If you’ve attended a Glenbrook Payments Boot Camp®, chances are good that you remember reviewing push and pull payments during the key concepts. The determination for whether a transaction is push or pull comes down to who is sharing their payment address. If the receiver is sharing, it is a push payment. If the sender is sharing, it is a pull payment. But what if the sender and receiver are not personally involved in initiating the transaction?
Russ Jones joins George Peabody and Yvette Bohanan on this episode of Payments on Fire® to talk about delegated push payments, where another party has permission to initiate a push transaction on the sender’s behalf. Listen in as they discuss the nuances around delegated push payments and the use cases for these transactions.
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George Peabody:
Welcome to Payments on Fire, a podcast from Glenbrook Partners about the payments industry, how it works and trends in its evolution. I’m George Peabody, cohost of Payments on Fire. Really glad to be here with you and with Yvette Bohanan, co-host of Payments on Fire. Hey, Yvette, great to see you.
Yvette Bohanan:
Hi George. Wonderful to be here and I am so, so excited because we have a super special guest on this podcast.
George Peabody:
You can’t have said it better. My favorite guest of all time on Payments on Fire is always Russ Jones, who is, well he’s the squadron leader of the education program at Glenbrook. And Russ has a unique ability to really explain the complexities and nuances in this business. And Russ, let me get to you first. Great to have you here.
Russ Jones:
George. It’s always a delight to be on Payments on Fire.
George Peabody:
So where I was going was, in the boot camps and just in our general work and consulting work with our clients, when a question comes up often, the answer is, it depends. And it depends on the context of the transaction circumstances, who is running the transaction. And today we’re actually going to be talking about one of the key concepts that we have always started our boot camps with, which is the distinction around push and pull payments. And in particular, we’re going to be talking about delegated push payments, where another party is pushing money on our behalf. And really want to make a clear distinction between that and what is a traditional pull payment, where that other party is actually pulling funds from our own accounts in order to affect a transaction.
George Peabody:
And this question has come up largely, well for a couple of reasons, one, is there are many more actors in this space today who have the ability to affect a transaction on our behalf. And it’s also, underneath that is the fact that we now have more payment systems that operate on a pull basis. I’m sorry, what am I saying? We have more transactions that are operating on a push basis-
Yvette Bohanan:
On a push basis.
George Peabody:
Thank Yvette. Yeah, slap me around a little bit.
Yvette Bohanan:
Regulators like push payments, systems are being designed because of the ease with which we can now push a payment to have a push initiation of a payment transaction.
George Peabody:
So, Yvette, explain why regulators are actually liking push payments?
Yvette Bohanan:
Well, a lot of people in the world prefer to pay with money that they have, first of all.
George Peabody:
Okay.
Yvette Bohanan:
And when you have money, one of the things that regulators like to do, is allow the person or the business that is in control of their funds, to decide when they pay, who they pay, how they pay. Give the consumer, the business that owns the funds, the control. And with digital technology, for digital payments, our cell phones, the way things work today, it’s a lot easier to allow people to do that. It was a lot harder 20, 30 years ago than it is now.
George Peabody:
Right.
Yvette Bohanan:
So the technology is tilting in that favor. And the regulators are saying, the person whose money it is, who owns that funding mechanism, the funds in account, should be in control of releasing those funds to the other end party of the transaction.
George Peabody:
So let’s ground that if I’m using a system like Zelle, it’s a push payment. I write, I’m authorized-
Yvette Bohanan:
It’s a push payment.
George Peabody:
I log into my account. I find the party to whom I want to send the funds and I initiate the transaction. And the Zelle network completes that transaction on my behalf.
Yvette Bohanan:
Right, Zelle like any account to account fast payment system, works that way. And it’s great for the person who’s in control of the funds or the business, whatever, so the sender. But there are use cases out there, in certain domains, where this is a headache, where people don’t like it, subscription payments. If someone signs up for a subscription service, the receiver likes to be able to just pull funds when that subscription payment is due on a regular basis. It’s magical for the receiver to pull that money. It could be magical for the sender, but it could be a real headache, if they want to stop that.
George Peabody:
I’ve got a half a dozen streaming services that just love pulling money out of my account on a regular basis.
