As the payments industry continues to evolve at a lightning pace, one of the newest developments is the ability for payments companies to leverage card network services to “push” payments to cardholders. Earlier this year, the technology gained attention as a potentially safe and efficient way to transfer funds in response to the challenges presented by the COVID-19 pandemic. In particular, as businesses shift to a remote environment, push-to-card services can provide benefits for both individuals and businesses, including for person-to-person (P2P) money transfer, funds disbursement, and bill payment, among other uses. And with the increased focus on “faster payments,” push technology has been discussed as a private sector means to speed up transaction settlement.
What Is Push-to-Card?
A number of the card brand networks have implemented push-to-card payment solutions in recent years (referred to in this article as “push payments” or “push transactions”). Visa Direct is the Visa push payment product for transferring funds as an Original Credit Transaction (OCT). Similarly, Mastercard has developed a service called Mastercard Send. In both cases, the services allow businesses or individuals to push funds into an eligible cardholder’s account (e.g., credit, debit, and prepaid), which is the opposite of how funds typically flow when using payment cards to make purchases. The card networks emphasize that push payments are a fast and secure method for transferring funds through well-tested infrastructure.
Who Are the Players in the Push-to-Card Industry?
At the top of the pyramid are the card networks that establish the rules and technology for facilitating push payments. Below them are the acquiring financial institutions (i.e., banks) that are approved by the card networks to originate push transactions and sign up merchants or other service providers to use the push service. As is the case in the merchant acquiring industry, the acquirer is responsible to the card brands for the programs it sponsors and all activities of sponsored participants in such programs.
With regard to this last point, many financial institutions are sponsoring third-party payments companies that have identified new use cases for facilitating push payments. In each case, the acquirers are required to register the third parties with the card networks and to push down to them the various network and compliance requirements (more on that below). With respect to the actual payments, a push transaction involves a sender (a consumer, business, etc.) who funds the transaction and the recipient of the payment who is a cardholder. Of course, given the variety of potential use cases, there are many different ways in which a push program can be structured, ranging from simple to extraordinarily complex, depending on the number of service providers and partners involved.
What Are the Use Cases for Push-to-Card Payments?
Although push technology is still relatively new, the card brands and industry participants have already identified a variety of promising use cases. Most of these use cases are focused around the concept of “faster payments,” which involves finding ways to move and settle funds in real or near-real time. There are a number of competing public and private efforts to develop faster payment rails, including the Federal Reserve System’s FedNow service and the Clearing House’s Real Time Payments network.
Along with these efforts, the push-to-card services offered by the card brands are helping speed up settlement in a number of interesting ways, including:
- P2P Money Transfer – Direct transfers between cardholders, including both domestic and cross-border remittances.
- Merchant Settlement – Push transactions are being used by a number of payment facilitators and merchant acquirers to speed up settlement by sending sales proceeds directly to a merchant’s card account.
- Gig Worker Payouts – One of the most promising use cases is using push transactions to quickly pay funds owed to gig workers or to a business’s affiliates or contractors.
- Funds Disbursement – Push services can be used by businesses and government authorities to send funds to individuals for insurance claims, expense reimbursements, benefits payments, and other non-sales payments.
- Bill Payment – Similar to funds disbursement, push transactions can be used by businesses to pay suppliers for contractual amounts owed (as distinct from individual sales transactions).
What Are the Legal and Regulatory Considerations?
As with other payments services, the push technology raises various legal, regulatory, and network considerations for the banks that sponsor the service and the payments companies that use the service to provide faster payment options for merchants and consumers.
- Compliance management. Whether a sponsor bank or a third-party service provider, the starting point for launching a push-to-card service is the development of a compliance program designed to address card network rules and protect the payments system and users from fraud. Areas that need to be considered include anti–money laundering, risk underwriting, due diligence, and monitoring transactions for fraud and other unlawful activity. Implementing a robust program is not just about managing financial risk—federal and state regulators have been aggressive in bringing enforcement actions against payments companies that fail to adequately underwrite and manage their customers.
- Choose your partners carefully. For both banks and payments companies, it is important that they select their partners carefully. From the acquirer perspective, any payments company it partners with will need to be registered with the networks and managed through the bank’s third-party oversight policies and procedures. As part of this oversight, banks are expected to perform due diligence on their partners and monitor their operations (normally through contractual requirements) to manage risks and ensure compliance. On the other side, payments companies will expect support from their bank partners, flexibility to grow and develop products, and control, to the greatest extent possible, of the customer relationship. These issues, along with standard business concerns, are likely to drive the contractual negotiations between banks and payments companies seeking to launch push-to-card programs.
- Stay clear of money transmission risk. As is the case with third-party senders under the Nacha rules, the facilitation of push transactions raises potential money transmission risks for any non-bank participant that receives and transmits funds as part of the service. For example, if a payments company takes deposit of a sender/customer’s funds into its account in connection with the service, then there is a risk of triggering federal and state laws governing money transmission. On the other hand, if the funds are received and transferred exclusively by the bank and card brand networks, then there is a much lower risk of the payments company triggering any money transmission concerns.
- Contract management. Once a sponsorship agreement between the acquirer and service provider has been signed, the service provider or its customer (depending on which entity in the program has the customer-facing relationship) will need to develop terms and conditions for the push payment services. In particular, for third-party service providers, access to data is often a critical business requirement. It is therefore critical to determine data ownership and rights, while also ensuring compliance with federal, state, international, and card network laws and requirements for customer data, such as the federal Gramm-Leach-Bliley Act (GLBA), the California Consumer Protection Act (CCPA), the European General Data Protection Regulation (GDPR), and the Payment Card Industry’s Data Security Standard (PCI-DSS).
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As the use of push-to-card technology continues to grow, it is important for sponsor banks and their third-party services partners to understand how to set up programs in a way that complies with applicable card network, legal, and regulatory requirements. By doing so, the payments industry can provide new and exciting push payment services for both individuals and businesses.