Push vs Pull payments
What’s the difference and why does it matter?
Definitions
A “Push” payment is a method of payment where the payer instructs money to be sent to a payee. The payer is in control of the payment and is explicitly instructing money to be sent to somewhere.
A “Pull” payment is a method of payment where the payee instructs money to be sent from the payer. The payee is in control of the payment and is explicitly instructing the money to be sent from somewhere. Here, the payer must authorise the money to be taken.
Examples
Cash is a fairly clear cut example of a push payment, the payer has the money in their hand and giving a defined amount to the payee. The payer decides how much, and who to give it to.
Direct Debits are a familiar example of a pull payment, the payer gives the payee permission to take money from their account on a regular basis, but it is the payee who is in control of each payment. The payee initiates each payment, deciding how much to pull and where it should be pulled to.
Bank transfers are a typical push payment. Just like cash, the payer is in control of how much to send and where to send it to. They are explicitly instructing their bank to push their money somewhere. Standing Orders are simply bank transfers that are scheduled in advance.
Cheques are slightly less obvious. The payee is handing a cheque over to someone, but handing a cheque over is not a payment. The cheque is a promise that the money can be taken from the payer’s account by the cheque recipient — it contains information about the source of the payment, plus the authorisation from the payer for the payee to take the money. The actual payment is done by the payee when they cash in the cheque as this is the instruction to pull the money from the payer.
Payment cards are also less obvious. Just like cheques, the payer providing their card details (either online or inserting/tapping/swiping a card terminal) is not instructing the payment to happen. It is providing the payee with the information required to pull the money from the account linked to the card. When you present a card in a store, the merchant is checking your account in real-time (this is what can lead to a decline), but this is known as an authorization, which means the payer has authorised the payee to pull the money at a later date — this is typically 1–3 days later. This second step to actually move the money is called settlement. The authorization reserves the funds in the payer’s account to provide assurances to the payee that the money will be available when the settlement takes place.
Pros and cons
Each method of payment provides distinct advantages and disadvantages to both the payer and payee. Choosing the right method depends on your business model, your customer experience, and your appetite for risk.
Speed — Push payments tend to be faster as all the information is contained within the same request. The source, destination and amount are all defined. A pull payment requires the payer to authorise the source of the payment before the pull can happen.
Control — In general, it’s always going to be an advantage to be the one in control of a payment. The payer can control a push payment which means they can define exactly when the money is sent and where it goes. The payee cannot guarantee they are going to receive the money. In a pull payment, the opposite is true, the payer cannot control when the money will leave their account or exactly where it is going.
Payer fraud — Both payment types are subject to fraud on the payer. A payer can be defrauded in a push payment by providing false information about the destination of a payment. A payer can be defrauded in a pull payment by authorizing the wrong person to take money from their account. The specific payment method defines the level of fraud protection available to the payer.
Payee risk — With a push payment, the payee is putting their trust in the payer to initiate the payment at the required time. Unless the payment is initiated before the goods or services are provided then there is always going to be an inherent risk of the payer not paying. With a pull payment, the payee can guarantee the payment is requested, but there is no guarantee that the money exists. Card payments usually perform a real-time authorisation which does guarantee this, but such a mechanism does not exist for other types of pull payment (cheque, direct debit).
