The Almighty Pull or Push Play in the Payments Market
Even in this constant ever-evolving world of payments security, whether it is driven by complex encryption algorithms or the need for it, an underlying key fundamental force plays an important role for the business market it would sustain. While business models continue to evolve, the success is governed by the market’s underlying key fundamentals in which it must comply. In the US, the market evolved with lending being an option. In India, a traditionally cash-driven market had to be adopted to the lending model. The key fundamental payments building blocks, based on worldwide regions, can be broken down into two commonly known forces – “pull” or “push”.
In a pull model, the merchant or payee to receive the payment makes a request to get the funds or signifies a pull of the funds. The payer in this case approves the payment. In a push model, the payer pushes the payment to a payee to receive the payment. While the end result for the payee and the payer is same with respect to the payment made, there is a significant basic difference on these two forces and to the operational model. This creates an interesting natural growth on how the business starts to evolve around the key fundamental forces acting as the nucleus.
To really understand what’s happening, you might have thought that payments in the non-cash retail payment market were mainly governed by the compliance bodies or agencies. However, there is an underlying force that actually drives what we know as the payments market. Let’s contrast it with two regions for our conversations – countries in North America, primarily the United States (NAM) or India (APJ) regions.
In NAM, the non-cash payment market (payment by credit/debit cards) has been mainly based on the pull model, which enable the growth of a subscription model. That is payment is initiated by the end payee or most commonly the merchants. The issuer or bank of the payer then approves the transaction based on the funds availability and other security rules. Due to the model, by inheritance, there is a possibility of error or payer not being aware of the transaction (such as an overcharge or fraudulent charge) which creates the need for further rules to ensure the payer satisfaction level. This current model benefits the payee by enabling a subscription model payment method as a convenience for repeated service and charges. Subscription methods create the event where the payer didn’t want the service and a charge back is then initiated.
The payment market in India, for non-cash payment market (credit/debit) is biased towards the push model. In this model the funds are pushed from the payer account to the payee. This model by design insures the availability of the funds and further, the acknowledgement of the transfer that is being initiated. India, which grew from a cash based economy, lacked a well-connected mature system of associating a credit score to an individual. However the market itself grew and evolved further due to the need for internationalization and commercialization, still keeping the underlying force – .i.e. “push” – as the nucleus. Due to the push model, India and like regions have multiple payment and settlement systems under the Payment and Settlement Systems Act, 2007 (PSS Act). These payment and settlement systems introduced new payment methods such as Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT), and Immediate Payment Service (IMPS). Visa and MasterCard also introduced QR codes where the code is scanned at the terminal thus assisting the push model. The friction that the customers in India faces is the lack of subscription payment options where simple recurring items such as TV cable, high speed internet, etc. could not be setup for subscription payment. However, India is changing based on the influence from other markets using a pull method.
As the payments landscape evolves – less payments disruptions and friction and more customer satisfaction – there is a greater need to ensure a true payment ecosystem, and the security protections that go with it. A true payment ecosystem should solve the complex regional payment boundaries that cause friction to the users and the business providing the service. It is hard to predict how the markets will continue to evolve but perhaps the two forces – pull and push – can be combined to form a new force that benefits the world as one. That we as complex beings will ultimately enjoy.
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