By Bill Camarda
To understand the potential benefits of “push” (aka “buyer-initiated”) payments, it helps to first review how they differ from conventional “pull” (aka “supplier-initiated”) payments.
With pull payments, after a seller delivers a product or service, he or she invoices the buyer, who reviews and approves the invoice. The buyer then writes and sends a check or initiates an ACH or other electronic payment. If payment is made via a credit, debit, or charge card, the buyer provides the card number to the seller, along with any necessary remittance and payment instructions. The seller then submits the card number for payment via the appropriate credit card network using a point-of-sale terminal or Web-based interface. After approval, payment is made to the seller’s bank account. If there’s a difference between the submittal and paid amounts, the buyer’s and seller’s accounting systems each need to make appropriate adjustments, often manually. Later, the seller’s standard merchant fees are debited from its bank account.1,2 All of this takes significant time and resources.
With push payments, after a buyer approves a seller’s invoice, it’s the buyer who submits the credit-card number to the credit-card network, which then pays the seller’s bank account (or another account of the seller’s choice, such as a consumer debit or prepaid card branded with a major credit card). The seller may never handle or even see the buyer’s account data. Reconciliation happens automatically at the buyer’s and seller’s ends because the payment amount always matches the invoice.
Since the buyer is authorizing and launching the transaction, it may be treated as non-repudiable—e.g., the proceeds are safe to spend immediately.3 (Of course, this means push payment systems and their users must attend carefully to security; concerns about push-payment fraud have recently arisen in the UK.4)
In the future, real-time push payments via credit or charge card could replace conventional ACH or paper checks, accelerating the delivery of funds. Some innovative payment card networks have already added support for push payments. Certain solutions can even automate charge card push payments to a business partner, allowing businesses to precisely time payments, capture vendor discounts, and smooth cash flow.
On the other end of the transaction, some providers are building real-time payment products that forward payment card receipts to small businesses immediately, in exchange for a small added fee, rather than requiring those businesses to wait for a regularly scheduled ACH batch payment.
Meanwhile, third-party, single-source solutions can allow businesses to push nearly instant payments to their partners or customers via any major bank or debit card, connecting to all these payment systems by integrating through a single application programming interface (API). Recipients can get paid rapidly without providing bank routing data or mastering new technologies, such as cybercurrencies.5
The push payment model also could be applied by buyer and seller without using credit-card rails. This is especially true where open banking regulations are in place, as is the case in Europe with its recently implemented Second Payment Service Directive (PSD2).
As Deutsche Bank notes, as instant payment systems and payment APIs mature, many retail buyers may choose to pay via direct push payments from their own bank accounts. The bank recently partnered with the International Air Transport Association (IATA) to help airlines experiment with using push payments to collect fares from customers, making the funds available in near real time. While eliminating settlement delays, these bank-to-bank push payments might reduce transaction costs compared with card payment rails, helping sellers improve working capital and margins.6
Push payments first came to many consumers’ attention through peer-to-peer (P2P) mobile applications, which enabled them to immediately pay or reimburse a friend. Since then, businesses in a growing number of industries have discovered they could use a similar approach to make near real-time or real-time payments at scale to consumers and businesses. Some notable early examples have included:
Many more payment applications are likely to emerge as businesses and consumers become increasingly familiar with push payments and more confident about their security.
Push payments are moving beyond peer-to-peer consumer applications, offering potential for a growing number of businesses. Where applicable, they can help streamline payables and receivables, improve cash flow, and enhance customer service.
Bill Camarda is a professional writer with more than 30 years’ experience focusing on business and technology. He is author or co-author of 19 books on information technology and has written for clients including American Express Private Bank, Ernst & Young, Financial Times Knowledge and IBM.
1. “Push Pay vs. Pull Pay,” WEX; https://www.wexinc.com/wp-content/uploads/2015/04/WEX_Push-Pay-vs-Pull-Pay_FINAL.pdf
2. “Pull Pay vs Push Pay,” VSPIRE; http://vspire.co/wp-content/uploads/2017/03/VSPIRE-Pull-Push-Article-5.25.17.pdf
3. “Mobile and Digital Wallets: U.S. Landscape and Strategic Considerations for Merchants and Financial Institutions,” US Payments Forum; http://www.uspaymentsforum.org/wp-content/uploads/2018/01/Mobile-Digital-Wallets-WP-FINAL-January-2018.pdf
4. “What Is Authorised Push Payment Fraud?,” FICO; https://www.fico.com/blogs/fraud-security/what-is-authorised-push-payment-fraud/
5. “Delivering Instant, Guaranteed Funds to Consumers,” PYMNTS.COM; https://www.pymnts.com/news/payment-methods/2017/delivering-instant-guaranteed-funds-to-consumers/
6. “The Road to Real-Time Treasury,” Deutsche Bank; http://cib.db.com/docs_new/Realtimetreasurywhitepaper.pdf
7. “Visa, Ingo Money: Pushing Payments Over The Last (Digital) Mile,” PYMNTS.COM; https://www.pymnts.com/news/payment-methods/2018/ingo-money-visa-push-payments-p2p-%E2%80%8E/?amp
8. “Disbursement Tracker, February 2019,” PYMNTS.COM; https://www.pymnts.com/disbursements-tracker-february-2019