By Ray Birch
BOSTON—Request to pay, an emerging payments service in the U.S., is an opportunity credit unions can’t overlook, says one analyst, who cautions those that disregard the developing offering will likely lose business accounts.
Request to pay allows any business or individual wanting to receive a payment to send an electronic request for that payment to the debtor account. The request will be received by the payer—most likely via an electronic interface such as a mobile banking app—showing the requested amount and the due date. The recipient will then be presented with a number of choices, such as pay in full, pay in part, ask for an extension, decline payment, etc. If the payer chooses to make a payment, the payee will be notified whether the payment made is in part or in full and when it has been confirmed.
Noting that request to pay is more established in Europe, Erika Baumann, senior wholesale banking analyst at Aite Group, told CUToday.info, “The U.S. the concept of request to pay really started with The Clearing House's launch of the Real Time Payments Network. The U.S. has been further behind than many other markets and we certainly see some lessons to be learned from outside the U.S.
“There's a couple things financial institutions need to be aware of with request to pay,” Baumann continued. “One, it solves some pain points. If you are a utility company, for example, being able to send that request for payment instead of mailing out a bill or sending an email and then receiving back a payment in that same message is a huge time saver for businesses.”
Potential Revenue
Baumann explained financial institutions can benefit, by deriving revenue from the messages, as well.
“The rules state that you cannot charge a company for the initial notification, nor the notification back that the payment has been settled or that it has failed,” Baumann said. “However, you can charge for the other message types, generally the back-and-forth message between the payer and payee. For example, a company sends a request for payment and then you send a partial payment. The company then sends a message to the payer asking why the full amount was not paid. For those kinds of messages, that type of back and forth, you can charge a fee. Those messages can be monetized.”
Looking at the more mature request to pay market in Europe, Baumann said financial institutions have demonstrated the ability to innovate with products around the messaging capability.
Erika Baumann
“You also have the ability, in a really mature solution like we're seeing in the U.K., for different payment options at the point you get that request for payment,” Baumann said. “The way it works here in the U.S., so far in our early stages, is I send the request for payment. The person says yes or no, and it’s all connected to the Real Time Payments rail. In more mature solutions I can select how I make the payment. I can pay through real-time payment. I can pay via credit card…I think the U.S. should expect for more innovation to happen in this space and financial institutions need to be aware of the monetization opportunity as well as the market differentiator with this.”
‘It’s That Simple’
While request to pay can offer a new channel for income, its biggest effect will be on providing business clients with greater convenience, according to Baumann, who warned those financial institutions that fail to offer the service will have their business accounts moving to a new FI.
“It’s that simple,” said Baumann. “If you are not offering these services, businesses will go elsewhere too engage with another bank, credit union or fintech.”
Baumann said new payment options, such as RTP and buy now pay later, cannot be ignored.
“Request to pay is just another in the long line of new services that can steal away entire relationships,” she said.
What is concerning about request to pay, added Baumann, is businesses are more aware of the service than are many financial institutions.
“Businesses are more likely now than ever to seek out a financial institution or a fintech provider for integrated receivables or automated payables,” she said. “If financial institutions are not offering these services…there's so much innovation and opportunity in this space. There are tech providers offering this. And what’s really key here is that sometimes the financial institution won't even know they're being disintermediated. These businesses might still have a primary account with you, but they're using these other value-added services that the FI is missing out.”
A Step Behind, But Big Opportunity
She stressed that banks and credit unions, especially the smaller institutions, need to educate themselves on request to pay quickly, because most businesses have already educated themselves.
“In this case, I think many of the financial institutions, again, particularly the smaller ones, are a step behind businesses with request to pay,” Baumann said. “Many of the financial institutions are still behind in understanding what request to pay is and what it can mean as a payment strategy for the business clients. It’s a big opportunity…we’re moving onto the next generation of payments.”