Push and pull payments are distinct methods of payment initiation. Push payments prioritise payer control, while pull payments are controlled by your business and allow the automated collection of one-off, recurring and invoice payments reducing late and field payment issues. Understanding this distinction is crucial in selecting the most suitable payment method for specific transactional needs.
The payments industry is continually evolving, and keeping up with new terms and solutions can be difficult. However, getting to grips with core payment vocabulary is imperative to running a business. With that in mind, let’s explore push and pull payments, what they mean, and the difference between them.
Push vs pull payments: definitions
A push payment refers to a payment method where the payer takes the initiative to send money to the payee. In this scenario, the payer assumes control over the payment process, including determining the amount and destination of the funds.
With pull payments, your customer authorises your business to initiate payment collection on an agreed schedule. This puts your business in charge of payment collection, allowing you to set amounts, dates and frequency of collection. However, prior to this, the payer must provide authorisation for the funds to be debited.
Examples of push and pull payments
Now that we understand the basic concepts behind push and pull payments let’s explore some examples.
Push payment examples
Cash is a straightforward example of a push payment. It involves the payer passing over the money to the payee, in full control of the amount he/she is handing over
Bank transfers are another classic example of push payments, as the payer is in full control of how much is being sent and the destination of the funds
Standing orders are push payments for the same reason as bank transfers are, only in this case, the transfers are set up in advance.
Pull payment examples
Direct Debits are clear examples of pull payments as they involve the payer giving permission for an individual or institution to take money from their account at scheduled intervals. It is, therefore, the payee who is in control of the payment amount and the destination.
Cheques are also examples of pull payments. This is a little confusing as the payer writes out the cheque. However, the cheque itself is not actually payment. It’s like a permission slip for the payee to take the funds from the payer’s account. The payee carries out the payment, making it a pull payment.
Card payments are another slightly less obvious example of a pull payment. This is because presenting your card to a payee actually just provides them with the information required to draw the funds from your account. Then the payee will draw the funds, usually 1-3 days later, in a settlement process.
While cards and cheques are considered pull payments, they differ significantly from Direct Debit. Direct Debits offer several advantages that make them ideal for recurring payments. They excel in automation, reducing the need for manual administrative work. They are more flexible and predictable than cheques, offering greater convenience and reliability.
In addition, Direct Debits are more cost-effective than using cards for payments, as they don’t rely on a complex network of intermediaries, each of which adds fees that increase the total price. They provide better reporting and visibility, allowing businesses to easily track and manage their transactions. Direct Debits offer a wide range of benefits, making them ideal for businesses seeking efficient and streamlined payment processes.
Push vs pull payments: pros and cons
Choosing the right payment method involves considering various factors, as both push and pull payments have their own advantages and disadvantages. Let’s examine the pros and cons of each payment type, providing insights into their distinct characteristics.
Push Payments: Convenience and Customer Control
Under push payments, customers can initiate transactions, offering convenience and a sense of control. These payments are well-suited for spontaneous purchases or one-time transactions, as customers can easily make payments without relying on the payee's action. Push payments are also perceived as secure, as customers need to authorise the payment themselves. However, it is essential to acknowledge the challenges associated with customer control, as late payments can become a significant issue.
Drawbacks of Push Payments
One of the primary drawbacks of push payments is the potential for delays when customers have control over initiating payments. These delays can lead to cash flow issues and administrative burdens for businesses. Late payments often result in manual administrative work, requiring businesses to allocate additional time and resources for follow-ups, invoicing, and reconciliations. These manual processes create unnecessary stress and disrupt normal business operations. Moreover, there is an inherent payee risk, as businesses have less control over when funds will be received.
Pull Payments: Enhanced Control and Streamlined Processes
Pull payments offer distinct advantages that address the challenges associated with push payments. With pull payments, businesses take the initiative to collect funds directly from customer's bank accounts, giving them greater control over payment timing. This control ensures timely and predictable cash flow, streamlines administrative processes, reduces manual work, minimises late payments, and provides certainty regarding payment timing.
