WHAT IS A PUSH PAYMENT?
A push payment is any monetary transaction initiated by the payer, rather than the payee. Common examples include a customer swiping a credit card at the cash register or choosing to pay by digital wallet at an online checkout.
If you receive $60,000 in an insurance payout, that’s a push payment because the insurance company sent the funds directly to your account. Similarly, if you make a withdrawal from an ATM, this is also a push payment (because you triggered the transaction request).
PUSH PAYMENT PROCESS
These days, you may be more likely to come across push payments in the context of digital payments such as via payment gateway or electronic funds transfer (EFT). A quick example of a push payment is sending your partner $400 over Venmo (a peer-to-peer electronic payment).
Now let’s look at a more secure form of transaction: a C2B credit card payment on receipt of goods. Here are the stages of that push payment.
The point-of-sale device or payment gateway captures the cardholder’s account information. The cardholder authenticates the transaction.
The payment processor passes the transaction request to the merchant acquirer.
The acquirer contacts the card scheme of the cardholder’s credit card (such as Visa, Mastercard or Diners Club) to request authorization.
The card scheme contacts the cardholder’s bank (the issuer) for confirmation.
The issuer authorizes the payment. The processor relays the message back to the merchant (at the point of sale/payment gateway).
PROS OF PUSH PAYMENTS
Reduced risk of refund requests and chargebacks because a customer is actively involved in payment at the point of sale. The need for authentication at the point of payment leaves less room for the payer to claim a wrongful charge.
Convenience and familiarity to the customer, who feels confident to submit payment using their chosen method (be it credit card, Apple Pay or direct deposit).
Increased security for merchants because digital payment processing often comes with fraud detection systems. Cashiers typically have a few methods of testing bank notes for authenticity upon receipt, too.
Instant payment ensures merchants can confidently dispatch goods or provide services knowing they have been paid for.
CONS OF PUSH PAYMENTS
Transaction fees apply if you are using almost any form of digital payment system.
Risk of losing repeat business if your payment gateway does not retain cardholder details. Research found a concerning 30% of US online shoppers will abandon their carts if they have to re-enter their credit card details. By contrast, pull payment methods rely on stored payment details to automatically collect funds at regular intervals.
WHAT IS A PULL PAYMENT?
A pull payment happens when a payee triggers a transaction, instead of the payer. That means the organization expecting payment sends a request, and automatically collects the amount specified. These are also known as merchant-initiated transactions.
The clearest example is an ACH payment that covers your phone bill. Rather than logging into your bank account every month and sending $60 to T-Mobile, you agree to ongoing payments that don’t need any action on your part.
PULL PAYMENT PROCESS
The exact structure of a pull payment will depend on the specific method chosen. For the sake of simplicity, we will describe the steps of a Direct Debit mandate via ACH in the US. Using the centralized clearing facility in this way is standard practice for taking regular (or one-off) payments from a client.
The business presents a contract (known as a mandate) to the buyer, which sets out the payment terms.
The buyer signs the contract, and provides their account information.
The merchant submits the Direct Debit mandate to their payment services provider (PSP), with details of transaction amount(s) and frequency.
PSP submits the mandate to the Originating Depository Financial Institution (ODFI) if they are separate entities.
The ODFI contacts the ACH network to initiate the transaction.
The ACH makes the payment request from the Receiving Depository Financial Institution (RDFI), that is, the payer’s bank.
The RDFI authorizes the payment, and credits the merchant’s account.
BENEFITS OF PULL PAYMENTS
Reduces effort and burden on customers to actively engage in recurring payments. This is a significant convenience which works well for ongoing services, prepaid subscriptions, repeat deliveries, memberships, and other types of recurring trade.
Reduce cart abandonment by allowing customers to spread payments over time (which is how BNPL works).
Predictable revenue flow for your business because mandated payments are more concrete than estimates for pay-on-demand.
ACH transactions are cheaper for merchants compared with credit card processing. However, this may not be the case if your business faces a high rate of ACH declines.
One-off authentication is convenient for merchants, saving time and costs usually involved in customer payment permissions. Merchant-initiated transactions are out of the scope of SCA, and European paperless Direct Debit mandates may not need authenticating at all.
DRAWBACKS OF PULL PAYMENTS
Risk of failed payments if the payer has insufficient funds or cancels the mandate via their bank. Merchants can end up chasing debt because service provision is already underway. Thankfully, modern tech such as Checkout.com's Real-Time Account Updater means customer card details update automatically.
