Standardised Request to Pay services will drive fast and frictionless payments

Request to Pay (RTP) promises a bright future for society, consumers and corporates with the introduction of easier and simplified ways of paying bills supported by real time messaging payment flows. Whilst many national RTP schemes are already in operation around the world, a new cross-border initiative at the European level to harmonise and standardise RTP will create the opportunity to increase competition and provide a foundation for further innovation in payments.

In essence RTP is not a payment in itself but rather the means to request a payment initiation (pull payment) from a debtor by a creditor. RTP relates to the establishment of real time messaging functionality that can be sent at any time 24 hours a day. Once approved by the message recipient, a payment is made from the bank account of the payee to the requester. In contrast to traditional Electronic Bill Presentment & Payment (EBPP) systems such as direct debits, RTPs are real time and suitable for single or ad hoc payments. Payment requests can be sent via multiple channels and further forwarded by the payee through a variety of communication channels.

Tino Kam, Head of TxB Product Management at Nordea, says: “Payments has been a very exciting and fast moving domain in the last couple of years, particularly in the Nordics. Request to Pay is an add-on to our payment capabilities in the industry. RTP can be very much considered to compliment the payment flow because it supports the end to end process between the underlying commercial transactions and the payment. It is important to note that the RTP message is separate from the solution in the payment itself. This means that RTP is essentially concerned with the real time message only and is actually payment channel agnostic, meaning it can be used in all sorts of different scenarios and systems.”

Christian Engberg, Payments Product Management at Nordea, adds: “Essentially a Request to Pay is a link between an invoice and the actual payment, meaning that the invoice being sent has a key that is being sent in the other direction. This means that you are able to send a request directly to the debtor with all of the required information prefilled for the creditor to reconcile the payment. The debtor would be able to simply just pay without providing lots of additional information. In practice, this could be a swipe or something similar to confirm the payment. It is however a credit transfer and not like the direct debit schemes we are used to here in the Nordics, meaning that you need to give consent to make the payment.”

Standardised in real time

Two main initiatives are currently leading the move towards standardised cross border RTP implementation. Across Europe, in June 2021 EBA Clearing messaging infrastructure conforming to the SEPA Request-to-Pay Scheme (SRTP) created by the European Payments Council (EPC) was made available to all SEPA (Single Euro Payments Area) countries in Euros with further currencies expected at a later stage. Nine European banks have joined the service so far and have already or are about to launch services based on RTP real-time messaging. EBA Clearing and Spain’s IBERPAY also launched a cooperation to send and receive RTP messages across the two market infrastructures.

According to EBA Clearing, “Request to Pay is envisaged to evolve further over time and has been identified by the European Commission and the Eurosystem in their respective retail payments strategies as having the potential to add value to the SEPA Instant Credit Transfer (SCT Inst) Scheme as well as to improve the usability and support the uptake of instant and digital payment solutions.”

In the Nordics, a service known as Nordic Bill Payment is planned for release in two to three years as a key part of the P27 initiative to establish a single pan-Nordic cross border multi-currency payment infrastructure for the region. Nordic Bill Payment will make use of similar RTP messaging formats and rulebooks as the EPC and aims for full Nordic reach through one pan-Nordic solution. The eventual goal for P27 is to establish one Nordic scheme for payments, instant payments and Nordic bill payments. The Nordic Bill Payment service will aim to standardise or replace current direct debit and e-invoicing solutions as well as supporting e-commerce and other use cases.

Helle Fagerland, Product Manager Collection Services at Nordea, says: “Many forms of RTP are already out there but the unique thing here is that the EPC is providing a European standard messaging format that fits into the SEPA world. It’s an add-on to the other SEPA products that we have which creates an important regional standard. That’s a strong value proposition as creditors will be able to use the same standard messaging format across Europe and across the Nordics for the P27 countries at least. Corporates can now use one fast and simple way of collecting money from invoices in multiple countries. That is obviously the key opportunity here.”

A challenged market

The Nordic market for bill payments is fragmented with up to eight local methods currently being used in the four countries, including both direct debits and e-invoicing solutions. Challenges to the existing set up include a lack of Nordic reach and simplification, non-digitalised solutions proving incapable of capturing future market needs, high costs for both banks and their customers, a cumbersome onboarding process for customers and an inability to fully meet customer demands, particularly for instant bill payments.

