In September, payment infrastructure solutions provider EBA Clearing announced that 26 financial institutions had started work on a pan-European request to pay (R2P) solution scheduled to go live in the second half of 2020.
This secure messaging service will allow corporates to send a payment request to their bank, which is then forwarded to the bank of the payer, which asks the payer if they want to make the payment.
Within a week, Mastercard announced its intention to participate in Pay.UK’s R2P service with a bill payment solution due to launch in the first quarter of next year. A survey of UK businesses commissioned by the payments authority late last year suggested that many saw R2P as an opportunity to increase customer engagement, demonstrate goodwill and deepen relationships.
Mastercard declined to comment on how its service would impact corporate payments in the UK. However, just two days later fintech Bankifi launched a service called PocketCollector, which allows businesses to send invoices electronically and offers customers a payment option straight from this invoice. As the payment details are pre-filled, a payment initiation request is initiated through open banking and the customer only needs to authorize the payment.
Under the Bankifi solution, the corporate’s bank sends the customer an invoice via email secured with a one-time password rather than sending the request for payment directly to the customer’s bank. The request to pay can be sent directly via a ‘pay’ button on the invoice and if the customer clicks this button it triggers an open banking payment initiation request to their bank.
“As clients have full visibility on the invoice details and don’t need to log onto a separate app to pay, it makes the likelihood of the client settling the invoice much higher,” suggests Marijke Koninckx, product officer Bankifi.
Of course, electronic invoicing services have been around for some time. For example, Zoomit (a service that sends electronic invoices over the internet and via mobile banking applications) was introduced in Belgium in 2006 and now has more than 1.5 million active users across 13 banks.
However, the R2P solution proposed by EBA Clearing offers the prospect of a pan-European service with enhanced functionality such as ‘approve now’ and ‘approve later’. The former would support scenarios where an immediate response from the payer is required while the latter would support solutions where the payer may not deal with or accept the request immediately, for instance for the payment of a bill in due course.
A key feature of any R2P service is the ability to accept partial payments. When a customer queries a relatively small percentage of a very large invoice, many companies would like to have the option of receiving the bulk of the payment and then negotiating with the customer over the outstanding amount rather than demanding full payment or nothing.
An obvious consideration for corporates is whether R2P will create cash flow issues if customers choose to pay in part rather than in full. However, Geoff Tunbridge, director solutions consulting at ACI Worldwide observes that it would also make it easier for customers to pay early and potentially allow the payee to offer early payment discounts.
“It will improve cash flow as payments can be reconciled, allowing the received funds to be allocated and used by the payee,” he adds. “Without reconciliation, these funds would remain unallocated.”
According to Kuba Zmuda, chief product officer at Modulr, collections processes and cash flow considerations would need to be built into each business’s approach to using R2P. “But this communication channel will at least mean the company could identify the problem and work with the customer to solve it, rather than immediately triggering debt management action,” he says.
EBA Clearing cites providing the payee with the possibility to add data that is relevant for its receivables processing as another important feature. Because the payer cannot modify the payment reference, corporates should be able to automatically match every payment into their enterprise resource planning (ERP) system, reducing processing costs.
“We understand that discussions between banks and ERP providers on how to integrate the new functionality into their end-user solutions have already started and we definitely recommend that ERP providers closely follow developments in this area,” says Erwin Kulk, head of service development and management at EBA Clearing.
The ISO 20022 messaging standard includes all the fields for R2P payments and their processing by ERP systems that support ISO 20022.
“Through integration with APIs of online ERP systems such as Xero, Quickbooks, Sage and Freeagent we can input the invoices straight into these accounting packages,” adds Koninckx.