Yvette Bohanan:
Absolutely. They don’t want you to have to think about whether or not that streaming service is giving you value this month or last month, or if you watched any of those movies or listened to any of that music. They want to just keep on keeping on, from a subscription revenue perspective.
Russ Jones:
The idea that you’re pulling money in a subscription scenario is actually a very US centric view.
Yvette Bohanan:
It is a very US centric view.
Russ Jones:
In a lot of countries around the world. I mean, people love subscriptions. People love to sell through subscriptions. They love to buy through subscriptions, but in some countries around the world, people prepay for subscriptions. They push money to the provider in order to purchase a subscription and the US market, they’d be like, you’re doing what right? But it’s a popular way to pay around the world. And we shouldn’t be too cavalier in our assumptions about what’s the right subscription model because they all work.
Yvette Bohanan:
Exactly. And so, but here we are, and there are people bemoaning this sort of shift from pull to push payments. And there are people who think that push payments are pull payments because of the way they look to the, we’ll call them the casual observer, and Russ, here’s where you get to unpack it for us.
Russ Jones:
Okay, let’s go back here. So, this is like we do a 12 hour payments boot camp. This is probably like slide four or slide five maybe, it’s what’s the distinction between pull and push. And it’s really, it gets down to, simplistically, the two counterparties, the sender is the receiver, is the payment initiated by the sender? In which case it’s push. Or is initiated by the receiver? In which case it’s a pull. And the thing that really gives it away is who shares their payment address. If the receiver shares their payment address to the sender, then it’s going to be a push they’re saying, send the money to me at this address. If the sender shares their payment address to the receiver, they’re saying pull money from me at this address. So, that’s the real simple idea. And it cuts across all payment systems in every country and every flavor of payment system.
Russ Jones:
So where it starts to get, where people get hung up on this, is there are scenarios where the sender or the receiver is not personally involved in initiating the transaction. So it happens on the pull side. It happens on the push side. You could initiate the transaction as the sender, or you could delegate someone else to do it for you. And that’s where it gets subtle. And I think where it gets interesting. So there’s a couple examples of this, and these are real world scenarios we hear people talk about all the time. The domestic wire systems, in fact, all wire systems are push based systems. The party with the money is authorizing, initiating payment to the receiver. And in some wire systems, there’s the idea that you can delegate that to another company and you enter into a contract with them and you give them permission to initiate the push transaction on your behalf.
Russ Jones:
So in the world of wires in the US, you have a fed wire draw down transaction where, typically the way it’s done, is the party who’s going to receive the funds is contractually given permission to initiate the push from the senders bank account. It doesn’t mean it’s a pull. It’s a delegated push, where the terms and conditions for initiating that push are spelled out in this contract. So that’s an example of how some people would confuse push and pull because, wait a minute, it’s the receiver who’s initiating it, but they’re not initiating a pull. They don’t know the senders bank accounts. They’ve been delegated the right to initiate the payment by the sender. The other place we see this is in fast payments, where there’s a big rise around the world for billers and merchants to initiate a request to pay. The request is sent to the sender and they initiate a push payment in response.
George Peabody:
So the request to pay is simply sort of an electronic invoice, almost.
Yvette Bohanan:
Essentially, yeah.
Russ Jones:
It’s a request to push.
George Peabody:
Request to push. Yeah. I love that distinction.
Russ Jones:
It’s a request to push. So in some countries, not yet in the United States. In some countries, the systems are sophisticated enough to let the account owner delegate the authority to push to somebody else. So here’s an example, in Australia, using their fast payment systems as a consumer, you can establish the rules. You can give your bank permission to push money to a biller on your behalf. You’re not involved in it. You don’t have to know what’s going on. All you have to do is tell them the conditions under which they’re allowed to initiate payment in response to a request to pay. So you might say something like, if my utility provider sends me an invoice and it’s between this amount and that amount, and I haven’t seen an invoice like this in 30 days, please pay it on my behalf, on the day it’s due. So now the consumer is not involved in that push transaction. They’ve delegated the authority to initiate the push to their bank. That’s not a pull payment, it’s a delegated push payment.
Yvette Bohanan:
So the utility company in this example, the receiver of the funds, the payment, is not pulling the money, they’re requesting a push?
