It can take time to keep up with the abundance of new solutions introduced to the market as the payments sector undergoes rapid change. A solid understanding of the two main payment types—push and pull—is an excellent place to start. Here is the difference between push and pull payment options to help you focus your search and choose the best that meets your company’s needs.
What is a push payment?
A push payment is where the initiator (usually a customer or payer) pushes funds from their account to the recipient’s account. This can be done through various electronic payment methods, such as bank transfers, mobile payments, or online payment platforms.
In a push payment, the payer initiates the transaction and authorizes the fund’s transfer to the recipient’s account. The payer’s account is debited instantly, and the funds are transferred to the recipient’s account within a short period, typically within a few hours or even instantly.
Push payments are often used for person-to-person (P2P) transactions, such as paying a friend back or sending money to a family member. They are also commonly used for online purchases, where the customer initiates the payment through a payment gateway, and the funds are immediately transferred to the merchant’s account.
How do push payments work?
A push payment is a transaction in which the payer initiates the payment and sends funds directly to the payee’s account. This differs from a pull payment, where the payee initiates the payment and requests funds from the payer’s account.
In a push money scenario, the payer typically uses a payment service or platform, such as a mobile banking app, to initiate the payment. The payer inputs the payee’s account details and the amount to be transferred and then confirms the transaction. The platform then processes the payment and sends the funds directly to the payee’s account.
Push payments are often used for one-time payments, such as paying bills or purchasing. They can be more secure than pull payments because the payer controls and initiates the transaction directly. This reduces the risk of unauthorized transactions. However, push payments may require more upfront work from the payer to set up the payment and ensure the accuracy of the payee’s account details.
Examples of push payments:
Here are some examples of push payments:
- Peer-to-peer (P2P) transfers: When you transfer money to your friend or family member using a mobile or online banking app, it’s a push payment.
- Bill payments: When you pay your bills using your bank’s mobile app or website, you make a push payment.
- Online purchases: When you make an online purchase and pay using your credit or debit card, it’s a push payment.
- Payroll transfers: When your employer transfers your salary to your bank account, it’s a push payment.
- Donations: Donating to a charity using your bank’s mobile app or website is a push payment.
- Instant payments: Real-time payments that allow you to transfer funds instantly between accounts are also push payments. Examples include services like Zelle, Venmo, and PayPal.
What is a pull payment?
A pull payment is a type of payment in which the payment recipient (payee) initiates the payment transaction by “pulling” funds from the payer’s account with the payer’s authorization. In other words, the payee requests payment from the payer, and the payer approves the payment by releasing the funds.
An example of a pull payment is when you authorize a company to automatically deduct funds from your bank account for a recurring subscription or service. The company “pulls” the payment from your account with your permission and according to the agreed terms.
Pull payments are often used when the payment amount and timing are variable or recurring, such as utility bills or installment payments. They can also be used for one-time payments, such as online purchases from your bank account.
How do pull payments work?
Under the pull payment, the payer authorizes the recipient to withdraw funds from their account as needed.
Here’s how to pull payment works:
- The payer authorizes the recipient to withdraw funds from their account.
- The recipient initiates the transaction, specifying the amount they want to withdraw.
- The payment system confirms that the payer has authorized the transaction and that they have sufficient funds in their account.
- The payment system transfers the funds from the payer’s account to the recipient’s.
Pull payment is often used in subscription-based services or other recurring payments, where the amount and timing of the payment may vary. It can also be used for one-time payments, such as online purchases, where the payer trusts the recipient only to withdraw the authorized amount. However, it is essential to note that pull payment systems may have risks for both the payer and the recipient, such as the possibility of unauthorized withdrawals or disputes over the amount or frequency of payments.
Examples of Pull Payments:
Here are some examples of pull payments:
- Direct Debit: This is a payment system where the recipient pulls funds from the payer’s account regularly, usually for subscription-based services like utility bills or insurance premiums.
- E-commerce payments: Online shopping platforms like Amazon and eBay allow customers to store payment information and initiate payments through a pull model.
- Mobile payments: Many mobile payment systems like PayPal, Venmo, and Google Wallet allow users to send money to each other by pulling funds from their linked bank accounts or credit cards.
- Automatic payments: Many financial institutions offer automatic payment options where payments are automatically initiated and pulled from the customer’s account, such as automatic loan payments or mortgage payments.
- Standing Orders: A standing order is a recurring payment a customer sets up with their bank. It is a pull payment as the recipient initiates the transaction and regularly pulls funds from the payer’s account.
Push or pull payments: which one to choose?
If you often think to push or pull, which is easier, then you must understand that it depends on the specific context and individual preference.
Push payments involve the transfer of funds from one account to another initiated by the sender. This type of payment can be more accessible for the sender because they have control over the timing and amount of the transaction, and they don’t have to wait for the recipient to request the payment. Examples of push payments include wire transfers, bill payments, and peer-to-peer payments.
Pull payments, on the other hand, involve the transfer of funds initiated by the recipient, who pulls the funds from the sender’s account. This payment type can be easier for the recipient because they don’t have to initiate the transaction themselves and can be assured they will receive the total payment amount.
Examples of pull payments include direct debits and automatic payments.
In general, push payments can be more convenient for one-time transactions or when the sender wants more control over the timing of the payment, while pull payments can be more convenient for recurring payments or when the recipient needs to ensure a regular flow of funds. Ultimately, the ease of what is a push or pull payment depends on the specific needs and preferences of the parties involved in the transaction.
Final Thoughts:
Both push and pull payments are an essential part of the payment industry. Both offer benefits to the business and customer, which you can understand with the above mentioned examples of push and pull payments. However, you only need to remember when to choose the push-and-pull payment method. If you run a business selling products, push payments can be the best choice, as you receive payments as soon as you sell goods. While some businesses offer SaaS-based or recurring payments and collect monthly payments, pull payments can work great for such payments.