to extended rights of revocation. RTP is effectively an upgrade of electronic bill presentment & payment (EBPP), enabling the payer to approve and execute a requested payment in real time.

RTP schemes work in a broadly similar way (see figure 1); however, schemes in each country are generally designed according to one of two models: a national clearing system to which banks are connected, such as UPI in India, and open banking, in which participating banks are accessible through application programming interfaces (APIs), such as PSD2 in Europe.

Fig 1 - RTP in practice

Each model has pros and cons. For example, a central clearing system is more harmonised, but future developments may be more difficult to deliver. The open banking model is more flexible and extensible, but there is a risk of fragmentation. These models are not mutually exclusive, and it is likely that both will co-exist in some markets. 

Advantages of RTP

RTP is a complement rather than a replacement to existing digital payment methods, and credit cards, debit cards and electronic wallet based payments are also expected to grow strongly. However, RTP brings a number of distinct benefits, particularly in markets where a large proportion of the population has a bank account but not a credit card. Some of RTP’s advantages for merchants include:

There are also broader social and economic benefits through the further reduction of the use of cash and cheques. RTP protocols may also empower machine to machine payments in the Internet of Things (IoT). It is an enabler of other emerging payment methods: for example, digital wallets become more useful if movements between a wallet and bank account are instant, low cost and frictionless.

RTP challenges

While RTP is very promising, there are still some issues to resolve around its practical utility. It is in overcoming these challenges that corporations can influence regulators, banks and fintechs. In particular, the quality of the customer experience will be essential to high volume adoption. Strong Customer Authentication (SCA) requires two-factor authentication for every transaction, which potentially adds friction and could increase abandoned shopping carts, particularly for mobile transactions. To reduce this friction, RTP will need to be optimised for mobile commerce through integration with banking mobile apps, fingerprint or one-time password (OTP) solutions. Also related to SCA, the ability to use RTP for recurring payments, such as fixed or variable subscription amounts will be dependent on a seamless customer experience for second and subsequent payments.

There are other utility issues too such as confirmation of payment to allow release of goods, and reservations where the final amount is unknown, such as in the travel industry and sharing economy. Credit, insurance and consumer protection issues come into play and both consumers and merchants will expect the same level of protection that they have with card schemes. How RTP will be used at points of sale (POS) also needs to be considered given that POS sales volumes remain far higher than eCommerce. 

For corporations, and in particular for B2B RTP collections, these will need to be integrated into best practice workflows including e-invoicing and multi-level approvals. Most schemes are also only designed for domestic currencies, which has implications for multinational corporations that may need to support multiple, disparate RTP schemes. There are also challenges in countries that have large unbanked populations where RTP schemes are less likely to offer significant value in their current form.

What quickly becomes clear, however, is that although there are issues to address and overcome, this is no more or less of a challenge than it has been for other payment types. There is significant momentum amongst merchants, regulators, banks and fintechs to deliver a secure, frictionless, real-time experience for all participants. 

Engaging and influencing the RTP agenda

RTP represents a powerful new layer in the banking infrastructure, and regulators, merchants, marketplaces, banks and fintechs need to consider their strategic responses. All parties need to engage and collaborate to ensure that RTP schemes meet regulatory and user requirements. From a corporate perspective, this includes developing and testing use cases, and considering how the customer engagement model could be structured most effectively. Treasurers should bring this intelligence and insight to work with national treasury associations (NTAs), partner banks and technology companies to ensure that RTP schemes meet their corporate purpose, as well as participating directly with regulators’ consultations.

Embracing challenge and change

The implications extend beyond the payment and collection process itself, and real-time systems will render concepts such as end of day and cut-off times obsolete, with profound liquidity and risk implications. Furthermore, market participation is likely to extend, as illustrated by the objectives of PSD2, with growing competition from non-bank entities, both regulated and unregulated. In this environment, a question for banks – and their customers – is who owns the digital relationship with that customer? Will new players be motivated less by the payment itself and more by the data that accompanies it, creating a very different type of relationship? However, these changes bring opportunity as well as challenge, and the momentum behind RTP is a trigger for exploring and addressing them. 

With commerce becoming global, data-rich and real-time, it is only natural that the banking systems adapt to this new reality. In the same way that Citi provides access to ACH and RTGS clearing systems globally, the bank will provide clients with a single point of access to the new real-time payments and collections systems, including RTP and other value added services. Citi’s real-time payments and collections capabilities are integrated with its established transaction banking and foreign exchange platforms across around 100 countries: local bank accounts, global liquidity structures, traditional payment and collection instruments and reporting and analytics. 

As RTP develops, Citi will share lessons between markets, working with regulators, governments and partner financial institutions to deliver payment system innovations that work at national and international levels, and for the individual payment system user, whether consumer or business. Citi’s clients too can play a major role in influencing and driving the direction and success of RTP. However, just as RTP schemes are not being developed in isolation, neither should corporate payment and collection strategies. The development of RTP as an instrument is driven by regulators with specific aims, so it is limited in scope. However, corporations and banks can choose to connect to each other through bilateral API connections to overcome these limitations and create bespoke collection solutions that provide the frictionless, convenient and secure customer and merchant experience that corporations globally are seeking.