In Part 1 of this 2 part series, Rich Williams, host of the Payments Podcast, sat down with Marcus Hughes, Head of Strategic Business Development at Bottomline Technologies to discuss the New Payments Architecture and its effect on Direct Debits and cheque clearing. In this second part, Marcus and Rich explore new Overlay Services.

Rich: Marcus, earlier you mentioned new Overlay Services. Can you explain what these Overlay Services are?

Marcus: These new services have been designed to make payments more secure and easier to use. There are 4 of them in total:

  • Request to Pay
  • Enhanced Data
  • Confirmation of Payee
  • And last but not least, Payment Status

Rich: Can you tell us about Request to Pay?

Marcus:Request to Pay is probably the most exciting of the new Overlay Services, because it is a flexible instrument which makes it easier to get paid. It is a hybrid which effectively combines an electronic invoice with a number of payment options. Here’s how it works: The payee (that is the party wanting to get paid) uses a cloud-based payment platform or an app to issue an electronic message called a Request to Pay, which is sent to the payer (in other words, the debtor or party who owes money). The Request to Pay includes a description of what the payment request relates to, for example enclosing details of the invoice in the message. On receipt of the Request to Pay on his or her app, the payer is offered a series of payment options: For example, to make a payment for the total amount requested, to make a partial payment, or to request an extension before paying. Other options include the ability to send a personal message to the payee, to decline to pay or even to instruct that any Requests to Pay from a particular payee are blocked. Naturally, all these decisions are communicated back to the payee, who will take appropriate action.

A big advantage for the party getting paid, especially for a business handling high volumes of inbound payments, is that they will be able to achieve automatic reconciliation of inbound funds by using Request to Pay. This is because full details of the payment and the payer are included in the payment. This flexible Request to Pay tool has compelling use cases in the person-to-person, business-to-consumer and business-to-business spaces. For example, an individual can use Request to Pay to ask a friend to reimburse him for his share of a dinner which he or she has paid in full. Alternatively, a utility can send a Request to Pay to a customer who prefers not to use Direct Debits because this particular customer wants more flexibility. Likewise, in a business-to-business scenario, an organisation can use Request to Pay to present an invoice for payment. The Request to Pay has been designed in such a way that more than one level of approval can be required before the Request to Pay is issued or authorised.

As Request to Pay becomes more sophisticated over time, it is anticipated that the payment options will incorporate aspects of supply chain finance. In this way, if a supplier wants to get paid early it can offer a discount and if a customer seeks deferred payment terms then an interest calculation will be added to the amount due, reflecting the time value of money for paying at a later date. So Request to Pay has tremendous potential for streamlining the whole order to cash and purchase to pay cycles. With the introduction of Request to Pay, it seems that at last payments and invoicing will be fully integrated within the payment system. This, in turn, creates an ideal environment for improving visibility, mitigating risk and making it easier for a business to access finance at a more competitive cost. It is expected that early examples of the basic Request to Pay service will be launched this year.  

I would emphasis that Request to Pay should not be regarded as a threat to Direct Debits. In fact, Request to Pay will complement Direct Debits. Rather than cannibalise Direct Debit volumes, it is more likely to become an attractive alternative to payment service users who require greater flexibility regarding the date and amount of their recurring payments. So a business collecting large volumes of recurring payments is likely to find the Request to Pay a valuable addition to their Direct Debit arrangements.

Rich: And what does Enhanced Data mean?

Marcus: Enhanced Data is another valuable Overlay Service which will make it easier for the payee to reconcile inbound payments. Enhanced Data means the payment message will carry additional structured remittance advice information which will enable the payee to identify what the payment relates to. In this way, Enhanced Data should prove very useful for businesses receiving large volumes of payments from multiple customers. Enhanced Data is expected to help businesses to save time, mitigate operational risks and reduce processing costs related to cash allocation.

Rich: And could you explain how Confirmation of Payee will help businesses?

Marcus: The new Overlay Service known as Confirmation of Payee (CoP) will give the payer greater assurance that payments go where they are intended. The service will verify whether the bank sort code and account number belong to the person or business named in the payment instruction. In the case of payments to businesses, the system will provide the payer with the address and Companies House Registration Number for the beneficiary of the payment. In this way, Confirmation of Payee will provide a higher level of confidence that payments will reach the correct destination. This, in turn, should reduce the frequency of funds being lost or delayed after being sent to the wrong beneficiary. Confirmation of Payee will also make it easier to comply with Anti-Money Laundering requirements, since it will be possible to perform Director searches and other compliance checks.

Rich: And how does Payment Status fit into all these new payment services?

Marcus: Payment Status is another valuable payment assurance Overlay Service. It will provide all parties with the latest status of a payment and will provide confirmation that a payment has been received by the beneficiary. This new Overlay Service complements Confirmation of Payee which, as I just mentioned, will provide greater accuracy and confidence by verifying the payee in advance of the payment. Subsequently, Payments Status will ensure rapid confirmation that a payment has been received by the party intended.

All these exciting new Overlay Services will improve visibility and security in the way businesses and consumers pay and get paid. Third Party Service Providers will be able to help their customers with these new payment instruments.

Marcus: Payment Status is another valuable payment assurance Overlay Service. It will provide all parties with the latest status of a payment and will provide confirmation that a payment has been received by the beneficiary. This new Overlay Service complements Confirmation of Payee which, as I just mentioned, will provide greater accuracy and confidence by verifying the payee in advance of the payment. Subsequently, Payments Status will ensure rapid confirmation that a payment has been received by the party intended.

All these exciting new Overlay Services will improve visibility and security in the way businesses and consumers pay and get paid. Third Party Service Providers will be able to help their customers with these new payment instruments.

Rich: Wow, we’ve covered a lot of material and time is running out. Do you have any concluding remarks?

Marcus: The deadlines are still a few years away. But I think it is very important that banks and business bear in mind these changes when planning any changes to their payment systems. It’s worth bearing in mind that moving to a cloud-based payment platform like Bottomline’s PTX would do a great deal to future-proof your business and give you greater peace of mind that you will be compliant for these changes and be able to make best use of these exciting new systems.  

Listen to the full podcast here.

Read Part 1 here.

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Posted by Germaine Lang

Germaine Lang is the Managing Editor of SmartPayments with a strong creative and technical writing background across many industries. She also works to engage customers and relate their experiences with vendor products and services, positioning them as innovative thought leaders.