What are Push Payments?
- What are PushPayments?
- What are Real-Time Payments (RTP) and how are they different from conventional payment schemes, eg ACH?
- What are the drawbacks of RTP?
- What is the UX?
- Push Payment FAQ’s
- Why are Push Payments THE solution for certain high-risk businesses?
So how do you completely remove this risk of chargebacks and declines?
The answer 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.In the example above, Home Depot is the payment originator. To completely remove chargeback and payment decline risk you allow the consumer to originate the payment. Hence the phrase “Push Payment”. The consumer is pushing the money out of their bank account. And you are asking, HOW? There are many Fintech providers that allow for “bank data aggregation”. Essentially that means they provide technology that enables merchants to connect a consumer’s bank account to their application. 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. These PushPayments run on the same network as Zelle or PopMoney network rails and uses Real-Time Payments (RTP). ***Note: The PushPayment Solution we are discussing is geared to non-face to face transactions. PushPayments do have a use case for Point of Sale transactions. What are Real-time Payments (RTP) and how do they differ from traditional payments schemes? First, in contrast to ACH processing, RTP supports credit or push payments only. There is no ability to debit another bank account using RTP. The core RTP functionality is that it enables instant funds transfer.
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 can come back 72 hours after the payment is processed. Because RTP’s are creditor push payments, there is no risk of payments failing due to insufficient funds. Do you see how both chargebacks and payment failures can’t happen? You can’t go to your bank and say “I sent them money. Uhh–it was an accident”. So the risk of a chargeback is zero. There is current scrutiny especially around Zelle regarding fraudsters tricking people into sending $ via Zelle. As of now, there is still no recourse for “pulling back” any missing $. Your bank won’t let you send money you don’t have in your account so payment declines are eliminated as well, meaning no possible 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. RTP also allows more transactional data to be revealed with each payment. For example, a marketplace like Etsy could include details about the item sold like the seller and purchase ID. An accounts payable or bill pays solution could include the invoice number on payments sent. Unlike ACH and Wire Transfers which don’t operate on weekends, bank holidays and outside business hours the RTP network is always ON. All RTP payments are processed by The Clearing House. If you pay your monthly electric bill using RTP, your bank messages the RTP network and includes the details of the payment. The Clearing House processes the payment message and routes it to the electric company’s bank, thus irrevocably completing the payment. RTP uses the ISO-20022 standard for the messaging used to initiate payments and retrieve transaction status. Fundamentally a PushPayment solution or Consumer Permissioned Payment Solution connects the consumer’s payment directly to the business bank account. Again we compare to a traditional payment processor where the processor is ALWAYS in the middle of the payment $ flow. Traditional: Consumer is debited $100—–>Processor receives $100—>Processor pays out end merchant $100 Push Payment Solution: Business “requests” payment from the consumer (typically via QR code)–>consumer “pushes” payment to the business via online bank interface→Business receives $ in seconds Drawbacks of RTP On the evidence of what you have read so far you have to conclude that RTP solves a LOT of problems for businesses, both low and high risk. So what are the problems? 1-Not every bank participates in RTP. Smaller bank and CU’s are typically slower to roll out technical changes. Every bank is eligible but only around 60% currently leverage RTP. If your bank does not offer the ability to connect your bank account to an application via a Plaid/Yodlee/MX etc then they are definitely not using RTP. There will certainly be wider adoption. For a list of RTP participants click here 2-Recurring AutoPay payments can not currently be “set and forget”. In the ACH world you can debit the customer on the 1st and every month their bank account is debited like clockwork. RTP is more suited to one-time payments though you can certainly message the customer via email or text prompting them to pay via RTP. This process is built into RTP and uses RfP technology. RfP means “Request for Payment” and essentially texts the customer asking them to click here to make your payment 3-Relative to ACH processing RTP payments are likely more expensive than ACH. Pricing will depend on many variables. In the ACH world you might pay 30 cents a transaction or less. Using RTP you are more likely to be 50 cents up to $1.00 or more. Depending on your customer base and risk level you have to decide if the speed and payment finality of RTP offers your business ROI 4-Finality of payment. Yes, the thing that makes RTP so attractive does present challenges. Your refund policy must be looked at and possibly modified. There is no chargeback recourse like both ACH and credit card world offer. This makes having clearly defined policies paramount.
What is the consumer experience (UX) using RTP?
Consumers use a pay-by-bank option by scanning a QR code at checkout. The option could also appear to consumers as a button within their mobile banking apps. For security, the technology “tokenizes” user account information. Through their online banking portal the consumer securely authorizes the payment to be pushed to the business they wish to pay.PushPayment | Consumer Permissioned Payments Use Cases
- Payment Gateways
- Bill Pay
THERE IS NO MERCHANT ACCOUNTNo merchant account means you can’t be cut off or terminated (assuming you are a legitimate business). This can seem hard to wrap your head around because it is so different from traditional payment solutions.. 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”?