Payments 2021: no time to rest

For European payment service providers, a challenging year is coming to an end. The coronavirus was the predominant topic in this sphere, as well. In in-dividual payments, understood as interbank and international payment trans-actions, the coronavirus is partly responsible for the postponement of the TARGET2 consolidation and the SWIFT ISO 20022 migration. For card-based payments, the pandemic had both negative and positive effects: On the one hand, the coronavirus has led to a massive boost in card-based transactions, especially contactless transactions. Such a development would normally have taken several years and would also require significant marketing investments of the large card schemes. On the other hand, many market participants in the card business suffered massive sales declines due to the pandemic – especially those who are heavily involved in the area of gastronomy, travel and events. 

Anyone who thinks that there will be any respite for the payments industry in 2021 is mistaken. After all, two concrete projects will go live next year. Other projects need to be prepared, even if the actual market launch is not planned until 2022 or later. Add to that the already grave structural market changes, and this reinforces the impression that the industry is facing a Herculean task under difficult conditions.

But let us go by order: among the concrete topics of the coming year is the forthcoming introduction of Request to Pay (RTP). With the launch of this standard in summer 2021, payments will be supplemented by an important component (see also our whitepaper part 1 and part 2). Many companies have long been urging the financial services industry to make rapid progress with the establishment and expansion of RTP (see also the EBA survey), as RTP can be used to close application gaps in or between the existing procedures. This includes enabling the linking of invoice and payment data. It considerably facilitates the reconciliation processes in accounting for many companies. Also made possible is the previously missing option to accept payments electronically at the point of sale (POS) without a terminal structure. RTP makes setting up a POS easier and more mobile. 

In order to further boost real-time credit transfers according to the SCT Inst scheme, the ECB council has decided that all payment service providers that can be reached in TARGET2 and have signed the SCT Inst scheme must be accessible in TIPS (TARGET Instant Payment Settlement). Accordingly, the accessibility in TIPS must be ensured either by direct participation with an own ac-count or via the reachable party functionality. On top of that, the ACHs (automated clearing houses) offering instant payments shall move their technical accounts from TARGET2 to TIPS. The implementation of these decisions is scheduled for the end of 2021. 

At least not all of the 2021 issues require payment service providers to be quite so active: the adaptation requirements from the November changes of the EPC are rather manageable. It is not yet clear whether this can be said for the RDT and SWIFT changes. However, it seems very likely – at least as far as merely payments are concerned. There are also no major legal due dates.

But of course, this still leaves all the payments plans that have to be implemented in 2022 and the following years – and thus have to be prepared in 2021. One of the most important projects is the pending global migration of payments to the ISO 20022 format.

In individual payments, for example, the TARGET2 migration due in 2022 and the SWIFT migration starting in 2022 must be prepared. In addition to the pure format conversion, extensive changes in the processes, such as changed access mechanisms to the corresponding platforms, are still to be made in both areas. According to common estimates, each of these projects goes beyond the scope of SEPA.
In mass payments (SEPA), payment service providers must prepare themselves for the migration of the SEPA schemes to the (newer) ISO version 2019, which is due to take place in 2023. 

In view of the costs associated with these changes, financial institutions – mainly tier 2 – will increasingly outsource payments or at least purchase payments software "as a service" in 2021. The corresponding demand is already noticeable. In addition, demands for low-cost, central offers for cross-bank services, such as sanctions screening or KYC are likely to increase.

Finally, in 2021, financial institutions and financial service providers will have to find solutions for upcoming structural market changes:

  • The further development of the European Payment Initiative (EPI): is it possible to create a uniform, innovative pan-European payments solu-tion as an alternative to existing international payments solutions and systems?
  • The everincreasing pressure from the EU commission and the EU par-liament on interchange fees: how can issuers react to a possible zero-interchange regulation? What do future business models look like?
  • The apparently imminent obligation of all financial institutions by the EU legislature to offer instant payments and the greater consideration of consumer interests in the reversal of instant payments. Are the existing processing systems able to process the additional quantity struc-tures?
  • The significant consolidation of processing service providers, in particu-lar the formation of two conglomerates by EquensWordline on the one hand and NEXI/SIA/Nets on the other: what does this mean for the fu-ture of small and medium-sized service providers, especially in acquiring? 
  • The increasing blurring of the boundaries between card-based and classic payment transactions, such as the activities of Mastercard (via Vocalink) in the clearing of classic payment procedures: will there be an additional clearing infrastructure in mass payments in the long term? 
  • The forthcoming introduction of digital money, in the form of digital central bank money, but also in the form of Libra: what effects does this have on cash or card-based payments? What does it mean for the role and business model of financial institutions?
  • The consequences of the increasing spread of the Internet of Things (IoT) for payments. Only with fully autonomous, uninterrupted payment flows between the connected devices can the potential of IoT be fully realised (see our study on the Internet of Payments). How can compliance requirements and IT security aspects be met within this scope? How do processing systems need to be upgraded for additional billions of transactions?

