Think about how you currently check out online at Best Buy. In every checkout scenario Best Buy (ApplePay etc) charges your credit or debit card and “pulling” (called a debit) money from your debit or credit card.
People assume that money you charged from your purchase goes directy from their credit card to Best Buy’s bank account. What actually happens is that the payment processor Best Buy has partnered with gets those sale proceeds and then in turn pays out to Best Buy’s bank account via an ACH credit. There is always a bank or payment processor intermediary acting as both the sale proceeds receiver and paying out the end merchant (Best Buy).
Every sale Best Buy processes might potentially result in a chargeback. An example would be the item arrived damaged and you could not get a refund. You could call your credit card company or use their online portal to challenge the debit, explain the situation and see if they will credit your money back.
Someone could have used your credit card fraudulently. If this happens your credit card company or the issuing bank (they “issued” your credit card) pulls the money you paid back from Best Buy’s payment processor (the acquiring bank). The acquiring bank, again acting as the middle manein turn, pulls money from the Best Buy bank account.
Best Buy and all mainstream retailers are very good at managing chargebacks and fraud. But think about a business selling higher risk products or services, eg Adult or telemarketing, psychic readings etc. You can see the chargeback risk (and fraud risk) become elevated. Businesses and processors (mostly 3rd party processors) can and have lost BIG money from chargebacks from poor product fulfillment and fraud (both friendly and malicious).
Fundamentally the chargeback risk occurs because someone reached (eelctronically) into your account and pulled money out. The consumer has recourse for unauthorized debits as well as disputing fulfillment or the merchant’s right to debit. 60 days is a common dispute window time frame although fraud extends this time frame much longer.
An additional significant challenge for online retailers is that credit card decline rates are frequently over 15% with some industries exceeding 25%. If you accept credit cards for online purchases, this is a reality. The challenges to the retailer are number 1-you are only collecting on 90% of your potential sales and number 2-that might be your last chance with that customer. False declines (not approving a valid credit card charge) costs businesses hundreds of millions of dollars per year.
The solution is to reverse the payment originator and eliminate the need for a merchant account. Essentially the consumer initiates a push payment from their bank account. There is no Merchant Account whereby a payment processor receives the sale proceeds from the consumer and in turn (24-48 hours later) funds the business.
And you are asking, HOW?
There are many Fintech providers that allow for “bank data aggregation”. Essentially that means they provide technology that enables merchants to connect a consumer’s bank account to their application. An example would be a property management application that enables rent collection. Using Yodlee/Plaid/Finicity etc, the platform enrolls the tenant by having them “connect” their bank account. This is done via a “lightbox” that pops up and asks the consumer to log in their online bank account.
Once done the property management application can check balance, payment history etc. They can also future check bank account balance before a debit, thereby reducing NSF risk.
New technology takes this one-step further and once the consumer connects their bank account they are then presented with an option to push or send the payment from their bank account. This PushPayments run on the same network as Zelle or PopMoney network rails and uses Real-Time Payments (RTP).
***Note: PushPayment Solutions we are discussing are geared to non face to face transactions. PushPayments do have a use case for Point of Sale transactions.
What are Real-time Payments (RTP) and how do they differ from traditional payments schemes?
First, in contrast to ACH processing, RTP supports credit or push payments only. There is no ability to debit another bank account using RTP. The core RTP functionality is that it enables instant funds transfer.
Payments are final when completed and cannot be reversed.
This instant settlement eliminates payment failures due to insufficient funds, which is relatively common in the ACH world. When a business uses ACH processing to debit a customer’s bank account for a regular payment and that bank account doesn’t have the requisite funds, their bank sends the ACH network notice that the debit was returned NSF. This NSF notice cab come back 72 hours from the payment being processed. Because RTP are creditor push payments, there is no risk of payments failing due to insufficient funds.
Your bank won’t let you send money you don’t have in your account so payment declines are eliminated as well, meaning no possible NSF.
The technology also eliminates the need for a merchant account. As long as a business has a bank account they can receive push payments from their customers.
PushPayment solutions or Consumer Permissioned Payment Solutions connect the consumer’s payment directly to the business bank account.
PushPayment | Consumer Permissioned Payments Use Cases
Why are PushPayment | Consumer Permissioned Payments the answer for high risk business payment needs?
Higher risk businesses can typically obtain a business bank account. What is problematic and challenging is obtaining a merchant account. Traditionally a high-risk business would apply (usually multiple times) to obtain a conventional merchant account. By conventional we are referring to accepting credit card payments via debiting the consumer’s card.
Oftentimes a $ reserved is collected up front to mitigate chargeback risk. Other measures to mitigate risk might be weekly or bi-weekly payouts. By paying out less frequently the payment processor reduces chargeback exposure. Chargeback ratios are typically capped at 1% and overage can mean your account is terminated. This often creates a hamster wheel of trying to obtain another merchant account.
PushPayment | Consumer Permissioned Payments solve this problem in a singularly unique way.
Yes-the consumer is providing express permission to pay for an item or service
Anyone can provided they use a bank that participates in the RTP network and the entity being paid also has a bank in network
There are high-risk business types that are ineligible. This includes adult, credit repair, basically the usual suspects that typically must rely on high-risk merchant accounts. Crypto and legal betting ARE eligible. All businesses must be US domiciled.
Typically 50 cents to a $1+.
To start we would have a conversation about your business. If everyone agrees you complete an application (similar to a merchant account). Because the risk involved is mitigated by finality of payment and certainty of good funds the primary risk concern is reputational. Eg “Could your business damage the reputation of either the banks involved or your Push payment tech partner”?
To be able to use PushPayments as a payment channel both you and the paying customer need to have a bank account at an in-netwrok bank that participates in the Real-Time Payments network. If you have used Zelle or Pop Money the payment rails are the same for PushPayments.
For more info visit AgilePayments.com/PushPayments