As the number of people without a regular income struggle to make regular household bills, there is a new UK payments service on the horizon
Employment in the UK is becoming increasingly precarious, with the number of people with zero-hour contracts and working in the gig economy having increased significantly over the last two decades. The number of people with zero-hour contracts has increased by 333% from 225k (2000) to 974k (2020). The number of people working in the gig economy has increased from 200k (2000) to over 1.8m (2020) – an increase of 800% (Source: CIPD & ONS).
Zero-hours contracts and the gig economy have one thing in common: both work to serve the demand, whether this is to perform a specific task in the gig economy or work for a number of hours set by an employer with a zero-hours contract. As a result, people working in the gig economy or with zero-hours contracts have an irregular income which often does not reach the national minimum wage. This leads them to struggle to face regular payments such as household bills. This has skyrocketed by the outbreak of coronavirus, with many people being furloughed or being made laid off. As a result, there has been an increase in direct debit cancellations since the crisis began.
Pay.UK is introducing Request to Pay (R2P)
Pay.UK, with the main objective of providing vulnerable consumers with flexibility and greater control over their finances, is introducing Request to Pay (R2P). R2P is a communication tool which will be overlaid on top of the existing payments infrastructure and will enable a new way of settling bills between billers and payers. Where a biller can be a company, organisation or an individual and the payer can be a company, organisation or an individual. R2P intends to help individuals and companies better manage their money by facilitating conversations between billers and payers in a new and engaging way.
R2P was initially designed to provide vulnerable consumers with greater flexibility in how and when they pay. However, the scope of the service was expanded as research commissioned by Pay.
UK showed that R2P had the potential to deliver £1.3bn per year in reduced billing costs. (Source: Pay.UK)
From the billers’ point of view, R2P represents a new open and accessible way to present bills to their customers which can help reduce the cost of reconciliation as well as improve the visibility of cash-flow. R2P will enable billers to improve their relationship with consumers by offering an alternative for those who need greater flexibility.
How does R2P work and does it impact the consumer experience?
R2P will initially be available through an app. However, the service might be expanded to off-line channels in the future to have a wider reach and be available for older consumers who may not be as tech-savvy.
The initial objective is to make the R2P app available to consumers through their bank. However, it is still unclear if the tool will be integrated into the bank’s mobile banking app or a new standalone app will be required.
In essence, the service is a communication tool, like an email address, that allows billers and payers to connect.
R2P process is initiated when the biller sends a request for money via R2P to the payer. The request can include amount, payment reference, due date and any attachments such as invoices. Payers will be able to choose from five different alternatives: (1) pay all of the outstanding bill, (2) pay part of the bill, (3) request an extension, (4) decline and (5) send a message. Subsequently, billers can either close the request when the full payment is received, discuss further or grant an extension. It’s important to highlight that in the scenarios where consumers decide to pay a part of the bill or decline the request for payment, they will continue to have legal obligations with the billers.
R2P is not a regulation. As a result, signing up to the service will be voluntary. This might result in slow adoption of the service across the different stakeholders as well as in an inconsistent consumer experience. For example, if your electricity provider offers R2P but your gas provider does not, the consumer will need to pay bills in the traditional way and via the new service offered by R2P.
The success of the implementation of R2P will greatly depend on the initial take up of the service as well as the value perceived by billers and payers. Initial research is promising with estimated annual savings of £1.3bn across billers and payers. In addition, financial institutions will be willing to invest in R2P as there is a business case for them as they will be able to charge billers for the service.
R2P was meant to be introduced on 3 April 2020 in the UK but unfortunately, it has been temporarily delayed as a consequence of the impact of Covid-19 on the financial service industry. A new date has not been announced yet. Pay.UK is currently seeking the views of stakeholders on what would be the most appropriate time to introduce R2P.
Next month, EDC will look at different R2P solutions from around the world.
Mark Beresford, EDC Director based in the London office, provided input to the article.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).