Refund requests can be harder to combat. For instance, when a subscription renews and buyer’s remorse kicks in.
Funds may take several working days to land in the merchant’s account (because ACH Direct Debit is a delayed notification transaction type). You may be able to access same-day ACH payment processing, depending on your bank. However, this comes with additional fees and is not available for international transactions.
DECIDING BETWEEN PUSH OR PULL PAYMENTS FOR YOUR BUSINESS
Most businesses settle on either push or pull payment methods to conduct the bulk of their revenue operations. Which side you come down on should be led by your product (or service) offering, the nature of your clientele, and the markets you operate in.
Here are the main considerations for choosing between push vs pull:
Pull payments ask the payer to place a huge amount of trust in your business. Not only will you need a secure method of storing and processing bank account data, but you’ll need to invest in a studied customer retention method. Consider that it’s relatively resource-intensive to sign up a new client for direct-to-account transfer methods such as ACH Direct Debit, but cheaper to collect ongoing revenue thereafter. On the other hand, any interruption of service can readily trigger canceled payments.
Different priorities apply to the merchant favoring push payments. Such transactions take place in near real-time, compared with the delayed notification system of ACH payments. Your customers may be in more of a hurry than those willing to pay by pull methods. After all, nobody wants to fill out a bank mandate every time they buy a cappuccino.
The advantage of guaranteed payments that push payments like credit card processing provides is the confirmation of the transaction in real-time. You wouldn’t let a customer walk out the door with a diamond necklace just because they signed a piece of paper, right? On-the-spot payment authorization poses significant benefits to both parties in many business deals.
By contrast, there are certainly a range of services, subscriptions, memberships, and repeat deliveries where continual authorization requests would irritate and exhaust the consumer.
To clarify the differences, here are some examples of businesses better suited to push or pull payments (in the context of taking payment from customers):
It can make sense for businesses to utilize more than one payment method for different sides of their business. A simple example is an insurance broker, which receives premiums via pull payments and dispenses payouts using push payments.
For others, it wouldn’t make sense to set up a payment infrastructure for taking one-off payments if the business only offers services via subscription, for instance.
EXPLORE PAYMENT PROCESSING WITH CHECKOUT.COM
When considering long-term investment in your payments infrastructure, you should weigh up which provider is best equipped for the transactions you need. As an integrated provider of payment gateways, acquiring, processing, issuing, and authentication, Checkout.com is reliable for a multitude of business payments.
SECURE AND FLEXIBLE PUSH PAYMENTS
Our dependable platform facilitates secure push payments, empowering businesses to send and receive money across multiple channels and international borders.
STREAMLINED INTEGRATION FOR PULL PAYMENTS
Checkout.com offers robust APIs and pre-built integrations that make it easier for businesses to set up and manage pull payments, such as recurring billing and subscription-based models.
Push and pull payments are two different methods used in financial transactions, each with its own characteristics and applications:
1. **Push Payment:**
- In a push payment, the payer initiates the transaction and sends funds directly to the payee.
- The payer's account is debited, and the payee's account is credited.
- This method is commonly used in scenarios where the payer has control over the payment process and wants to initiate a transfer to the payee.
- Examples:
- Online purchases where the customer enters their payment details and authorizes the payment to the merchant.
- Peer-to-peer transfers where one individual sends money to another using a banking app or online payment service.
- Bill payments initiated by the payer to settle invoices or utility bills.
2. **Pull Payment:**
- In a pull payment, the payee initiates the transaction by requesting funds from the payer's account.
- The payee's account is credited, and the payer's account is debited, but the payee takes the initiative to collect the payment.
- This method is commonly used in scenarios where recurring payments or subscriptions are involved, and the payee needs authorization to withdraw funds from the payer's account.
- Examples:
- Automatic bill payments where a service provider, such as a utility company or subscription service, pulls funds from the payer's account on a regular basis.
- Direct debit arrangements where the payee is authorized to withdraw funds from the payer's bank account for recurring payments like loan repayments or insurance premiums.
- Subscription-based services where the provider automatically charges the customer's account at regular intervals.
In summary, push payments are initiated by the payer, while pull payments are initiated by the payee. The choice between these methods depends on factors such as convenience, security, and the nature of the transaction.
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