The year of the Ox begins on Chinese New Year's Day 2021. Chinese astrology ascribes patience and diligence to the Ox: it is strong and overcomes all difficulties. The payment industry can definitely use those characteristics.

Author: Hubertus von Poser (Head of Consulting Payments)

Request to Pay (RTP): Added value for the e-commerce customer experience?

Every day, many customers browse online shops and add a variety of items to their shopping carts to buy and pay for them. The last step of the customer journey, the checkout process, is a very sensitive point in online shopping. At this point, the customer expects suitable payment options that are as simple and intuitive as possible. Therefore, one of the most important tasks of the online retailer is to always offer the customer a variety of payment options. 

According to a study by EHI Retail Institute, the payment methods purchase on account, Paypal and direct debit were the biggest sales drivers in the German e-commerce market in 2019. For example, their share was almost three quarters of total turnover (purchase on account 32.8%, Paypal 20.2%, direct debit 18.3%) (source: With the purchase on account payment method, the online retailer sends the ordered goods and an invoice to the customer before payment. The customer can check out quickly and is only asked to pay the invoice to the online retailer within a certain payment period. In addition, the customer has until the payment due date to decide whether to really keep and pay for the goods. The Paypal payment method also scores points with its fast checkout process. The customer only has to sign in with his registered e-mail address and can complete the purchase. The third method of payment, direct debit, is a well-known and popular method. The customer gives the online retailer permission to withdraw the invoice amount from his bank account. No further steps are required.

So why are these payment methods so popular? All three have similar characteristics: They offer intuitive handling, the possibility of a quick checkout process, a payment overview and a wide acceptance by retailers. 

However, in the status quo, the process of these payment methods ends with the completion of the payment. Additional information such as billing, warranty notes and shipping information (tracking number) are made available to the customer via the retailer portal or via e-mail communication afterwards. 

In the end, today's online shopping process often lacks a consolidated overview of the payment details for the ordered goods as well as the invoice, the warranty and the shipping information.

Can Request to Pay be the missing puzzle piece for a successful user experience in e-commerce?

A glance at the concept of the Request to Pay process reveals the possibilities of a holistic ordering process in the banking ecosystem. The following process can be initiated using RTP: 

Figure: RTP process (source: own image)

After the customer has confirmed the order in the retailer's online shop, an electronic payment request in form of an RTP data record is initiated by the retailer. This data record is automatically sent to the customer's financial institution and then to the customer (debtor). Payment information such as invoices and shipping information can be initially attached to the RTP data record or made available to the customer via an attached link at a later point in time.
The RTP process provides the customer with flexible options to complete their payment after receiving the payment request:
  • Accept now and pay now 
    • For example, when purchasing a movie in an online video store that is to be consumed directly
  • Accept now and pay later 
    •  For example, when purchasing shoes to be tried on first
  • Accept later and pay later 
    • For example, when the goods are shipped before payment data is provided. The first retailers are currently piloting the shipment of goods (e.g. clothing) to the customer without the customer having to provide payment data. Only after a certain period of time does the retailer ask for data and payment via a payment request.

If the customer accepts the payment request upon receipt and pays directly with an (instant) payments order, the customer bank sends a direct payment confirmation to the retailer bank. The retailer (payment recipient) receives a confirmation of receipt from the retailer bank. This completes the process from the payment request to the payment.
This "pure" payment process does not offer the consumer a significant added value compared to the three payment methods listed above. However, if the payment process in the banking app is supplemented with payment information such as invoices, warranty slip and shipping information, the banking ecosystem becomes the central repository of online orders and creates a new customer experience.

In addition, if the Request to Pay process is to become a successful payment process in e-commerce, the following factors must be interconnected:

  1. Comprehensive (retailer) acceptance of electronic payment requests and payments
  2. Integration of the entire process into the existing banking ecosystem (banking app)
  3. Creation of options for partial payments as well as payments at a later date
  4. Possibility of reverse processing, for example, in case of cancellation or parcel loss
  5. Extension of the payment transaction to include the overview of purchases supplemented, for example, by invoice history, shipping numbers and warranty slips

Taking these factors into account, and in connection with instant payments, Request to Pay can be the puzzle piece that is still missing for a successful user experience in today's e-commerce. In this context, the following applies: for successful implementation, a holistic and customer-centred approach is required.

Author: Philipp Schröder