Pervasiveness of Push Payments

Why FinTech & forward looking payment service providers should focus on this increasingly popular payment construct

Disclaimers: Opinions and ideas expressed are solely mine, and not my current or previous employers. I am deeply involved in Visa Direct, a widely popular Push Payments construct, so naturally my opinions could be biased

************************************************************************

The very purpose of whole universe of payments ecosystems exists is just to support only one transaction: To move money from one entity (payer/sender) to another entity (payee/receiver). Period.

This seemingly simple use case becomes complex if you add nuances like form factors, payment methods, roles of various intermediaries, complexities like fraud (imposters receiving money on behalf of another payee), or chargebacks (payer complaining about the transaction), reporting, reconciliation, AML and other compliance reasons. All these complexities impose several layers of security, compliance, and risk checks before money is transferred from one entity to another (domestic or cross border) etc.

Coming back to the simple use case, generally speaking money can move from one entity to another in two ways

1. Payer “pushing” money to Payee
2. Payee “pulling” money from Payer

Note: in either case, finally the money moves from Payer to Payee. It is the origination of the payment request that shows the difference

Why this article on Push Payments now? With increasingly innovative side of payments evolving on frequent basis (eg. IOT based payments between devices, BlockChain based global cross-border payments, QR based payments, P2P, etc) by FinTech companies, proper understanding of Push Payments construct is of topical interest - as this could unlock newer opportunities across various markets.

Push Payments

Eg: When you pay someone in Cash – you are paying the receiver what you owe. In this case, the value of the cash is being pushed/moved to the receiver. Another example would be, if a sender pushes money into a receiver’s bank account like an ACH or Wire Transfer or to a Debit Card (through services like Visa Direct) directly. See about Visa Direct and its growing adoption here.

Pull Payments

Eg: When you walk into a Store (or shop online) and want to purchase goods, you hand over your Credit Card to be charged for this Purchase. The Merchant behind the POS machine (or behind an Acquirer processor/shopping cart technology) would take your Credit Card and “pulls” money from your account (held at an Issuer).

Another use case would be, when you provide authorization to a Public Utility (eg) through a digital contract like DDA (Direct Debit Authorization) and they pull periodically from your preferred account. Entire “subscription economy” depends on this construct, see Zuora take on this.

Pull + Push

In some situations, a Payment Service Provider who is orchestrating the money movement, would do both Pull and Push in an asynchronous manner. 

Eg. When a sender logs into a Wallet system like Square Cash or PayPal or PayTM and approves the money to be sent to the receiver. The Wallet system will Pull money from the preferred funding source on Sender’s profile (could balance in Wallet or Credit Card on file, or an ACH) and Push money into receiver’s account in the wallet (or preferred funding source if available). Square Cash uses Visa Direct APIs/services like AFT (account funding transfer) to PULL money from Sender’s debit card, and uses OCT (original credit transfer) to PUSH money into a Receiver’s debit card.

**********

What are some other examples to highlight the pervasiveness of Push Payments across the payments landscape?

·      QR Code based payments – when a Sender (Payer) scans a merchant’s QR Code and approves money to be Push-ed to a Receiver (Payee). Popularized by WeChat & AliPay, and later by EMV Co QR based schemes. It is getting widely adopted in large economies like India (PayTM, BHIM – with Bharat QR). Small merchants prefer to use these methods to reduce friction and become completely digitized through an easy personalized QR code that can be tied to their Bank account (Debit Card).

·      Disbursements - When you receive money from your insurance company (or a Buyer or etc) directly into your bank account, they are pushing money through an ACH or Visa Direct APIs (OCT). See here for more details on some interesting insights on how this can be done through Visa Direct. Also, explore the Disbursements Tracker by Ingo Money and PYMNTS.com where you can clearly see how digital disbursements is preferred choice for "check replacement"(it costs $5+ to process a check, apparently).

·      If you do a wire transfer (like an MT103) to a friend or a business partner globally, you are instructing your bank to Push money into a recipient’s IBAN or BIC or Account. The most expensive method in the Push Payment use case selection, and lacks key elements that are needed for a scaleable solution - passing remittance detail with the payment method, easy reconciliation mechanisms, transparency during payment transit (especially if it is cross border) etc.

**********

Why is it getting popular, and why I think it is pervasive?

Shift in control due to newer form factors & technologies like smartphones, smart POS terminals, intelligent devices. From the sender (Payer) perspective in a Push Payments use case, they have more control on WHOM they are paying, HOW much they are paying, finally WHEN they are paying. Here are some key characteristics that directly manifests due to this shift of control from a Payee to a Payer during payment authentication & authorization.

1. Irreversible – when a sender authorizes to Push money into a recipient’s financial instrument, there is no way to get it back. Unlike a Purchase transaction (PULL), you typically cannot dispute with your Issuer stating that you did not authorize. Most often, payment facilitators like Mobile Applications are putting enough checks & balances for authentication & authorization on the sender’s side functionality – like OTP (One Time Password), finger print/facial authentication etc. If you give a check or cash to someone, you cannot say you made a mistake and want to reverse it.
2. Speed of money movement: In specific payment methods like Visa Direct APIs/Services, due to Fast Fund mandate by Visa, many Issuers in prominent markets (like US) have implemented work flows to accept these requests and make funds available to recipients (either Merchants or Consumers) into their accounts within 30 mins or so. This has enabled near real time money movement, with recipient getting access to their funds into their bank Account.
3. Cheaper/economical: Due to favorable transaction economics, most push based services (except Wire Transfer) are relatively economical than their alternatives.
4. Lower risk & fraud: Because a sender has more control, issues of fraud goes down and the economics of payment (cost of the transaction) is lower. Because there is less fraud, Payment Service Providers prefer this approach as they can offer reduced fees and pass on the benefits to the consumers.
5. Fewer disputes: Since a sender authorizes (after authenticating into a payment services application) the payment, unless the dispute is related to SNAD (Significantly Not As Described – you order a red sofa, and you get a white sofa) classification, buyer’s or sender’s usually do not dispute that they did not authorize payment

**********

If you are into FinTech or Payments, or broader Financial Services you should explore supporting Push Payments. While you are exploring various alternatives to do Push Payments, consider Visa Direct which has robust APIs/Services and you can get you started making an impact.

Where I see a greater opportunity is newer technologies like IOT and BlockChain based money movement solutions like Veem, Abra, can fill the last mile - putting money in receiver's hand - using a Push payment based solution. Consumer can greatly benefit if a neat IOT device can Push money into a receiver's device through a simple authentication & authorization protocol. See more here from Visa and from advisors like PWC and SecureTechAlliance have to say. Some of the key characteristics that Push Payments brings to the table - low cost, faster money movement, low dispute/risk, etc can be solved for IOT based payment scenarios with Visa Direct, as this particular service even supports Tokenized cards.

In summary, the opportunities are wide open, and with innovations in payment space has only started, my recommendation is to look for specific use cases where Push Payments is more applicable and consider a service that meets your needs.

Thoughts and perspectives are welcome !