In the payments industry there is a lot of jargon spoken and a lot of unnecessary complication that try to make the whole world seem more than it is. Take for example the Single European Payments Area (SEPA) initiative. Here the governing body, the EPC, has perpetuated this state of affairs by creating more and more ‘types’ of payments so now we have SEPA credit transfers, direct debits, business to business direct debits, card transactions, e-payments, m-payments… the list goes on. But what is clear is that the core of every payment method boils down to four basic types – regardless of whether it is paper or electronic.
First, let us consider what a payment actually is. In essence, I have some money. I need to let you have the money – either in exchange for goods or services, or to settle a societal debt (such as dependence), as such I am the payer and you are the payee. Here we can define the first two types of payment – push and pull. Push means ‘I give you money’ – this is a traditional cash payment or ‘credit transfer’. Pull means ‘you take the money’ – this is a traditional debit payment. Push payments have implied consent and Pull payments require some form of consent to be registered, such as a direct debit mandate.
The third type of payment is a Mutual or Third Party transaction – this is where the transaction takes place with both a Push and Pull. In a Mutual transaction, the payer uses a method to give the money to a third party (usually with a notification to the payee) and the payee uses this push transaction notification to take the money from the third party. A common example of Mutual payments is a card transaction, whereby the payer uses their third party credentials (card) to push money to the payee (merchant) and the merchant pulls the money from the card scheme, who subsequently pull the money from the payer. This method also applies to cheque payments.
Finally, we have Deported or Complex payments. As the name suggests these are a combination of the other three payment methods to create a new payment type. Deported indicates that this payment method uses a secondary tier of transactions to create link between other disparate accounts – i.e. effectively from card to bank account or card to card but via intermediary accounts. One of the most famous examples of a Deported payment method is PayPal. In order to make a payment with PayPal, the payer needs to fund an account – this can be done through a Push payment prior to transaction, or through a Pull payment at the moment of transaction. PayPal then allows a payer to ‘send money’ e.g. make a Push transaction, or to ‘get money’ e.g. make a Pull transaction. At the other end, the payee then performs a Pull transaction to move money from PayPal into an accessible format. Other examples of Deported payments can be when video-on-demand is added to your digital TV invoice, or using a Prepaid credit/debit card.
So here in essence we have the four types of payments – Push, Pull, Mutual and Deported – each can then be deployed in a variety of channels (email, mobile, POS, bank branch) and using a variety of authentication methods or tokens (cash, cheques, signature-based cards, creditor-managed mandates), and taking different amounts of time (real-time, same day, next day [D+1]) but all essentially boil down to four basic payment types – the rest is just technology.