In my previous post, I talked about the tremendous potential upside of Request to Pay (R2P) when it comes to payment innovation in Europe. However, as with most ambitious initiatives, we have to ask ourselves if the opportunities outweigh the challenges.
First, the opportunities…
By allowing the payee to authenticate with their bank, R2P meets European PSD2 SCA requirements in a familiar authentication journey for the customer. And with no card scheme interchange fees, it introduces a promising dynamic of low cost (though service providers may need to monetise the opportunity). Instant payment schemes also open up eCommerce opportunities by offering the potential for real-time settlement, which can:
- Improve security and reduce fraud (using email or other tokens instead of sharing PAN or account numbers that can be fraudulently misused).
- Help build brand loyalty through a variety of complementary use cases, including P2P, B2C and B2B.
- Improve reconciliation and expedite the B2B payment cycle (such as with invoicing).
… and now the challenges.
R2P could be derailed by a number of obstacles if it cannot:
- Achieve PSD2 SCA while also offering a smooth customer journey with minimal friction.
- Meet e-Commerce/Point of Sale requirements for either real-time settlement or via an authorisation & account funds ‘earmarking’ (with the latter option adding additional complexities).
- Manage refunds and disputes by offering an option to reverse payments (consumers want assurance that disputes can be effectively handled).
- Compete against consumer protection and rewards that card-based payments provides (such as purchase insurance, credit and interest free payment terms, and reward and loyalty schemes).
- Offer cross-border, multi-currency, multi-language capabilities (or otherwise accept limited global use).
- Achieve interoperability and scale, particularly if using an open banking scheme where a lack of standardised APIs increases cost and complexity for scheme providers that need to develop APIs for different regions and banks.
Would R2P Protect Consumers from Fraud Risks & Issues?
Fraud is an ever-present threat to payments and R2P’s wide range of use cases presents many fraud challenges. P2P payments and business ‘invoice’ use cases are prone to scams, such as a fraudster requesting a payment (e.g. business email compromise scams), while in eCommerce, R2P faces similar risk to CNP fraud seen on card transactions.
A European R2P offering would need to provide clear rules to ensure consumer protection and clear fraud liability between participating banks and PSPs.
With card-based eCommerce, there is a well-established framework covering fraud liability and a chargeback mechanism to recover fraud losses from different PSPs. However, with R2P, the concern around eCommerce is that without equivalent rules regarding interbank fraud liability, could mean the payers’ bank or PSPs would face increased fraud exposure.
R2P could lead to a growth in bogus payees and merchants requesting payment with no intention to fulfil orders – a situation that is very common in eCommerce and one that creates more questions. With card-based eCommerce, merchant due-diligence is the responsibility of the merchant’s PSP, who is also liable for fraud losses. Would this still be the case with R2P and how would the merchant’s PSP be compensated for this risk?
Finally, there are questions about whether this could lead to increased phishing, with R2P schemes desensitising consumers to receiving requests to make a payment (something that current consumer education and awareness campaigns discourage).
There are a great deal of issues to resolve with R2P; it must protect the consumer and payer to deliver a seamless payment journey, while also allocating responsibility and liability for banks and PSPs. R2P also shines a light on the imperative for the participating banks and PSPs to employ sophisticated, scalable real-time payment monitoring technologies that can dynamically adapt to new fraud and risks – such as the Featurespace ARIC Risk Hub.
So, while R2P carries the potential to be the missing piece of the payments puzzle, we have to make sure it’s the right shape before it is put into place.