Russ Jones:
Yes, that’s exactly right.
Yvette Bohanan:
The finality then, of that payment, when you say it’s initiated by the sender, that has implications. When you say it’s not really a pull transaction, people are a little murky here.
Russ Jones:
Yeah. You can’t go back to your bank and say, I don’t recognize this transaction, in this scenario, the bank’s going to say, you don’t recognize the transaction? You gave me the legal right to initiate this transaction on your behalf. You asked me to do this.
Yvette Bohanan:
Right. So this sort of, “I don’t recognize that I didn’t intend for this to happen. Somebody pulled money out of my account and I didn’t know about it. I never gave them permission.” All of that goes out the window.
Russ Jones:
Yeah, so that’s all goodness. Right?
Yvette Bohanan:
Well, it’s goodness, in the sense that we have a lot more certainty, which means you can have that finality.
Russ Jones:
Yeah.
Yvette Bohanan:
Also goodness, that once that money, that payment is initiated, by whoever the sender is delegating that to, the receiver knows they have good funds. They’re not waiting around thinking, is there really going to be money there when I pull money from this account? When the instruction hits the account to pull the funds, money may or may not be there, classically.
Russ Jones:
Right. And they may or may not have permission to do so.
Yvette Bohanan:
Right. So you’re not going to have that. So the characteristics of the transaction are fundamentally different here.
George Peabody:
What impresses me about this is that it’s a combination of the technology, the fundamentals of the payment system. Plus the contractual terms that governance use. And it’s that combination that makes this delegation possible, gets delegated.
Russ Jones:
But these are still push payments because it’s the sender is sharing the payment address with, or the receiver is sharing their payment address with the sender. They’re saying, pay me this amount at this address. And it just so happens that the account holder has delegated the authority to do so to their bank. When certain conditions are met, now, if the bank were to initiate a payment outside of those conditions, they’re making a mistake.
Yvette Bohanan:
Right. And so the receiver in a pull payment would know the sender’s account details and all that. In this case, it’s the sender who knows the receiver’s account details.
Russ Jones:
Right. Which makes everything more secure and has better integrity and stuff like that. So this idea of delegated push payments, you see it on the blockchain too. In all blockchain based payment systems really, there’s this concept of a smart contract. And the person who’s the sender, who’s going to send value to the receiver, enters into a smart contract between the sender and the receiver. And when certain conditions are met, the blockchain is going to, has been delegated the authority to push the money from the sender to the receiver. So there’s no scenario in blockchain payments where a receiver can pull funds out of somebody’s wallet.
Yvette Bohanan:
Pull the token out from underneath them, so to speak. That’s not going to happen.
Russ Jones:
That’s exactly right. So it’s kind cool in blockchain based payments because in that fed wire drawdown scenario, that’s an actual contract that’s signed by the counterparties. It’s like there’s lawyers involved and stuff like that. In the blockchain based payments, it’s all code, but still it’s delegated, the authority and permission to push, is delegated through the smart contract to the blockchain itself.
Yvette Bohanan:
By the sender.
Russ Jones:
Yeah. By the sender.
Yvette Bohanan:
So to really, our pro tip, our hidden pro tip here, that’s sort of like, we’re stating the obvious, but just to be crystal clear is, whose account information is being shared?
Russ Jones:
The receivers.
Yvette Bohanan:
Right. Number one. And if it’s the receiver’s account information, ta da, push payment.
Russ Jones:
Push. Yeah.
Yvette Bohanan:
And who’s doing the delegation, who’s saying “You have permission to push and initiate this transaction.”?
Russ Jones:
The sender.
Yvette Bohanan:
If it’s sender, it’s a push payment. Because your delegate is the delegate of the sender.
Russ Jones:
That’s right. So pro tips, sniff test, is this push or pull. If you can answer those two questions, you’re onto something here. But then all the characteristics that lead you into the finality of the payment, is this good funds, what kind of dispute process are you going to have to have around this? How are you going to handle things? All of that, kind of falls out to what it’s going to be, because of it’s a push transaction.
Russ Jones:
Yeah. And this distinction between push and pull is so fundamental in the world of payments, because everything you just mentioned about, is derivative of whether or not it’s a push or pull payment.
