Request to Pay: A new approach to payment processing

Open Banking and regulations both at the European level and in other regions of the world are driving innovation in the financial sphere and the emergence of new means of payment. Among them is a new type of payment, whose regulation was launched in November 2020 and is called “Request to Pay” or R2P. This is an initiative promoted by the European Payments Council (EPC) and the European Banking Authority (EBA), which, despite having a long way to go before it is fully implemented in the market, has an auspicious future.

What is Request to Pay?

This new form of payment is born under the philosophy of the 4 corners, in reference to the 4 players involved in a transaction. On the one hand there is the seller or biller (called biller in the Anglo-Saxon context, pioneers in Open Banking initiatives). Next to them is the buyer or payer, and finally who the two represent: the entity where the buyer holds their associated account and the financial entity or payment service provider (PSP) of the biller.

The difference between R2P and a standard payment flow is that traditionally, the buyer has to initiate the payment, either by making a transfer after receiving an invoice or by choosing a payment method to pay in-store, etc. With R2P, the biller initiates the payment directly against the payer’s account, something that is about to revolutionize the finance function and will be applicable in both B2B and B2C transactions.

Request to Pay in the real world

There are two main viewpoints or use cases from which we can see how this new form of payment will work.

Request to Pay for B2C businesses

One of the primary benefits of the R2P model towards B2C businesses is in the Gig Economy.  For example, say you’re paying for a cab ride. With Request to Pay the driver could show you a QR code to scan and when you do it with your cell phone, it would take you directly to your source as the buyer (your bank account) to immediately approve the operation to complete payment. Once approved on both sides and the necessary security checks have been carried out, the payment and a data report on the completed transaction will be issued.

Request to Pay for B2B businesses

Arguably more importantly are the operations affected by R2P processing in B2B businesses. Currently, most companies issue invoices manually through an ERP (Enterprise Resource Planning) that generates these invoices and sends them by email to the financial department of the buyer. Upon receipt, the company reviews the invoice and issues  payment. The problem is that these invoices need to be followed up. There are often discrepancies in the amount, the payment period, the associated commercial agreements, which produce disagreements between the parties. This means complications in reconciliation at the end of the month, generating a lot of extra work, unnecessary communication, and subsequent friction.

With Request to Pay, this whole process is simplified as follows: The company sends a payment order attaching an invoice through a link (either by email, generating a QR, an SMS …) The customer receives the order in which all the information associated with the invoice is included (such as the products or services for which it is being charged), verifies that the information is correct and only must approve it for payment to be made. Additional information can be included as well, such as the identification of recurring charges.

Finally, it also generates the possibility of deferring payments automatically, thanks to the integration with a third-party financing provider (such as a financial institution performing a cross-selling exercise). In this way, even if the payer does not have funds available, the biller or supplier will immediately receive the invoice.

Advantages of the Request to Pay payment method

This new payment system presents, thanks to the features we have discussed, four main and significant advantages for companies and financial ecosystems:

1. Facilitated reconciliation within companies, as all invoices are issued and collected by an automatic process, increasing visibility, efficiency, and accuracy while cutting down on unnecessary workloads
2. Reduced turnaround due to automation
3. Greater financial control for the buyer/payer
4. Reduced fraud and increased security

As we can see, the benefits of the R2P method based on payment initiation are numerous and relevant to any company. However, there is still some way to go for its effective implementation in the ecosystem. Even so, there are already some initiatives in our country that are looking in this direction, and we at VASS are already working on this type of solutions to be prepared for the imminent entry of Request to Pay as a star payment method that will reduce friction in payments and offer a new way of understanding transactions.