Will Request To Pay displace card payments in the future?

SECTOR REPORT: CARDS & PAYMENTS Will Request To Pay displace card payments in the future?

The potential is there, but tech roadblocks prevent wider adoption.

Alternative payment methods are increasingly becoming the norm amongst consumers, respondents shared that they are planning to leverage R2P to diversify product roadmaps. a move spurred by the pandemic, as health-minded individuals seek to avoid physical contact. According to Mastercard’s New Payments Index in 2021, 94% of consumers in the Asia Pacific region say they will consider using at least one emerging payment technology in the next year.

Whilst most physical payment service providers (PSP) in the region are zoning in on emerging payment methods such as buy now, pay later— which is expected to represent 12% of all e-commerce sales in APAC by 2023, according to Boston Consulting Group—and QR code payments, there is another emerging solution that is sighted to directly challenge debit card use: Request To Pay or R2P.

A global study by payments solution provider, Icon Solutions, found that over eight in 10 (87%) of the 50 financial industry stakeholders it surveyed globally believe that R2P is a good alternative to direct debit.

Over seven in 10 (71%) of the stakeholders also believe that it will reduce merchants’ dependency on debit cards. Almost the same number of respondents (73%) indicated that there is a demand for the service from large corporations. As a result,

Request To Pay

RTP refers to a payment solution wherein a payee can initiate a request for a payment from another person using a digital app or through any mobile device, according to a definition by real-time payments provider, ACI Worldwide. The payer then either approves or rejects the request, and if approved, initiates a real-time credit transfer to the payee. It is said to be the next upgrade in real-time digital payments where merchants, billers, corporates, and even consumers can pull payments from end payers and customers. “Consumer banks can drive revenue through interchange income in markets that have a regulated pricing structure; government incentives in markets where regulators and government incentivise banks to drive adoption; and alternative revenue streams arising from partnerships with fintech, big techs, and social giants,” ACI Worldwide wrote in a report. Invoicing, payments reconciliation, and the digitalisation and integration of processes and systems identified as the leading emerging use-cases,

Icon Solutions found. Corporates are reportedly particularly keen to adopt the service as they believe it will lead to reduced cost of reconciliation (73%) and better visibility of real-time cash flow (63%), according to Icon Solutions. For merchants, RTP not just Existing reduces their dependence on cards, infrastructure but could possibly reduce costs for does not have reconciliation, and improve payment the flexibility choices for customers, it said.

to bring differentiated Limited action

services to Yet despite the observed increase in market quickly demand for its services, banks and and safely payment services providers have taken limited action to roll out R2P services. Fewer than one in five respondents, or only 18%, of banks surveyed already offer R2P services, Icon Solutions found. Of the banks, only 12% have plans to launch R2P services within the next 6 months and 15% within the next year. In the Asia Pacific region, few markets see financial players offering R2P overlay services to merchants and corporates, amongst them are India, Thailand, Malaysia, Hong Kong, and Sri Lanka. One of the financial centers in the region, Singapore, is notably not on the list. The adoption of R2P was likewise dismal amongst global players. As for why adoption has been slow, bank readiness was named as the top challenge by 67% of respondents. “Despite the undoubted potential of Request to Pay, technology transformation programmes remain notoriously difficult,” explained Toine van Beusekom, strategy director at Icon Solutions. In fact, one in two (54%) of surveyed banks and payment service providers identified the limitations of existing technology platforms and systems as a key challenge. “This reflects the fact that existing infrastructure simply does not have the flexibility to bring differentiated services to market quickly and safely. Successfully launching Request to Pay services will require a transformation of the underlying technology, as well as a broader cultural shift to embrace agility,” Van Beusekom said. Fraud is a particularly pertinent consideration for Request to Pay

Request To Pay is an emerging solution that is sighted to directly challenge debit card use

services. “The payments industry is already facing a well-publicised battle with authorised push payment fraud. Poorly executed Request to Pay services could compound this challenge.”

Another key industry challenge is the lack of standardisation.

Standardisation is important in enabling Request to Pay services between banks and specialist R2P providers to ensure that it can work cross-bank and even across foreign markets, he added. “For example, in providing a consistent business-user experience and process for businesses operating internationally, and in enabling banks to align channel and platform systems for efficiency across operations in different markets.”

Regulation is another key challenge, requiring huge technological and strategic capacity from banks.

“The reality is that demand-led propositions such as Request to Pay are non-discretionary and a ‘niceto-have’. This will inevitably lead to trade-offs between opportunity and urgency,” Van Beusekom noted.

In R2P, banks will likely face the usual consideration of whether to buy, build, or partner, he added. Amongst the bank and PSP respondents, 31% of bank and PSP respondents anticipate an in-house build. A higher percentage, or 37%, indicated they do not know what approach to take. The remaining 29% said that they would consider partnering with an existing or new provider.

Summing up, ensuring a seamless and secure customer experience will be critical to driving the adoption of R2P at a point of scale, explained Van Beusekom.

“Merchants have been trying unsuccessfully for many years to circumvent card rails to reduce costs. The combination of instant payments rails, open banking APIs and Request to Pay services presents a huge opportunity for merchants to drive customers towards cheaper account-to-account-based payment options,” he said.

“Is the demand there from a cost reduction perspective and providing options? Absolutely. But the concern will be creating a customer journey that is comparable, if not better, than physical payment cards and digital wallets,” he added. Digital and contactless payment methods are becoming the norm in Singapore, with four out of five Singaporeans finding it a more convenient means of paying.

Even older generations are turning digital, with the same proportion of boomers sharing the sentiment, according to the latest Worldpay from FIS’ 2021 Generation Pay research.

Of the 805 Singaporean consumers surveyed, 81% of the boomer respondents—those over 57 years old—said that they prefer and find it easier to pay using contactless payment methods.

“Not only are Singaporean consumers using contactless payments more frequently than ever before, but evolving payment technologies—such as smart commands, in-car integrations, and biometrics—are also driving a new era of commerce throughout the country,” FIS wrote in the report.

Singaporean consumers emerged as the most open to using new technologies in payments. For example, over six in 10 local respondents expressed eagerness to experience check-out free technology.

One way that contactless payment platforms and even just stores can attract Singaporean users is to introduce loyalty programmes. FIS’ study found that four in five, or 80% of both Millennials and Boomers in the city rated having loyalty programmes as “important” and “very important” in all categories: from groceries to home decoration and improvement, to health, to travel, and even in gambling.

Consumers in Singapore were also found to be amongst the world’s most demanding when it comes to programme features. Half of the Singaporean respondents want the flexibility of spending their points across multiple retailers.

Baby boomers, in particular, want the ease of use: non-expiring points and automatic rewards.

Contactless payments snare Singapore’s boomers

Singaporeans are the most open to using new technologies in payments