All SEPA countries introduced the SEPA Request-to-Pay (SRTP) scheme on 15 June 2021. This scheme covers the set of operating rules and technical elements (including messages) that enable a payee to request the initiation of a payment from a payer in a wide range of physical or online use cases. Mélina Le Sauze, Director at Redbridge, explains the scheme.
The Request-to-Pay is a messaging functionality. It is not a means of payment or a payment instrument, but a way to request a payment initiation. A creditor or merchant can send a payment request directly to their customers via a secure digital channel on, for example, their smartphone or by email.
Under the new SEPA Request-to-Pay scheme, payment initiation requests will offer several choices to payers, with the payee determining these choices. The payment initiation can be rejected by the payer or accepted for immediate payment (Pay Now) or scheduled for a later date (Pay Later).
The SRTP will work with classic SEPA Credit Transfers (SCT), SEPA Instant Credit Transfers (SCT Inst), High Value Payments and a range of national credit transfers in the SEPA countries. As far as security is concerned, the validation of the transaction will occur in the payer’s banking environment, with the payer and payee receiving a confirmation that the payment has been made.
The SRTP will provide beneficiaries with greater control over their collections and facilitate accounting reconciliations. Payment initiation requests can be linked to an invoice with precise reference points, such as invoice numbers, payment amounts and customer IDs. By using this service, payees should be able to accelerate their collections and improve their cash management.
Uses of the SRTP
Presented as the “missing piece in the instant payment puzzle”, the SRTP will be of interest to groups looking to optimize their collections, improve the customer payment journey or improve their liquidity through increased visibility of their collection flows.
When it comes to invoice payments, the SRTP represents a concrete alternative to direct debit. One of the big disadvantages of direct debits is that payments can be contested by the payer within 13 months of the funds being transferred. In contrast, transfers associated with the SRTP are irrevocable.
From a merchant’s perspective, payment initiation coupled with instant credit transfers could represent an alternative to cards, but the solution still needs to prove its cost efficiency. Another rationale for its use is to overcome the spending limits associated with cards.
The SRTP customer journey is based on the transmission of a payment request by the merchant to the customer’s mobile phone, either by scanning a QR code or via an NFC contact. The customer then authenticates themself on their bank’s application to validate the payment.
The messaging system should also make e-commerce payments more convenient. The service could be particularly useful in the exchange of products or services between individuals: thanks to SCT Inst, the payment is received immediately by the seller.
Finally, the SRTP might be of interest to government bodies involved in the collection of taxes.
What obstacles does the service face?
While it seems to have lots of potential uses, the success of the SRTP is far from a given: a similar initiative, called SEPAMail Rubis, was launched in France in 2016 but didn’t attract much interest. However, the launch of the SRTP is part of the European Payments Strategy. The SRTP scheme is supported by a robust regulatory framework (PSD 2) and the service addresses a larger market. Finally, the RTP technology has been developed to enable more use cases (including the adoption of QR codes).
An RTP service was launched in the UK in May 2020 but it is facing some challenges linked to the complicated roll-out of strong authentication and payers’ attachment to direct debit. SRTP will need to prove its worth relative to other payment methods that are well established among merchants, such as Visa and Mastercard, which are more profitable for banks.
The non-mandatory nature of SRTP is another potential barrier to its progress. The ramp-up of this service is bound to be gradual.
Successful experiences elsewhere
The RTP formula is not new and it has been successful in other regions in recent years. In India, Unified Payment Interface launched the functionality under the name Bharat BillPay. This platform facilitates instant money transfers between individuals and with merchants. Today, 63 banks offer this service and there are nearly a million transactions in real time every day.
Meanwhile, the electronic invoicing service BPAY has been a great success in Australia. More than 60% of Australians use it and over 45,000 businesses offer this invoice payment option to their customers.
In Europe, the iDEAL platform initiates more than 80% of online payments in the Netherlands using a payment link or a QR code, while the eBill service is available at 90 financial institutions in Switzerland, where 1,200 companies have already adopted it.
Interchange fees
The SRTP scheme rulebook published in November 2020 presents a generic four-cornered ecosystem with one payee, one payer and two service providers (one for the payee and one for the payer). This model is reminiscent of the bankcard model and paves the way for interchange fees. Although nothing is written in the rulebook in this regard, the European Payment Council has stated that it reserves the right to authorize the recovery of program management fees…
A tool to promote the development of instantaneous transfers
The SRTP will promote the growth of SCT Inst. To encourage merchants and large billers to switch to SRTP, the service would have to be competitive in price terms with cash, bank cards and direct debits. Currently, the major banks in France do not offer the SCT Inst at a standard price. This price goes from zero to one euro per transfer! For companies, issuing an SCT Inst costs 20–30% more than a traditional SCT.
Issuing an SCT Inst is not very expensive in itself, so it is hoped that costs will fall rapidly. However, the messaging layer may increase the costs for merchants, especially if interchange is implemented.
A new version of the SRTP rulebook will be published in November 2021, and a public consultation is underway to consider possible changes. For example, the system is currently limited to the euro, but is expected to work with other currencies in the future.