Speed and Efficiency
Pull payments tend to be faster than push payments due to the payee's ability to initiate the transaction and collect funds directly from the payer's bank account. This enhanced control over the payment process results in faster processing times. In contrast, push payments rely on the payer actively initiating and sending funds to the payee, which can introduce delays depending on the payer's promptness. However, it is worth noting that the actual processing speed can also be influenced by factors such as the payment method, payment provider, and underlying banking systems involved in the transaction.
Overall, both push and pull payments have their own unique advantages and disadvantages. Push payments provide convenience and customer control but can lead to late payments and administrative burdens. On the other hand, pull payments offer enhanced control, streamlined processes, and faster payment processing. Businesses should consider their specific needs and priorities when choosing the most suitable payment method, as it can significantly impact their cash flow, operational efficiency, and customer experience.
Payments with GoCardless
Non-Direct Debit payment methods pose significant challenges for merchants, as they lack control and visibility over the payment process. This often leads to frustrating delays and late payments, causing cash flow concerns and unnecessary stress. The nature of push-based methods, where the payer is responsible for initiating the payment, results in frequent instances of non-action or delayed action.
By leveraging the power of Direct Debit, GoCardless empowers businesses to effortlessly collect payments directly from their customers' bank accounts – a system that is both user-friendly and cost-effective, catering to both recurring and one-off payments.
With Direct Debit, businesses regain control over incoming payments. They dictate the payment amount and date, ensuring timely and predictable cash flow. By shifting to this pull-based approach, businesses can say goodbye to late payments and all associated anxieties.
Key Takeaways
Push payments involve the payer initiating the transaction, providing control and convenience for customers. However, late payments can be a significant issue, causing cash flow concerns and administrative burdens.
Pull payments, such as Direct Debits, allow the payee to initiate the transaction and collect funds directly from the customer's account. This gives businesses greater control over payment timing and reduces manual admin and late payments.
Pull payments are generally faster than push payments, as the payee has more control over the transaction process. Factors like the payment method and underlying banking systems can also influence processing speed.
Non-Direct Debit payment methods lack control and visibility, leading to delays, late payments and cash flow issues.
Push payment methods can experience high failure rates (10 - 15%), whilst bank payments such as Direct Debit enjoy much higher success rates – GoCardless collects 97.3% of Direct Debit payments on the first attempt.
GoCardless offers a user-friendly and cost-effective solution, enabling businesses to collect payments from customers' bank accounts automatically. By leveraging Direct Debit, businesses regain control over incoming payments, ensuring timely and predictable cash flow and eliminating the stress associated with late payments.
Partnering with GoCardless and embracing the pull-based approach of Direct Debit allows businesses to overcome the challenges of push payments, automate their payment collection processes, and experience a smoother and more efficient payment experience. And consumers are protected, too, by the Direct Debit Guarantee.
Case Study: Perky Blenders
Perky Blenders has achieved remarkable growth in seven years, establishing multiple coffee shops, an online subscription service, and a thriving wholesale supply business. Throughout their journey, they have found immense value in adopting GoCardless for their payment collection processes, resulting in significant benefits for the business and its customers.
Co-founder Adam Cozens expresses his initial impression of GoCardless, highlighting its superiority over other options:
When I found GoCardless, it seemed miles ahead of anything else. We took a closer look, and its simplicity and usability shone through. We knew customers would trust it and that we’d be able to onboard them quickly.
Victoria Cozens, another co-founder, further emphasises the advantages of GoCardless and its seamless integration into their customer sign-up process:
The benefits of GoCardless, where do I start? They're excellent. When we onboard customers, GoCardless is very much part of the sign-up process. An online form simply links to GoCardless, and it's all really seamless and effective.
