In last month’s issue, I wrote an article explaining the history of RfPs (request for payment), benefits of RfPs, and the path to ubiquity for this payment type. For this month, I wanted to focus on benefits and challenges to adopting RfPs, with the goal of generating dialogue about how we can implement this payment across the industry.

 

Parties benefiting from RfPs

In the US, a wide range of service providers, businesses, and end-consumers can benefit from the move to RfP. Commerce in the era of globalization does not sleep. Global trade engages 24 hours a day, 7 days a week. When one market closes, another one is opening. This means that they need a payment system that never sleeps. Firms need round-the-clock access to a payment processor that connects them to the largest number of customers. They need a payment processor that can manage cross-border transactions without becoming mired in bureaucratic red tape, treaties, political conflicts, and war.

Moreover, as more people put their money into banks, businesses need to find a way to access those accounts and assist their customers in making purchases using fiat and digital currency. This is especially important in developing economies where many people have bank accounts or are opting to move their money into the crypto account, but don’t have credit or debit cards.

 

Challenges to adopting RfPs

 There are key challenges to adopting RfP as a primary payment processing system for legacy financial institutions. Banks are in the process of switching from a batch-level transaction processing system to one that operates in real-time. The batch-level system requires banks to have an “end of day” or “transaction cutoff” time so that they can process the transactions for that business day. There is another issue for banks, many banks, and transaction clearinghouses, they will have to replace the income they earn from ‘loaning’ out funds overnight or during payment processing periods. Another issue is that some smaller banks may face liquidity problems if they don’t keep enough funds on hand to process customers’ transactions in real time.

Outside of switching from batch-level processing to real-time payment processing, there are a myriad of other challenges that must be resolved before RfPs can be widely adopted by businesses and financial institutions. Some of the challenges include a lack of consumer protection from fraud and other problems that are known to accompany credit transactions. There is no way to handle chargebacks, payment disputes, or conversion from one currency to another. As for merchants, they want a payment system that is seamless, easy to use, and requires very little investment of time. Currently, RfPs lack those capabilities.

Moreover, merchants will have difficulty establishing and maintaining loyalty programs. At this time, they use third-party organizations to operate their loyalty programs. With RfPs, businesses may seek to restrict their customers and business partners to their RfP payment ecosystem. Such commercial restrictions may result in the restriction of commerce and lead to monopolies. Overall, the consequence could be the limitation of end-consumers ability to purchase services from a wide variety of suppliers. Businesses should be concerned about that because a restriction on competition that favors established businesses and those with deep pockets and powerful networks limits market competition.

 

Conclusion

The RfP is a disruptive payment system that is part of the financial mega-trend to globalize payment systems, decentralize commercial transactions, and create more peer-to-peer transactions between consumers and businesses. It shifts payment processing and management from large, centralized, heavily regulated entities to systems that have less oversight and market regulation. Although there may be some challenges to implementing the system, such challenges are quite common when adopting and integrating new technology into an established system that is well-networked and has become a standardized way of doing business.

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AUTHOR

Angela Murphy, Ph.D.

Vice President, Business Development, Photon Commerce

Dr. Angela Murphy has experience in artificial intelligence, financial technology, and the global payments industry, building on her skills as a storyteller and rhetorician. She engages at the intersection of strategy and insight to drive results for her clients. In her current role at Photon Commerce, she helps run a team that uses artificial intelligence and machine learning to solve complex problems in the payments industry. Dr. Murphy received her Ph.D. from the University of Kansas, and currently resides in Kansas City with her husband, Brock, and German Shepherd rescue, Roscoe.