Yvette Bohanan:
Exactly. Precisely. So don’t be fooled, folks.
George Peabody:
Precisely.
Yvette Bohanan:
When you read in the press that some sort of transaction in a fast payment system is a pull transaction. Hmm, take a step back and look at what they’re saying because-
George Peabody:
And tell them to listen to this podcast.
Yvette Bohanan:
Yes. Point them to the podcast. Russ will break it down.
Russ Jones:
It’s a distinction that should matter to payment professionals, not the average everyday person.
Yvette Bohanan:
It should matter to payment professionals, for sure. That’s why we’re talking about it. But it has pretty interesting ramifications to people, even if they don’t quite understand the mechanics, right?
Russ Jones:
Right.
Yvette Bohanan:
And some good features of benefits here. So it’s a brave new world we’re moving into.
George Peabody:
All right. Well, thank you for this clarity on the key port of the brave new world, the key distinction.
Russ Jones:
The other thing that’s not quite as interesting as delegated push payments, is delegated pull payments. In the world of subscriptions, it’s very typical that a company using a subscription model will say, here’s my customer’s card, or here’s my customer’s bank account. And delegate the authority to another company to periodically pull money out that bank account.
Yvette Bohanan:
What are some examples of that other company?
Russ Jones:
Well, it could be a payment service provider that offers a automated recurring subscription product.
Yvette Bohanan:
Service.
Russ Jones:
Yeah. Service. And it’s like, the scenario is real straightforward. You’re a company using a subscription model. Let’s say you’re the local gym. And somebody signs up for an account and they give you their payment details. They’re sharing their payment address. So you know these are pull payments. They’re sharing it with the gym. They’re telling the gym, on the first of the month, pull my $99 out of my bank account, or pull it out of my credit line. The gym, isn’t thinking, “Oh boy, when the first of the month comes, we’re going to roll up our sleeves and we’re going to initiate a ton of transactions.” They’re not thinking that at all. They’re going to take that one card and they’re going to tell a payment service provider, “I’m delegating to you the responsibility to initiate a pull transaction out of this account on the first of each month. “
Yvette Bohanan:
And I’ve been given permission by the account holder to do that.
Russ Jones:
To do this for a never ending basis or to do this one year or do it for three months or whatever. So they’re delegating the responsibility to pull, to another party. So this is what makes payments, so sometimes challenging, to get your arms around because at a real layman’s level is the sometimes hard to tell who’s really initiating the payment. There’s the famous example with the check. Is it the check writer handing the check to the counterparty or the counterparty depositing the check at an ATM machine that initiates the pull? Seems like a push. So, you have that level of confusion. And then even when you’re clear about push versus pull, you can get tripped up in the delegation to another party.
Yvette Bohanan:
So checks are pull just to be clear. If I asked my husband to go to the bank and deposits the check that you sent me, Russ, I just delegated a pull payment to my husband.
Russ Jones:
That’s right.
Yvette Bohanan:
Okay.
George Peabody:
Heaven help him if he fails in that deal.
Yvette Bohanan:
Yeah and Russ, I don’t know what stone age environment you’re living in, that you actually deposit checks at an ATM because I do everything from my house.
George Peabody:
That’s right.
Yvette Bohanan:
Through my mobile phone app these days.
Russ Jones:
Hey, the ATM is one of my favorite things. It’s one of the few robots developed by the banking industry.
George Peabody:
Right. Well, that’s a whole another topic.
Yvette Bohanan:
That’s another topic for another day. Let’s just stop.
George Peabody:
That’s right. Well, thank you both making this delegated push payment distinction clear. If you’ve got any questions. Well, write us at paymentsonfire.com and if you’ve got other questions you’d like us to address, paymentsonfire.com is a place to go. Of course, if there are topics you’d like us to handle as well, same address is what we need you to use. So Russ, thank you very much.
Russ Jones:
Thank you, George.
George Peabody:
We’ll see you next time. Yvette, we’ll see you next time.
Russ Jones:
Looking forward to it.
George Peabody:
And we look to having you back as listeners to Payments on Fire. So until next time then, I hope all’s well. Do good work. We’ll see you then.
Russ Jones:
All right. Bye.
Yvette Bohanan:
Take care.