Adam and Victoria emphasise the value of offering direct bank payment options, recognising it as an expectation from larger businesses and a reassuring service to provide as a small business. They have received positive feedback from customers who appreciate the convenience and ease of managing payments through direct bank payments. Additionally, by using GoCardless, Perky Blenders has estimated savings of around £20,000 in administrative costs, highlighting the tangible benefits the platform brings to their business, Victoria explains,.
It just cuts down so much time, time on the phone, time chasing emails, time following up. I think I estimate that I save personally two days a week of work just by using GoCardless.
In summary, Perky Blenders' journey of growth and success has been accompanied by their adoption of GoCardless for efficient payment collection processes. The simplicity, trustworthiness, and seamless integration of GoCardless have allowed them to onboard customers quickly and effectively. By offering direct bank payment options, they have met customer expectations and improved cash flow, resulting in significant savings on administrative costs and substantial time savings for the team.
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Setting up payment collection is fast and efficient with GoCardless. By automating the payment collection process, GoCardless drastically cuts down the administrative responsibilities of managing and tracking invoices for your team.
GoCardless makes it quick and easy to get started with no contracts or long-term commitment required. You can set up instant, one-off, or recurring payments in the merchant dashboard in just a few clicks. GoCardless automatically creates and sends all the necessary forms, doing all the heavy lifting for you. You can also connect to GoCardless via over 350 partner apps, such as Xero and Quickbooks.
Discover how GoCardless can automate payment collection, making it easier for you to concentrate on what matters most - your business growth.
FAQ: Push vs Pull payments
Which is better pull or push?
First of all, it's important to note that the suitability of each payment method depends on the specific context and requirements.
Pull payments, where the payee initiates the transaction and controls the payment process, offer convenience and flexibility. On the other hand, push payments, initiated by the payer, provide greater control over the transaction, including the amount and destination. Ultimately, the optimal choice between pull and push payments relies on transaction security, speed, and individual preferences.
What is an example of a push-and-pull transaction?
Regarding online payments, a prime example of a push-and-pull transaction can be observed in the interaction between an e-commerce customer and a merchant.
When a customer initiates a purchase by selecting items and proceeding to the checkout page, they typically employ a push payment method such as a credit or debit card. At this point, the customer "pushes" the payment to the merchant by providing their card details and authorising the transaction. In response, the merchant, acting as the payee, undertakes a "pull" action by retrieving the funds from the customer's designated bank account through a secure payment gateway.
This dynamic is a perfect example of the interplay between push and pull payments within a transaction, showcasing the seamless fusion of these methods in modern digital commerce.
What is the difference between push to card and pull from card?
The distinction between push to card and pull from card lies in the direction of the transaction and the parties involved.
In a push-to-card scenario, the payer initiates the transaction by pushing funds from their account to a specific card recipient. This method offers the payer control over the payment process, including determining the amount and recipient. Pull from card refers to the payee, such as a merchant, initiating the transaction by pulling funds from the payer's card. Here, the payee obtains authorisation from the payer to withdraw a specified amount.
While both methods involve card payments, the main difference lies in the initiation and control of the transaction, with push to card emphasising payer control and pull from card emphasising payee authorisation and initiation. These distinctions empower businesses and individuals to select the approach that best suits their specific payment needs and preferences.
Is Blockchain push or pull?
If we examine the role of blockchain technology in payment systems, it’s important to understand that blockchain can incorporate both push and pull mechanisms.
In a blockchain-based transaction, a push action can be observed when a sender initiates and authorises the transfer of digital assets to a recipient. This reflects the control and authority exercised by the payer in the process. However, blockchain can also incorporate pull functionality, wherein a recipient can request and obtain funds from a specific sender by generating a payment request or smart contract. This allows the recipient to control the payment process and initiate the transfer.
Consequently, blockchain technology can encompass both push and pull elements, offering a versatile and secure foundation for various payment scenarios.
