In an era of individualism and empowerment, how is the payments industry responding to the needs of vulnerable households? This article explores how Request to Pay balances biller priorities with consumer and small business needs.
The Choice Factor
In the United Kingdom today, one in six working households—or 17.4 percent— are living in poverty, 1.5 million consumers are in water poverty, over 20 million people are claiming state benefits, and over 1 in 5 pupils (1.7 million) in England are eligible for school meals (as of Jan 2021). Poverty has not gone away, and a large proportion of your fellow men and women —estimates put the figure somewhere between 12 and 24 million adults—are living with debt.
The regulator (the Financial Conduct Authority, or FCA) has publicly stated that it would like to see more action taken by financial services and commercial firms to protect individuals that display one or more potential characteristics of vulnerability. These vulnerabilities include physical and mental health issues, recent life events such as bereavement, capability, and financial resilience.
The FCA’s Financial Lives survey presents startling figures that 46% of UK adults display a characteristic that could make them vulnerable.
When making payments to suppliers, these individuals are faced with stark choices. Payment systems today, however, are largely inflexible in their demands. Generally, suppliers will demand payment by issuing an invoice to payers for monies due, in a process that hasn’t fundamentally changed for a hundred years. Payers rarely have the option to easily discuss their circumstances, negotiate a payment holiday or a part payment to balance their income and outgoings. Couple that with, when asked, most billers would prefer some payment rather than no payment. But, delivering those options to vulnerable bill payers in a practical way can be non-trivial for businesses that have other things, like economic survival, front of mind.
One of the secondary consequences of financial vulnerability that impacts directly on billers is the fact that payers commonly default to cash and cheque payments when they’re struggling to manage their bills. Defaulting to these aged methods of transacting payments costs the payments industry millions each year. Cash remains the second most frequently used payment method behind debit cards, and reconciling payments is a back-office cost for billers they could well do without. As such, billers tend to surcharge these additional payment methods resulting in a “poverty premium” to those who are least able to afford it.✓
Going mobile with payments has risks to payers
The payments industry is progressively transitioning towards a digital future. As part of this revolution, it’s no secret that most bill payers are moving from their desktop to a mobile smart device when it comes to performing their daily lifestyle transactions, like buying things and paying bills.
1 Billion people are thought to have used a mobile payment app worldwide in 2020, and, by 2024 the forecasted global mobile payment market size is set to be $3.08 Trillion, with up to 4 billion users regularly using a mobile wallet.
Until now, paying bills on mobile has been complicated by data security threats. The most common go-forward approach to implementing mobile bill payment by financial services firms has been ‘Pay by Link.’ This involves sending payment requests as e-mail or text messages, often including a link to a payments website. Unfortunately, while this solution (that presents a URL without demanding a user enters an ID) might be simpler for IT teams to adopt, it also flies in the face of a decade of data security advice to consumers NOT to click on unfamiliar links.
According to the 2020 Verizon Data Breach Investigations Report, about 65% of all breaches now result from hacking and/or email phishing attacks. Phishing attacks are the most prevalent attack vector. These occur when a fraudulent URL link is added to a message and directs recipients to a fake website landing page intending to acquire their digital identity and extort money—are on the increase.
In the first six months of 2020, researchers at IRONSCALES identified more than 50,000 fake login pages. In July 2020, HSBC customers in the UK were targeted by a malicious SMS phishing scam designed to trick its victims into believing the link they received was to a legitimate HSBC page.
Such attempts to fool payers into submitting payments to the wrong destination are often sophisticated.
Nearly 5% (2,500) of the 50,000 fake login pages identified by IRONSCALES were qualified as polymorphic—i.e. they use variables of different types at different times to personalise their responses to site visitors and act more like the official website they are replicating.
The message from the data security industry is clear. For billers, mobile payments might well be the way to go, but Pay by Link isn’t the ideal route to get you there.
One way billers can make a difference—to find the right balance with payers, safeguard their financial wellbeing and simplify reconciliation—is to adopt a secure mobile payment solution that gives bill payers more empowerment. According to the UK payments industry, that solution is Request to Pay.
Timing is everything—“Request to Pay could be a major contributor to protecting vulnerable payers”
Request to Pay is a messaging ecosystem makes secure payment requests possible. It allows bill payers to bring all of their bills together in one place, prioritise spending, and communicate with suppliers in a meaningful way.
Bill payers transact Request to Pay payments safely from their mobile. This is because the messaging technology, once configured, exists as an embedded feature inside the secure environment of the familiar mobile apps supplied by banks and payment providers.
Given the leap in phishing attacks and the rampant move to mobile bill payments, Request to Pay is a technology that’s turned up just at the right time. Published in 2017, The Framework took time to filter out into the UK banking ecosystem but is now fully available to organisations for incorporation into their apps and services. That said, in order to make it fly, and integrate it seamlessly into tech stacks, financial services providers may need some help and a bit of extra tech. This is where third parties like Answer Pay come in.
Answer Pay was the first UK company to launch a certified repository, creating a significant step in enabling Request to Pay services to go mainstream. Peter Cornforth, commercial director at Answer Pay says: “The launch of Answer Pay’s repository is a significant step in the development of the Pay.UK ecosystem. We support payment services providers with Request to Pay services through a simple integration. It’s a layer of innovation that sits on top of the Pay.UK standard to make implementation simpler. Our SPX platform fuels a fully automated process that helps make bill payments cheaper while, at the same time, protecting the vulnerable so that providers can honour their obligations to the regulator.”
Answer Pay estimates in the UK that, with 55% of utility bills paid by Direct Debit, and the remainder paid by cards, cash and cheques, the Request to Pay market could equate to 1,354 million transactions a year.
Why is Request to Pay right for your bank or financial services provider?
As the 2018 independent report by Ipsos MORI commissioned by Pay.UK puts it, “Request to pay isn’t a method of payment in itself. It is a tool to help businesses and individuals across the UK better manage their money. This will happen by facilitating the conversations people may previously have had with the bank manager or the gas man in a new and engaging way.”
Peter Cornforth of Answer Pay adds, “ We’ve been delighted by the interest in our SPX platform that facilitates a simpler, safer, faster Request to Pay implementation. A key dividend for early adopters is the massive impact it makes to safeguard the financially vulnerable and satisfy Principle 6expectations of the regulator. Additionally, the fact that this new payment messaging conduit displaces the need for banks and financial services providers to adopt ‘hacker friendly’ Pay by Link—to bring data security protections to mobile bill payers—we see as a significant added bonus. ”