What are Push Payments and why are they potentially a better option than credit cards?
Think about checking out out online at Staples. In every scenario Staples (ApplePay etc) charges your credit or debit card and “pulls” (called a debit) money from your debit or credit card. (“debit card” and “account debit” are completely different).
You might assume that money you charged from your purchase goes directy from your credit card to Staples’s bank account. What actually happens is that the payment processor Staples has partnered with receives those sale $ and then in turn pays out Staples’s bank account via an ACH payment credit (by credit we mean Staples receives the $ from another entity via their checking account). There is always a bank or payment processor middle man acting as both the checkout proceeds receiver and paying out the end merchant (Staples).
Every sale that Staples processes could potentially result in a chargeback. An example would be the item arrived damaged and you could not get a refund. You might call your card company or use their online portal to challenge the debit, explain the situation and see if they will credit your money back.
Someone could have used your credit card fraudulently. If this happens your credit card company or the issuing bank (they “issued” your credit card) pulls the money you paid back from Staples’s payment processor (the acquiring bank). The acquiring bank, again acting as the middle man in turn, pulls that money from the Staples bank account.
Staples and all mainstream retailers are very good at managing chargebacks and fraud. But think about a business selling higher risk products or services, eg Adult or telemarketing, psychic readings etc. You can see the chargeback risk (and fraud risk) become elevated. Businesses and processors (mostly 3rd party processors) can and have lost BIG money from chargebacks from poor product fulfillment and fraud (both friendly and malicious).
Fundamentally the chargeback risk occurs because someone reached (eelctronically) into your account and pulled money out. You as the consumer have recourse for unauthorized debits as well as disputing fulfillment or the merchant’s right to debit. 60 days is a common dispute window time frame although fraud extends this time frame much longer.
So how do you completely remove this risk of payment chargebacks?
The solution is to reverse the payment originator and eliminate the need for a merchant account. Essentially the consumer initiates a push payment from their bank account. There is no Merchant Account whereby a payment processor receives the sale proceeds from the consumer and in turn (24-48 hours later) funds the business.
An example would be a property management application that enables rent collection. Using Yodlee/Plaid/Finicity etc, the platform enrolls the tenant by having them “connect” their bank account. This is done via a “lightbox” that pops up and asks the consumer to log in their online bank account.
Once done the property management application can check balance, payment history etc. They can also future check bank account balance before a debit, thereby reducing NSF risk.
New technology takes this one-step further and once the consumer connects their bank account they are then presented with an option to push or send the payment from their bank account. This PushPayments run on the same network as Zelle or PopMoney network rails and uses Real-Time Payments (RTP).
***Note: PushPayment Solutions we are discussing are geared toward US based non face to face transactions. PushPayments do have a use case for Point of Sale transactions.
Payments are final when completed and cannot be reversed.
This instant settlement eliminates payment failures due to insufficient funds, which is relatively common in the ACH world. When a business uses ACH processing to debit a customer’s bank account for a regular payment and that bank account doesn’t have the requisite funds, their bank sends the ACH network notice that the debit was returned NSF. This NSF notice cab come back 72 hours from the payment being processed. Because RTP are creditor push payments, there is no risk of payments failing due to insufficient funds.
Your bank won’t let you send money you don’t have in your account so payment declines are eliminated as well, meaning no NSF.
The technology also eliminates the need for a merchant account. As long as a business has a bank account they can receive push payments from their customers.
PushPayment solutions or Consumer Permissioned Payment Solutions connect the consumer’s payment directly to the business bank account.
PushPayment FAQ’s
- Does it really eliminate chargebacks? Yes-the consumer is providing express permission to pay for an item or service
- Can anyone pay via PushPayments? Anyone can provided they use a bank that participates in the RTP network and the entity being paid also has a bank in network
- Are there prohibited businesses? There are high-risk business types that are ineligible. This includes adult, credit repair, basically the usual suspects that typically must rely on high-risk merchant accounts. Crypto and legal betting ARE eligible. All businesses must be US domiciled.
- What does it cost? Typically 50 cents to a $1+.
- How do I sign up? To start we would have a conversation about your business. If everyone agrees you complete an application (similar to a merchant account). Because the risk involved is mitigated by finality of payment and certainty of good funds the primary risk concern is reputational. Eg “Could your business damage the reputation of either the banks involved or your Push payment tech partner”?
To be able to use PushPayments as a payment channel both you and the paying customer need to have a bank account at an in-netwrok bank that participates in the Real-Time Payments network. If you have used Zelle or Pop Money the payment rails are the same for PushPayments.
For more info visit AgilePayments.com/PushPayments