Tino says: “The Nordic bill payments market is facing multiple challenges in staying relevant for both creditors and debtors. There is undoubtedly a great potential for growth in establishing a more efficient and effective instrument from a standardised RTP perspective. The currently fragmented solutions result in increased costs and make it difficult to build on top of these infrastructures. In the Nordics we are also at the stage where things need to be renewed both in terms of technology and to meet compliance and regulatory needs. As well as replacing existing legacy solutions, we also want to create the foundation for new use cases and we are very much focused in the e-commerce and m-commerce type of space. Obviously the scheme has to be able to connect and enable the request for payments for all of the people in the Nordics.”

A standardised Nordic Bill Payment based on the SEPA Request-to-Pay Scheme (SRTP) will enable merchants and corporates to submit one instruction in one format and channel for their bill payments in both Sweden, Denmark, Norway and Finland. The standardised Nordic Bill Payment RTP will also have the same format, solution and rulebook, with messages sent in real-time.

A multitude of use cases

The launch of standardised RTP services are closely related to a number of different payment scenarios such as utility bill payments, returned direct debits, e-commerce payments, payment of e-invoices, at the point of sale and the substitution of other payment instruments

Tino says: “The most obvious use case is where you need to pay your utility bills. With RTP you will get a request to pay a bill and you as a consumer will see that in your mobile and then be able to authorise the payment. That sort of e-invoice case could be used not only for your utility bills but also for all types of irregular, one-off or recurring payments. It could also be used more from an e-commerce perspective. When you buy goods through the internet, in the future the checkout will give you the opportunity to pay based on RTP alongside other existing payment types. As well as online payments, it could also be used in-store and for person to person transfers. There are many initiatives already in Europe where we can see examples of these four use cases; peer to peer, in-store, e-commerce and recurring.”

Many existing collection mechanisms can potentially be replaced by using RTP as the message and infrastructure used to realise those collections. Separating the message from the payment itself widens the scope of use cases as the request to make the payment and the actual payment are independent of each other.

Christian says: “The recurring element is set up between you and your debtor bank. That is different because then you set up rules. For example, you can set up a rule that you want all of your utilities paid to a specific company unless the amount exceeds a certain defined limit. That’s the logic you set up between you and your bank. In that way it’s a very lean payment method and also a very flexible one. That’s why we also see so many use cases to it because it can fit into a lot of different contexts. It can fit into traditional bill payments, into e-commerce, it could simply be a button in a checkout window and then you’re linked to finalising the payment.”

Increasing invoice collections

With the introduction of a standardised real time capability and reduced friction, it is hoped that RTP will increase the potential for invoices to be paid on time and prove to be a valuable service for corporates in particular. RTP should also ensure a smooth and effective way for corporates to reconcile payments in their Accounts Receivable processes.

Christian concludes: “With RTP, all you need to do is just accept the payment request. You are in your own trusted environment, be that your NetBank or some other interface of your choice. You know you can rely on the invoices you receive in this environment as your bank is protecting you. This will of course drive acceptance and lead to an overall higher rate of invoices being paid. In Denmark, it is estimated that presently only 70% of all invoices sent are actually paid on time. This could be because its cumbersome on different channels, sometimes in your postal mail, as a PDF, attached to an e-mail, etc, and you forget it for whatever may be the reason. The user experience is a broken chain and there is no immediate way to complete the payment. In RTP you have a structured format where it’s contextual, you can see the invoice. You don’t need to go into a separate interface to make the payment, you can complete it in one screen.”

In many settings such as e-commerce, person to person or in-store, the instant payment capabilities offered by RTP will enable the creditor to confirm finality of the transaction in real-time.

Tino concludes: “In theory, RTP will offer instant settlement of bills in a much wider group of use cases then currently. This should undoubtedly drive the adaptation of instant payments for society in general. It’s of course difficult to predict the dominant payment method in 10 years’ time, be that account to account, instant or remain in the card space. I think the different payment instruments will survive in parallel for many years to come.”

For now, standardised RTP services have the potential to offer companies a more efficient and less time consuming way of collecting funds from debtors.

Helle concludes: “In the Nordic countries, one of the key pain points corporates have is how to handle rejections and subsequent dialogues with customers in a more efficient way than in their current way of collecting invoice payments. That’s clearly something we want to address. RTP can also help consumers to reduce costs related to merchant fees as well as enabling corporates to receive funds instantly rather than one day later. So it’s definitely good for them. Right now, reachability is quite important in order to make RTP a success. Many corporates are not actually fully aware yet about the benefits they can gain from this instrument. How it can ease their administration of debtors, the reconciliation and how it’s bound to the payment, the whole process. So that needs to be focused on in order to make it a success.”

For more information on Request to Pay at Nordea, write to Helle at helle.fagerland [at] nordea.com (helle[dot]fagerland[at]nordea[dot]com).