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What’s the difference between a “push” and “pull” payment? Does it matter?

Date: September 23, 2023

TL;DR: Push payments are poised to revolutionize account to account transfers. Push payments can do a better job of protecting sensitive user information, authenticating account ownership, and minimizing transaction failures (read: chargebacks). We still have a ways to go until new push based networks (e.g. FedNow, TCH) mature, until then we can still see many of the benefits of push by employing some of the foundational elements of these types of transactions.

Most eCommerce and brick and mortar purchases in the US are powered by “pull payment,” networks like Visa and MasterCard. While card based payments can be costly, for the most part consumers and merchants have embraced them because they are easy to use, ubiquitous, and safe.

With the rise of fintech over the past ~15 years, we have seen platforms utilize pull style payments (ACH) for account to account transfers (think of funding your Robinhood or Venmo account). However, pull payments are not optimized for account to account transfers. They are slow and risky — and can be confusing for consumers. That’s where push style payments come in.

We believe push payments are better for both consumers and businesses for account to account transfers. Today we will discuss:

  • Taxonomy: What’s the difference between a push and pull style payment?
  • What are the implications of the sender initiating the transfer (vs. recipient)?
  • Why aren’t push payments standard for A2A deposits?
  • How can we start seeing the benefits of Push payments today?

What is the difference between a push and pull Payment?

Push payments are initiated by the sender while pull payments are initiated by the recipient. First let’s bring these two type of transfers to light:

Card-based purchases are pull payments initiated by the merchant’s acquiring bank. While it might not feel like it, a pull payment is the equivalent of a consumer telling a clerk to reach into their bank account and pull money out. Examples of digital pull payments include:

  • Buying groceries at a grocery store with a debit card
  • Buying TV on Amazon with their credit card
  • Transfering money to a Robinhood account using a bank transfer (ACH)

Physical cash based transactions are push payments, think of buying something at a store and taking cash from your wallet and handing it to a clerk. Other examples of digital push payments include:

  • Consumer sending money to a friend’s Venmo account using Venmo
  • Merchant sending a consumer a refund for a purchase
  • Consumer buying good or service using bitcoin

Sender initiated transfers: So what?

This distinction has significant implications on user experience, transaction risk (read: liability), and speed. While there are exceptions, push based transactions carry the following attributes:

  • Protection of consumer data: The recipient of the funds shares their account information with the sender
  • Greater consumer control: The consumer must take action to approve the transaction
  • Strong Customer Authentication: The user must authenticate and prove account ownership to initiate the transaction
  • Good funds: User must have sufficient funds in their account fo the transaction
  • Transfers are irrevocable / final

Why are push payments better for account to account deposits?

At its most simple, you can’t push money you don’t have, you can’t push from a closed account, and you have to authenticate with your financial institution in order to Push. These key differences carry a number of advantages for merchants and developers — particularly when it comes to moving large sums of money. Push payments eliminate failures due to:

  • Insufficient funds (e.g. “R01” in ACH)
  • Closed or invalid accounts (e.g. R02, R03, R04 in ACH)
  • Disputes in authorization (e.g. “chargebacks” for cards or “unauthorized (R10)” in ACH)

Consumers get their money sooner, platforms can significantly reduce their payments costs.

Why aren’t push payments standard for A2A deposits?

It should be noted that Push payments are standard for A2A disbursements today; “ACH Credits” are technically push payments (from platform to consumer). The challenge with ACH is speed and the reliance on “pull transactions” (ACH debits) for deposits.

New instant payment networks in the US, Fednow and RTP, are rolling out push-style payments for deposits. The message for this transfer is called the “Request for Payment.” You have probably already used this type of transaction when you have asked friends for money on Venmo. We believe this is the ideal end state, however it will take time for us to get there.

Real-time payments do not yet have ubiquitous coverage: It took Visa ~40 years to be “everywhere you want to be.” Six years after launch, the real-time payments network has reached 65% of US accounts, mostly through the top 100 banks. With about 10,000 banks in the US, reaching 100% will take much longer. Most importantly, only a limited number of banks today support the “request for payment” message set.

Changing consumer behavior takes time: For example, Apple Pay provides a much better user experience for buying things online than manually entering a card number. But even after 10 years, Apple Pay only accounts for 6% of online transactions. Push-style payments require a completely new user experience, so it will take time for customers to get used to sending money directly from their bank to a merchant or platform.

Lack of government mandates: The rapid adoption of push payments in other markets (e.g. PIX in Brazil, UPI in India) was bolstered by government mandates. These mandates solved the problem of ubiquity, and importantly they were built on “real-time” rails — which offered something truly special for consumers.

How can we start seeing the benefits of Push payments today?

Achieving the full potential of push payments will take time. At the end of the day, consumers and merchants want easy, instant, riskless transactions — delivered in a highly cost efficient manner.

At Push, we are building push-style payments on a combination of the newest networks (e.g. RTP, Fednow) and back stopping account coverage with traditional networks. But importantly, when we utilize traditional networks we are overlaying the core tenants of push payments:

  • Strong Customer Authentication
  • Riskless (guaranteed) transfers
  • Instant payment capabilities (e.g. Visa Direct and Mastercard Send)

If you are interested in joining us in the journey, please reach out!