What is PayTo? A introduction to instant direct debit payments for merchants

In 2022, the way Australians pay is getting an upgrade, and for every fast moving business, account-to-account payments are going to be a staple element of their financial infrastructure. So what do you need to know and how will it impact your company?

Account-to-account payments move funds directly between accounts without the need for additional intermediaries or payment instruments. This method of payment is common in Australia and is used across a range of routine life admin type activities, such as businesses utilising direct debit platforms like GoCardless to collect recurring payments, or individuals transferring money to a friend using self-banking services like Osko to pay them back for a meal.

While these methods of payment have been around for a while and are accepted as the standard, there are a number of disadvantages which often see expensive credit card transactions used as a fallback. For both direct debit and bank transfers, payments can take some time -- up to two business days -- to process, which means the business or other party has to wait to access and use their funds.  The alternative, credit cards, are subject to high transaction fees, increased risk of fraud and some of the highest payment faultier rates; enough to keep any CFO awake at night. 

But all of this is about to change, and we're made a commitment to enabling our customers to be the first to press play on the latest in payment technology. 

New platforms like the NPP’s PayTo technology are emerging and evolving that serve to address these disadvantages and ensure individuals and businesses have access to fast, secure, and reliable payment infrastructure. 

What is PayTo?

Developed in partnership by NPP (New Payments Platform) Australia and the financial services industry, PayTo is a new, digital and mandated way for merchants and businesses to initiate real-time payments from customer bank accounts. 

The platform’s infrastructure goes beyond being a simple alternative to direct debit by enabling the linking of bank accounts for in-app purchases, account-on-file arrangements for eCommerce and subscription services, and funding for digital wallets and other payment options including buy-now-pay-later services. Despite being a preferred method, current direct debit rails are not best suited for this breadth of payment types, which often require instant authorisation and visibility. 

PayTo payment agreements were developed with flexibility in mind, offering a range of available data fields. Identifying data on the account holder as well as the agreement conditions come as a standard, but businesses also have the ability to add optional data fields, depending on the needs of the customer and the party initiating the payments. 

PayTo’s rich data capability will also enhance businesses’ accounting matching and easy reconciliation, meaning even simpler accounting admin. 

For Business

PayTo enables businesses to initiate real-time payments from customers' bank accounts. The payment infrastructure was developed to address common pain points associated with payment delays and insufficient data visibility to ensure businesses can run smoothly.

Benefits for businesses include: 

• Real-time customer account validation

• Real-time funds verification and confirmation of payment, at time of payment

• The platform infrastructure will be supported by APIs to ensure a seamless process

• Scecure storage of the data required for reconciliations - payment reference and mandate details - in the one place. 

• Notifications that alert the business when a customer cancels, pauses or otherwise makes changes to their payment agreement.

• The enablement of third parties to conduct payments on a businesses’ behalf, such as corporate payroll and accounts payable

These features will change the game for finance teams because for the first time, companies have the ability to completely tailor their payments strategy to meet their business objectives. For some segments of the market, including GoCardless customers, businesses will be able to offer PayTo instant payments and traditional direct debit payment rails alongside each other, giving merchants the ability to optimise and tailor payment infrastructure for security, speed or cost.

For example, a telco company may use PayTo rails to authenticate a new customer while receiving instant payment notification so they seamlessly onboard the customer. They will collect both the setup fees or hardware costs upfront while authorising the month to month billing. In the event a payment fails due to insufficient funds, the telco may leverage an intelligent retry product like Success+ or they may opt for a PayTo transaction to immediately recover the outstanding amount when the payee knows they have sufficient funds in the account. 

In another example, a rideshare app could use PayTo as an alternative to credit cards, and is often the default payment method for companies who keep customers cards on file. Credit cards offer instant payment notification which makes them suitable for this type of transaction, but can also be expensive for merchants and consumers, the latter of which also increasingly wants to avoid debt traps. PayTo offers the same benefits of instant payment notification like credit cards but for lower costs, payment transparency and higher security.

For your customers?

PayTo gives your customers more control over both one-off and scheduled account-to-account payments, making it simpler to transact with your company, and improving their overall user experience. Customers can pre-authorise real-time payments from their bank accounts, ensuring efficiency and security while also reducing incidences of failed payments due to insufficient balances as well as incorrect account information and fraud blocks from the banks. PayTo helps make routine life admin that little bit easier for customers, while optimising payments strategy for merchants. 

Benefits for individuals include: 

• A smoother payment experience for payers with the ability to set and forget while also viewing and managing payments from the users’ bank accounts, all in one central place

• A choice between a PayID or traditional account and BSB number, simplifying the entire payments process from start to finish

• The ability to pause, cancel, or authorise new payment agreements with the swipe of a finger within their banking app

Although simple in theory, PayTo’s infrastructure was developed for foundational capabilities that will enable a broad range of use cases in the future, providing a springboard for future innovation. The infrastructure is currently in its build and implementation stage, and is planned to commence rollout from mid-2022.