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Request to Pay: Another Asset in the Neobanking Arsenal?

Michael Nelhams

Payments Director, EPAM
Blog
  • Financial Services

The rise of neobanking has been driven by several factors, including: the re-imagining of the banking experience through mobile, the ability to achieve quicker time-to-market through new core banking platforms, the growth of the open API economy and the increase in customer-driven data analytic experiences. With the upcoming launch of Request to Pay (RtP) by Pay.UK, this growing set of open APIs will further develop—once again advancing neobanking, as the APIs are the foundation for many banks in the UK Payments market. This new service aligns with broader industry aims, including the Open Banking initiative and the government’s push for consumers to take more responsibility in managing their finances.

Graphic: Pay.UK, Ipsos MORI

What is RtP?

Pay.UK defines RtP as the following:

“Request to pay will be a new, flexible way for bills to be settled between people, organisations and businesses. It’s a messaging service that has been created to complement existing payments infrastructure and gives billers the ability to request payment for a bill rather than simply sending an invoice or a bill. For each ‘request,’ customers will be able to pay in full, pay in part, ask for more time, communicate with the biller or decline to pay. A customer’s response does not change their legal obligations.”

At its core, RtP is about putting more control into the hands of the consumer.

The important thing to note is that this is not a fully-integrated payments service; it is a messaging service that must be integrated into existing payment processes and architecture provided by the banks, payment service providers (PSPs) and/or major corporations.

Who Benefits?

The service benefits those who face cash flow challenges. In particular, this would benefit two specific target groups:

  1. Consumers who frequently manage credit card debt, outstanding loans and ongoing monthly bills to prioritize payments. This group of vulnerable customers has been of particular concern and focus of the government and financial regulators.
  2. Self-employed consumers or those working in the gig economy whose income is not at the traditional cadence of a pay-as-you-earn (PAYE) employee.

This functionality allows consumers to stagger payments and connect with businesses if they are unable to pay the exact amounts due on the date required. This flexibility provides a level of control for the consumer.

How will the service roll out?

This is a market-led service that is not regulatory-driven, which presents its own challenges to gain market traction. RtP has the advantage of being more consumer-centric since services/solutions mandated through regulation tend toward a minimal viable proposition.

A key challenge for market-led propositions is that a strong business case is required in order to have budget allocated not only in the banks who have the main financial relationship with the consumer, but also the businesses who wish to switch invoicing to the new service. Gaining the critical mass to make this a truly valuable service across the nation could take many years, as demonstrated by the roll out of contactless cards.

Why are neobanks important to RtP?

Neobanks are digital-first, with a mobile app being the primary channel. While this will not cover the entire target market, it will enable consumers and businesses to manage money in one place. Since mobile apps are the primary channel for neobanks, this could be a key service offering that allows them to attract more customers within certain demographics, like gig economy workers, Generation Z and vulnerable members of society.

While neobanks target specific markets, they have a lot of early adopters as their clients by default—specifically Millennials and Generation Z, many of whom are also closely tied to the wider gig economy. With the flexibility RtP offers customers in paying bills, this is a key segment of society that could benefit from the introduction of this new payment service.

Neobanks already lead the way in data analytics, given the digital nature of their offerings. Therefore, adding this feature with a group of tech-savvy customers could build momentum for the service and provide valuable industry insight.

Another key group could be the firms currently offering credit building services, such as NewDay, Vanquis and Capital One. Adding RtP as a service could enable these companies to increase customer loyalty, gain insight into their customers’ financial behavior, and enable them to use this knowledge to provide new innovative products and move into the wider bank account market.

Moving forward

Neobanks need to explore and consider the value of this service to their overall business proposition. This is not simply a plug-and-play service; it needs to be integrated end-to-end from the mobile user interface to back office payments and operations.

The service, if successful, will become an integral part of the UK payments and debt collection ecosystem. Therefore, there needs to be a clear understanding of the implications on business conduct rules and treating the customer fairly.

While the main interface will be controlled by banks, the inbound requests are driven by corporations. Close cooperation across the industry to meet the right balance is required to ensure that this delivers the benefits for all concerned.

If neobanks implement this appropriately, it could significantly benefit your customers, cement relationships with clients and merchants and improve debt management.

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