The way consumers pay and receive money is radically changing. Consumers are familiarized with making payments in real-time, using cards and wallets. As a result, their expectations about the way they receive their money is also shifting.
Initially, consumers did not have a simple solution for sending payments to each other. However, non-financial institutions stepped in and created solutions for consumers to “push” payments to one another.
So what are push payments?
Push, also known as credit, transactions are those where the payer authorizes their bank to send funds from their account to the recipient’s account.
Some of the many benefits of push payments are that they are not as risky and they are quick. The payer determines when the funds are ready to initiate the payment. Moreover, the bank will instantly decline the transaction, should the payer not have enough funds.
Push payments used for wire transfers, mobile peer-to-peer (P2P) services, and direct deposits for payroll. Employers use push payments to send payroll funds from their company account to their staff’s bank accounts.
This is in direct contrast to traditional pull payments, where the payer needs to provide either a signature or PIN number, authorizing the recipient to remove funds from the payer’s account. Common forms of pull payments are the use of checks and debit cards. They are also utilized for ongoing purchases such as subscriptions and utility bills.
Pull payments are riskier in that the owner of the account may not know when the funds will be withdrawn from their account and may not have sufficient funds to cover those costs. Also, this type of payment requires payees to share sensitive information such as bank account numbers, that can be vulnerable to fraudsters.
Why Push Payments Are Good For Lenders
Alternative lenders have been early adopters of this “instant push payment technology” because of its online and digital structure. They value speed and efficiency. They have streamlined the underwriting process by reducing it from the standard days and weeks to only hours, even minutes. More of these lenders are looking for ways to cater to their customer’s specific needs. Alternative lenders are also not bogged down by complex infrastructures and therefore have a technological upper hand.
The same cannot be said about large banks as they have systems and infrastructures that are dictated by regulation and other compliance issues. This inevitably makes it challenging to adopt these new technological advancements in payments.
With push payments, consumers are able to apply, get verified, get approved, and have access to the loan within the same time frame it takes to receive an approval or denial from a traditional lender.
Offer Simple Solutions In A Fraction Of The Time
Many players in the financial world are beginning to see the benefits of adopting real-time push payments. The application is streamlined, secure, less of a hassle, and delivers the much-needed funds to the consumer or business so that it can be used instantly. It would be of great benefit if more lenders can adopt this emerging technology.