When you've spent more than 20 years in payments like Cyrus Wadia has, you're bound to have witnessed some significant changes in how payments are made.
The introduction of Chip and PIN and Faster Payments are just some of the innovations that Modulr's Payment Strategy Director has had a front-row seat for. But these advances are nothing compared to the wave of change sweeping payments right now.
Regulations such as the Revised Payment Services Directive, or PSD2, and changes in ways we all want to pay, provide opportunities for companies like Modulr to innovate around the payment services it offers businesses. Cyrus recently became a member of the Request To Pay (RTP) Advisory Group set up by Pay.uk, the body that governs the future direction of the UK's major payment schemes (Bacs and Faster Payments).
We sat down with Cyrus to discuss the RTP initiative, which will provide Modulr's clients and their end customers with a new way of collecting payments, as well as new payment initiation services Modulr is developing under PSD2.
Q: PSD2 came into force on 13 January 2018 in most EU member states and introduced new types of payment service providers. Can you tell us more about these new services?
Cyrus:The first new payment service introduced under PSD2 is payment initiation service providers or PISPs, which enables companies like Modulr to initiate a payment on behalf of a client or end customer.
The second service is account information service providers (AISPs), which offer account aggregation services that give clients a single view of all their payment accounts. Modulr was reauthorised by the Financial Conduct Authority as a third-party provider or TPP that can provide both account aggregation and payment initiation services. We have made good progress with solutions in this space, particularly PISP services, which are quite unique.
Under payment initiation services, the end customer whose account the payment is being triggered from, must give their consent to their bank before the payment can be made on their behalf. This service should help our clients collect payments more quickly and easily. It should also be cheaper, and they won't have to store customer payment information, which will improve trust as well as security with their end customers.
Q: What has the uptake been like for these new payment services?
Cyrus: Payment initiation is a new service so there isn't really any applications that are widely used at the moment or even high levels of customer awareness. Further enhancements are needed to make it more user friendly, which will come later this year.
Typically, what would happen is that an end customer wanting to use payment initiation services to pay a retailer or merchant would be directed to a page where they'd log onto their bank account to approve the payment and the account they're making it from. In many cases, they would then need to authorise the payment using their bank's two-factor authentication.
Enhancements are coming soon that will simplify the process, by enabling use of a customer's banking app. Initially, customers can only authorise a TPP to make a single immediate payment on their behalf. But in the near future, recurring and future-dated payments will also be supported.
Q: How will PISP services benefit Modulr's customers?
Cyrus: The main focus of PISP will be collection of payments, either alongside card payments and Direct Debits, or as an alternative. PISP is particularly suited to those clients that want to take less chargeback risk and immediate payment receipt.
Q: How do payment initiation services differ from other payment mechanisms such as direct debits?
Cyrus: Payment initiation is a different way for businesses to collect funds and we see it sitting alongside other payment methods like Direct Debits or card payments. Each has advantages and disadvantages. We are working to identify which of our clients would be most suited to using payment initiation versus other payment methods.
Q: Modulr is also involved in pay.uk's Request To Pay (RTP), which will be launched this year. Can you explain what RTP is and how it differs from Direct Debits and payment initiation services?
Cyrus: RTP adds yet more choice for how our clients' end customers choose to pay. In terms of how it works, a near real-time payment message from a biller is sent to the user's payment app or wallet with the details of the payment requested. It can be used for regular bill payments or one-off payments.
It's a request, not a demand to pay, so the end user has a series of choices. They can agree to pay the full amount, say no or make a part payment. The merchant or business has to ask the end user each time for the payment, so they're reliant on them responding to that request. RTP is designed to provide more convenience and give users greater control over when payments are made.
RTP will complement more familiar options such as Direct Debits and has great applicability for use cases where payment patterns need to be more real time, variable and responsive to changing situations. A good example of this is people working in the gig economy, who are on variable incomes and are often reluctant to sign up to Direct Debits. RTP will give them greater control over when and how payments are taken from their account, whilst giving billers greater visibility throughout the process.
Q: What are some of the issues that the Pay.uk advisory group is looking at as this new service is rolled out?
Cyrus: As well as the mechanics of how it works, Pay.uk wants to ensure the system is secure so that all users can trust RTP requests sent and received. They also need to ensure that the rules for participating strike the right balance between open access to payment systems and system reliability and performance.
Q: How will Modulr leverage RTP?
Cyrus: RTP will be added to our existing suite of payment methods for customers. It will sit alongside more familiar instant payments and Direct Debits, and newer methods such as payment initiation. We've always believed that providing a rich API-first payments platform for our clients and their customers means we can provide them with both the expertise and the access that best suits their individual payment needs, whether inbound or outbound.
Will 2019 be the year that PSD2 and Open Banking finally take off? Click here to read Cyrus's payment predictions.