ETA Expert Insights: Push Payments – Bringing the Ecosystem Closer to Real-Time Payments

By Jared Poulson, Chief Integrations Officer, Payroc; Member of the ETA Technology Committee.

The future of real-time payments is approaching rapidly. It seems like nearly everyone is exploring the possibilities of faster payment platforms and infrastructures – from regulators like the Federal Reserve and Payments Canada to companies large and small. Push payments are a significant and growing part of the faster payments ecosystem. In this article, the Technology Committee discusses how push payments work and the opportunities they offer for U.S. merchants and consumers.

Visa defines a Push Payment as an OCT (Original Credit Transaction), meaning it is a credit to a debit/credit card without an initial debit to that card. Typically, in order to issue a credit or refund to a Visa card, there needs to be an offsetting debit to that card for the original transaction. Otherwise, you might experience downgrades and/or risk flags on that credit transaction. Over the last few years, however, Visa has been building out infrastructure for OCT transactions, which “push” money to an approved debit/credit card, typically within a few minutes, without the need for an offsetting original debit transaction on that card. Because the funds are pushed directly into the payee’s account, the payee does not need to process the card number in order to “pull” the funds into their account – it happens automatically.

In the meantime, Mastercard is expanding the footprint of Mastercard Send and investing in that platform.  For Shari Krikorian, Senior Vice President of Push Payments at Mastercard, “we live in a time where everyone wants everything instantly, and this is particularly true when it comes to payments. Globally, the demand to send and receive payments immediately is only increasing. We listened to our customers and developed Mastercard Send to address the global demand for payments that are faster, more convenient and safer. To this end, Mastercard Send facilitates the secure delivery of funds between senders and receivers, typically within seconds. Through a single connection to Mastercard Send, businesses, merchants, governments, humanitarian organizations, financial institutions and others can send money to consumers and small businesses domestically and cross-border.” The service supports multiple use cases including person-to-person (P2P) payments, business to consumer (B2C) disbursements, and business to business (B2B) payments. Moreover, while Mastercard Send can reach debit, credit and KYC’d prepaid cards, the platform offers even greater reach and flexibility to customers and consumers. The recent launch of Mastercard Send in the UK leveraged Vocalink and its real-time payments capabilities to allow customers and businesses to send real-time payments to UK bank accounts and also to receive payments by the same means.

Many people now expect to receive their money much more quickly than a traditional settlement or ACH transfer can accommodate. Gig workers, seasonal workers, and others who do not earn income on a regular or predictable schedule all stand to benefit from being paid quickly – or even instantaneously. One early adopter of Mastercard Send was the ridesharing service Lyft. As a Lyft driver, you can take a fare, complete the trip and get a notification that the rider has paid you through the Lyft app. You then have the option to either “wait until payday” (Lyft payments are processed every Tuesday and take 2-3 business days to appear in your account) to be sent your earned funds, or for a relatively small “Express Pay transfer fee” (about $0.50) you can opt to receive your “wages” immediately to your debit card – and within minutes, your hard-earned dollars are in your account. Companies that provide instant payments of earned funds are called ODP (On Demand Payroll) providers.  Traditional payroll providers can partner up with any ODP provider to offer the capability for an employee to access their wages earlier than the standard pay cycle.   Funds are pushed out to the employee using Visa Direct or MasterCard Send.

A 2018 study by JP Morgan Chase found that 4.5% of families sampled earned income through an Online Platform (which includes gig work or selling items online) in the last month. Chase found that, by and large, participation in the gig economy is sporadic, with the majority of respondents earning money from it only 1-3 months out of the year. Individuals who do gig work infrequently and to supplement their income cannot wait for bi-weekly paychecks. Push payments can help them get their income when they need it.

Push payments have many applications. Most of us are familiar with Person-to-Person (P2P) payments through services such as Venmo or PayPal. But many businesses and government entities are increasingly opting to disburse payments via a push payment as well. A recent survey by Aite Group found that over 80% of businesses see cashflow improvement as the primary reason to adopt real-time payments. More and more businesses and consumers are opting to receive an instant payment rather than waiting for a “check in the mail” and will pay a fee to receive their funds more quickly. Companies who constantly disburse funds, such as insurance companies, are also looking to improve customer experience and cut paper costs by allowing an immediate disbursement to a consumer’s card. There is also value in being able to include more detailed information with each payment, in comparison to ACH infrastructure, which is more limited.  The push payment not only reduces the costs associated with traditionally cutting a check, but may also be an incremental source of revenue as consumers are often willing to pay a fee to receive their money right away.

For merchant acquirers and Independent Sales Organizations (ISOs), fast funds settlement is gradually becoming table stakes. Many merchants would pay an extra fee to settle and receive funds on demand and (more or less) immediately. Depending on the vertical, that extra cash flow and convenience could reap substantial dividends. Aite also found that 85% of business owners would switch merchant providers if they provided immediate settlement of the processing funds. Companies such as Worldpay, Payroc, Square and Paytm offer merchants the ability to pay a fee for instant settlement, with many more acquirers following suit.

Still, there are significant challenges to mass adoption of these new payment options. Mastercard’s Krikorian observes that “adoption for any new service requires awareness and education. We know there is tremendous value in card-based real-time payments. But, as a new PYMNTS report developed in partnership with Mastercard noted, lack of knowledge remains a major impediment to the widespread adoption of real-time payments. So, while the demand may be strong, additional socialization and awareness efforts are needed to drive adoption and scale.” But this same report also found that 59% of businesses say real-time payments would improve their cash flow and certainty – so interest is certainly growing.

In the ceaseless drive to streamline and optimize every aspect of business, push payments are making a large impact on consumers, merchants and acquirers. While they remain a relatively new form of payment, push payments allow the card brands to hold a strong position in the battle for faster payments alongside the likes of cryptocurrency, Real Time Payments, and other contenders. Though the idea of faster payments presents its own set of unique challenges and raises important questions about risk, ultimately it will benefit consumers and merchants by providing them with more options. This is an opportunity for payments technology providers to shine.