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Treasury and Trade Solutions
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The Request to Pay Revolution
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As well as being a potentially exciting C2B and B2B
collection method for merchants, RTP is significant
as a base infrastructure for fintechs to build on top
of. For example, digital wallets become more useful
if movements between the wallet and bank account
are instant, low cost and frictionless. Wallets that are
currently linked through cards can be expected to
connect directly to bank accounts as a funding source.
RTP GAPS TO PROMISE
While RTP shows great promise there are a number of
concerns from merchants around the practical utility of
the payment instrument. The following issues will need
to be addressed for RTP to gain consumer and merchant
acceptance. Whether RTP exceeds or undershoots
expectations is in the hands of regulators, banks,
merchants, marketplaces and fintechs.
1.
Strong Customer Authentication (SCA)
: customer
experience is an overriding consideration in the digital
world and merchants have concerns about users being
forced through two-factor authentication requirements
for every transaction. The most painful experience
would be for a user to first log into their bank and then
have to go through additional two-factor authentication
to release the payment. Merchants seek a frictionless,
risk based approach that enables smooth checkout and
minimizes abandoned carts.
2.
Mobile Experience
: mobile commerce is a fast growing
segment of ecommerce that is particularly sensitive
to the checkout experience given the small screen size
and variable internet connection speeds. RTP needs to
be optimized for mobile commerce through integration
with banking mobile apps, fingerprint or One Time
Password (OTP) solutions.
3.
Recurring payments
: related to the issue of SCA is
the ability for RTP to process recurring payments like
monthly subscriptions, which can be fixed or variable
amounts. Merchants are looking for a seamless
customer experience and risk based approach, with
only the first transaction subject to SCA.
4.
Confirmation
: RTP schemes must provide merchants
with an unequivocal confirmation for each successful
payment so that they can release goods or services
in the expectation of being paid. An acknowledgement
by the bank that they have received the RTP is
not sufficient.
5.
Authorization/earmarking
: in several merchant use
cases card authorizations serve a useful purpose, e.g.
in the travel segment and sharing economy where
a service is booked but the final payment amount
is unknown. When RTP is delivered through the
Open Banking model there is potential to check the
customer’s account balance, but this does not fulfill the
purpose of earmarking or holding funds in cases where
the actual collection will take place later.
6.
Credit
: RTP may be used to debit a bank account with
an overdraft/line of credit attached, but this may not
be the preferred method for consumers to finance
purchases. Merchants are interested in the maximum
available purchasing power delivered to the checkout,
which is comprised of available bank balances plus
available credit.
7.
Loyalty
: In the current paradigm merchants are not
content that their collections fees are used to fund
loyalty with third party organizations through the
medium of card rewards. In the new direct to bank world
loyalty will be provided by merchants to encourage take
up of new payment methods, and the merchants will
seek to keep that loyalty within their own ecosystem.
8.
Purchase Insurance
: Existing card schemes have
embedded protection for consumers that are not
inherent in RTP. This will be an area where banks and/
or fintechs may need to offer an unbundled service that
is separately billed to the consumer.
9.
Chargebacks/disputes
: Consumers need to be
confident that they are protected when they don’t
receive the goods/service that they have paid for.
Card schemes have well developed mechanisms for
chargebacks that will have to be replaced by new
procedures in the RTP world.
10.
Point of Sale (POS)
: RTP has been built with retail
ecommerce in mind, with less consideration of how
it will apply at the physical POS. While ecommerce is
growing fast, POS is still 20-30 times larger in terms of
volume. Wallet providers are likely to adopt RTP as a
funding method for consumer wallets that can be used
at POS and there may be greater take up of light touch
methods like Quick Response (QR) codes to accept RTP
transactions at the POS.
11.
Business to Business (B2B)
: Retail ecommerce values
are dwarfed by B2B ecommerce, which is 4-5 times
larger. Many businesses have reconciliation issues
collecting from other businesses and suffer from late
payments. It is challenging to get businesses to accept
Direct Debits because the payer wants control. RTP has
great potential in B2B, but schemes will need to adapt
to commercial realities, like higher payment limits (e.g.
UPI in India is currently limited to INR 100k, or around
USD 1,500), multiple corporate signers and integration
with electronic invoicing processes.
12.
Multi-currency
: With few exceptions, RTP schemes
only process local currency transactions. Existing card
schemes support a merchant in one country collecting
from a payer in another country, albeit at retail rather
than wholesale foreign exchange rates. With the growth