R2P in Europe: The Missing Piece of the Payment Puzzle (or a Puzzle with too many Missing Pieces)? (part 1 of 2)

A recent report on the European payment market highlighted the need for a strategic push by EU regulators and banks to enable and innovate the instant payment infrastructure. Key to this are plans to develop Request to Pay (R2P) payment capabilities as the ‘Killer App’ that will increase the pace and build momentum for instant payments, open banking and establish regional payment innovation champions that will challenge the dominance of U.S.-based card schemes.

How does R2P Work?

R2P is a broad term for payment services where the payee requests a payment from the payer and includes a wide variety of use-cases, including:

  • e-commerce (point-of-sale), where the merchant prompts a request for payment from the consumer;
  • Bill payment and invoicing, where a business requests payment from consumer or business; and
  • P2P payments, where one person requests payment from another person.

Using an e-commerce as an example, an R2P scheme could include the following steps:

1. Customer buys goods on a merchant’s website and selects to pay via R2P.

2. Merchant initiates an R2P, sending details of the purchase to the customer’s bank.

3. Customer’s bank initiates authentication via web or mobile app.

4. Customer is presented with payment details and approves the transaction.

5. Merchant receives payment confirmation, enabling order fulfilment.

6. Customer’s bank sends the payment to the merchant’s bank through a ‘clearing system’ 

Various R2P schemes exist across different countries and regions and central to each is a ‘clearing system’ operated by a scheme or service provider (an intermediary that provides messaging and payment infrastructure to process the request and response). This can either be a centralized clearing provider (e.g. UPI in India or iDeal in the Netherlands) that provides infrastructure and connectivity between banks, or can be a service offered by a bank or fintech using APIs to initiate payments via open banking, using existing instant payments infrastructure (e.g. SCT Inst).

Why is R2P Needed?

There are a host of reasons to want R2P to succeed and while Europe and the U.S. discuss instant payment innovation and breaking the U.S. card scheme’s dominance in e-commerce, Asia has already embarked on this journey.

Unburdened by legacy systems and with growing populations and service economies, new payment options and innovation are blossoming. A variety of countries across Asia (China, India, Singapore, Malaysia, etc) have adopted instant payment schemes, enabling access via mobile technology and innovative use of QR codes as the basis for POS and e-commerce R2P capability.

EU regulators can be somewhat skeptical of U.S.-based card schemes, believing the fees to be excessive and that they stifle competition (…in fairness Visa and MasterCard are in the top 20 most valuable companies globally, by market capitalization, with combined revenue approaching $40bn annually).

PSD2 is meant to provide the foundation for Europe to break this, and open banking and Secure Customer Authentication for online and e-commerce payments are paving the way for disruption and enabling competition and innovation. R2P is a key plank in this strategy.

Can R2P meet this elevated ambition? Europe remains a fragmented payment market with different consumer preferences in different countries Europe is also a mature market and consumer preferences are embedded, so it could be difficult for R2P to dislodge incumbents. Still, the iDEAL scheme in the Netherlands, an R2P scheme that has been in operation since 2005 and has over 55% market share, shows that R2P can be a popular and competitive payment option.

Sounds easy, right? But while R2P has great potential, there remain significant hurdles. In the upcoming second half of this article, I’ll address those hurdles and what – specifically – R2P can do to protect consumers from fraud.

Alex Robinson

Alex Robinson

Fraud Market Expert at Featurespace

About the author:

Alex joined Featurespace in 2019 as one of our Fraud Subject Matter Experts. He has more than 20 years experience working in Financial Services as a fraud practitioner and is passionate about protecting customers from fraud & financial crime. Alex’s previous role involved managing Online Banking fraud detection for Lloyds Banking Group having previously held roles in RBSG, in an operational police unit targeting fraud gangs, and at the UK payments industry body. As part of our SME team his role is to understand our customer’s requirements and ensure the best and most effective solutions can be provided for our customer’s needs.

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