Safe and efficient digital billing – is Request to Pay the answer?

A primary goal of any organisation is to collect cash as efficiently as possible and to effectively reconcile its collections processes.

There’s friction in the system, and it’s costly

In too many organisations, the procure-to-pay (P2P) and order-to-cash (O2C) processes are broken or, if not broken, they are disjointed and subject to substantial friction, delays, and unnecessary costs. A report commissioned by Pay.UK, the company responsible for BACS (direct debits), Faster Payments, and Cheque Clearing, estimated that the impact of these deficiencies on the UK economy is over £1.3 billion per year, and that’s only billing costs. The total costs to the economy are many times more.

The primary problem is ‘data’ – and the answer is ‘data’, specifically, the effective use of data and the way it is presented to another party (is it trustworthy?).

Today, scams and authorised push payment (APP) fraud are a huge burden to our economy, and we all pay the price. It also impacts the financial stability of businesses of all sizes.

Think about periodic payments (billing – typically business to consumer). In the past, consumers procured a service and most probably entered a defined contract with clear T&Cs. The billing (and invoicing) was generally paper-based (postal bills), and the payment was either a push payment (account-to-account transfer, say by cheque or faster payments) or a pre-authorised pull payment (direct debit).

It’s certainly not cost-effective or efficient, but it was trusted and it worked. Well, it worked for most, but not all. Large volume billers always had problems with ‘can’t pay’ or ‘won’t pay’ customers, alongside huge issues with the cost for arrears and collections, by far the largest single aspect of O2C costs.

Digital helps, but it’s not perfect

So, in this new digital world we inhabit, the digital alternatives are better, aren’t they? Not quite. We have several problems here:

• Scams and fraud – how do we know who to trust, how do we know the person is who they say they are?
• Data – how do I reconcile the payment to the goods/services purchased, how do I update my records or financial ledger?
• Costs – the cost of requesting payment (O2C), the cost of making a payment (P2P), the cost of collections and arrears, and the cost of poor liquidity – it’s all sub-optimal.

So yes, we’re all starting to be billed (e.g. consumer payments) and invoiced (commercial payments) electronically, and that is good, right? It’s not all good. In fact, in some circumstances, it can be very bad as it is open to fraud, scams, errors, and mistrust.

How do you know an email is legitimate and not from a scammer?

How do you know a QR code is ‘valid’ and not created by an imposter?

How do you know that a link in a social media app can be trusted?

In fact, there have been calls from payments leaders to consider making the ‘pay by link’ illegal, as has happened in other countries.

There is good news

The good news is that the UK is a world leader in payments, and the UK’s best minds and companies have designed and built a new ecosystem for billing and invoicing called Request to Pay (RtP). Crucially, RtP is managed by Pay.UK, the organisation responsible for our non-card payment systems. As a result, RtP is a unified messaging ecosystem that can provide ubiquity of service (sort of like email, but better, safer, more secure, and trusted).

Ubiquity is crucial as no one wants to be using a multitude of systems; users generally want one messaging service and a trusted one at that. In essence, all bills or invoices can be presented into one system, a system that is safe, secure, and where bad actors are kept out.

At the heart of RtP is a trusted and secure bidirectional messaging system, sort of like email for bills and payments, but secure email, where participants are KYC’d prior to onboarding. The system supports the relatively new ISO 20022 standard for the sharing of financial information (ISO 20022 is a structure for payments data that will, in time, enable better automation, fewer errors, and improved reconciliations).

So, what will RtP achieve for those who adopt it?

There are many benefits, but here are just a few:

• Trust – Because all parties need to be onboarded to the ecosystem with KYC and ANV (account name verification) checks, AND payers need to pre-authorise the billing/payment relationship. For example, with British Gas, we both agree that we have a supplier/payer relationship and that they can bill me in future. Until I have agreed to this relationship (called a PAM, a pre-authorisation message), British Gas will not be able to send me any bills via the network. A participant can also block another participant if/when any relationship expires (e.g. at the end of the contract, or if one participant suspects that not all is well).
• Security – Banks and security professionals all agree that initiating a payment journey by clicking a link in an email or social media (WhatsApp, etc.) chat, or even in certain cases a QR code, can leave the payer open to fraud. Is the QR code (for parking fees) on a lamppost genuine, or did a fraudster just swap it for one that will direct me to a phishing site? These so-called ‘pay by link’ payment journeys should be avoided at all costs unless the payer has total confidence that the originator is who they say they are. This is another fraud risk that’s solved by RtP, in that all participants must be onboarded (a process that includes KYC and ANV, remember), the biller and payer need to agree to a bilateral relationship before any payment is ever sent, plus any bad actors (if present) can be easily identified and removed from the scheme.
• Cost – Not only is the cost of an electronic messaging system less than a postal one, any ‘exceptions’ (e.g. clarifications, adjustments, or discounts) can be managed within RtP through peer-to-peer messaging and data sharing. Another cost benefit is the automation of the ERP business processes. This is supported by digitally connecting billing information with payments data to facilitate automatic reconciliation and reporting. Finally, any arrears or collections are better managed by the same peer-to-peer messaging systems, clarification of the bill, adjustments (say a missing line item on an invoice), collections, and arrears management (e.g. payment plans).
• Liquidity – When a payer has all the information needed to make a payment, they are more likely to pay the bill on time or even ahead of time. Early payment discounts could be offered. Subject to prior agreement from the biller, a payer could even request a later payment date (and for B2B invoices, this may include a mutually agreeable premium).

The banking and payments world knows that RtP is the next truly transformational technology for payments and it’s comforting to see that the UK is a pioneer in this area. It will leverage Open Banking (without the risks of pay by link) and promote the use of account-to-account real-time payments, which are cheaper, faster, and have fewer intermediaries in the payment journey.

 

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Chris Vincent is the Banking and Payments Business Development Director at XBP Europe with over 35 years of UK and European payments experience. He has contributed to major UK schemes like the Image Clearing System, confirmation of payee, request to pay, and open banking. Chris works with banks, corporates, industry bodies, and central payments providers like PayUK and Vocalink to solve challenges, streamline processes, and enhance user experiences.

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