Pull vs. Push Transactions

Essentially all transactions fall into one of two categories, pull or push. In this video, I will explain this simple method of classifying transactions which will help you understand payments better.

What are pull and push transactions?

A fundamental principle of classifying a transaction as a pull or push is simple. In any given transaction we have buyer and seller, or payer and payee. In a typical payment transaction, the funds flow from the buyer’s account to the seller’s account. When the buyer provides the credentials of his/her account from which the money will be transferred to the seller’s account and then the seller initiates the transfer from the buyer’s account, we call this a pull transaction.

Unlike in pull transaction, in push transaction, a seller provides his/her account credentials to the buyer and then the buyer initiates the pushing of the funds to the seller’s account. The difference between push and pull transaction may seem very insignificant, but as we will learn later that difference has very significant implications.

The following is a list of the most popular payment methods in the US.

As you can see most payment methods fall under the push category, and there is a reason for that. For “Pull” transactions to work both the payment origin bank and receiving bank need to use the same protocol or be on the same network of some sort. Getting the banks to integrate into a new network is a very challenging endeavor.

The most notorious example of a pull transaction is a credit card transaction. The buyer provides credit card information to the seller and then the seller subsequently uses that information to pull money from the buyer’s account. And to do that seller’s payment processor, be it Stripe, Paypal, or any other, uses a credit card network. To learn how these credit card networks work subscribe to this channel so you don’t miss the future videos that will cover this topic.

If you’ve used Zelle in the past then you’ve experienced the push transaction in action. With Zelle, you acquire a phone number or an email address of the recipient which is associated with their Zelle account. And then you initiate the transfer of the funds using bank’s website or a mobile app.

Pull Transaction: Use Cases, Pros, and Cons

The most significant advantage of a pull transaction is the control that it provides to the seller. This is why Credit Card payments are the most popular with eCommerce transactions. Merchants have control over the amount that they can pull from the buyer’s account. In addition, merchants receive instant confirmation of the payment status. This fact greatly simplifies order processing. Once the payment is confirmed the order can immediately be dispatched for further processing.

The prospect of being able to pull money from someone’s account is very attractive for actors that are engaged in all sorts of fraudulent activities. Since all you need is account information to pull money, it doesn’t require much effort to carry out the fraud. Fortunately, year after year payment processors along with card issuers are getting better at detecting fraud and eliminating it. That comes with the cost of card transactions becoming more and more complex.

Another disadvantage of Pull transactions worth mentioning is that usually Pull transactions fall under stricter regulation rules. Your business will likely be rejected if a payment processor determines that it falls under the high-risk category.

Push Transaction: Use Cases, Pros, and Cons

Unlike in a “Pull” transaction, in a push transaction, the payer is in full control. The payer determines when and how much to transfer to the seller. Needless to say, that is very beneficial for the payer but creates many challenges for the seller. Nothing prevents the payer that intends to pay for goods or services from putting in an erroneous amount. That creates even more challenges in how to handle these types of cases, especially if additional transactions result in additional fees. Sellers would have to inform a buyer about how these types of cases are handled and who is responsible for incurred expenses. In eCommerce, this introduces a delay and additional friction for sales. A buyer is required to access his/her account and put in the correct destination account information as well as the correct amount. Very often the interface for these actions varies drastically from one platform or bank to another. For non-tech-savvy users, this poses a great challenge.

Luckily, technology doesn’t stand still and constantly evolves. More banks and platforms make push transactions simpler by pre-filling the required information and leaving only the confirmation step for the user to complete.

Conclusions

There isn’t the best payment type. All payment types have their advantages and tradeoffs. The choice of the right payment types for your business should be dictated by your business needs. Many payment processors today offer a variety of payment types they can process you can choose from. To learn more about a specific payment type search for it in our “insights” section.

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