PayTo: Blockchain Changing The World Of Finance

FYI | Oct 03 2022

This story features COMMONWEALTH BANK OF AUSTRALIA. For more info SHARE ANALYSIS: CBA

PayTo is ready to revolutionise the direct debit industry with benefits for customers, businesses and the banks.

-PayTo promises to ‘revolutionise’ payments with benefits for all
-All banks in Australia to offer this new service by March 2023
-New option for direct debit payments cheaper than credit cards

By Riley Young

As part of a new system that is expected to "revolutionise" payments, consumers will be able to authorise direct debit payments, such as those for gym memberships, directly from their banking app, rather than having to fill out paper or online forms.

Last month, the Commonwealth Bank ((CBA)) activated PayTo, a new technological tool that promises to give consumers greater control over their direct debit payments than they have had in the past.

In this article, we will look at how PayTo, a new option for direct debit payments, is helping consumers view their direct debits, cancel recurring payments through their banking app, and lower overall payment costs for businesses.

What is blockchain?

Blockchain is a distributed ledger that helps promote trust between business partners.

It is the underlying technology that allows for the transfer of money and the assurance that transactions are carried out effectively.  It is being used in a wide variety of ways by the banking industry as well as other sectors, with or without Bitcoin. 

These are secure "ledgers," or tallies of transactions. So, what are the benefits of blockchain?

In this article, we will look at how PayTo, a new option for direct debit payments, is helping consumers view their direct debits, cancel recurring payments through their banking app, and lower overall payment costs for businesses.

PayTo: Instant payments for merchants and convenience for customers

Direct Debit has been evolving at rapidly. Account-to-account payments are now a fundamental component of all fast-moving businesses.

In collaboration with the financial services sector, Australia's New Payments Platform (NPP) has unveiled its latest account-to-account payment technology innovation.

PayTo is a digital method for merchants to initiate instant payments from customers' bank accounts. 

How does it work?

PayTo includes:

-The capability to send instant payment initiation messages.

This is typically employed by outside third parties to ask for payments from their clients' bank accounts.

These payment requests are connected to a "mandate," which is a customer-authorised payment plan.

-A centralised database for the production, maintenance, and storage of mandate records, operated and owned by NPP Australia.

-Related business regulations. These give assurance that the customer's financial institution will respond to the payment initiation signals.

Why the change from conventional Direct Debit?

Although account-to-account payments are allowed in Australia, customers frequently opt for pricey credit card transactions instead due to a number of drawbacks:

-The setup process can be difficult and slow

-If payments fail, the business is charged dishonour fees. 

-Changes to the payment agreement must be updated manually by the business. 

-It can take up to four days to get payment confirmation.

-Merchants are unable to verify payments until the Direct Debit arrangement is in effect.

-Although credit cards are a viable alternative, they come with high transaction costs, a higher risk of fraud, and significantly high rates of payment failure; virtually everything you don't want to disclose to your stakeholders.

But that is all about to change.

PayTo is an excellent alternative to Direct Debit

Customers can use PayTo to link their bank accounts to various apps, account-on-file subscriptions and e-commerce agreements, membership fees, loan repayments, digital wallets, and other payment methods such as buy-now-pay-later services.

Reduced risk

Since current Direct Debit rails payments often demand instant visibility and authorisation, the risk associated with using them is significantly higher.

PayTo is now the safest and fastest way to make account-to-account payments due to instant customer verification.

Rich Data and flexibility

PayTo payment agreements were designed and built with flexibility in mind, as demonstrated by the variety of available data fields.

Identification information about account holders and the terms of the agreements are included as standard features.

Depending on the demands of the client and the party initiating the payments, businesses can add optional data fields with ease.

The accounting matching and straightforward reconciliation for customers will be improved by PayTo's comprehensive data capacity. This results in easier accounting administration.

A catalyst for innovation

Although straightforward in concept, PayTo's infrastructure was built to support the fundamental functions that will eventually support a wide variety of use cases.

The infrastructure has been prepared for a gradual deployment, and by March 2023, all major banks will be offering PayTo.

Most companies are working nonstop in the background to deliver a flawless experience. 

PayTo use cases

Some usage cases where PayTo would be beneficial right away:

1.      Businesses that want less exposure to the market and faster payments

Direct debit transactions take one to three days to clear under the modern systems. Even a few hours' delay can have a significant impact if, for instance, a business has to convert money and move it elsewhere, or fund market accounts.

For example, companies that offer FX exchange through remittances often need to go to currency markets and enter into forward contracts.

These hedges are designed to protect against market exposure between the time the customer's debited funds arrive in the market account and the time the business completes the conversion.

With PayTo, money can be transferred into the market account and exchanged right away at a rate that is rather close to the market rate.

PayTo drastically reduces market exposure and ensures that the money reaches the people who need it.

Companies that provide trading, banking and investing apps, and other financial services are in a similar situation.

Users on these sites want to trade when they come upon an opportunity. Being able to fund one’s account and implement the chosen strategy right away is a major benefit that comes with using PayTo because cryptocurrencies and stocks are traded almost around the clock.

2.      Businesses seeking to reduce their dependency on expensive credit cards

Payment cards have two sides. On one hand, users love them primarily because they are practical and offer a certain level of security. Businesses, on the other hand, are required to pay hefty premiums to accept them.

In their current state, direct debits provide a less expensive alternative, but they are inconvenient for customers and can take up to three days to clear.

PayTo combines the advantages of both direct debit and credit cards, but it also offers rapid settlement and is far less expensive than credit cards.

PayTo's central mandate depository also enhances user experience by making it very easy for payers to use PayID to authorize a new payment.

With the use of this practical technique, the traditional direct debit system's friction is greatly reduced, giving PayTo users an experience that resembles using a credit card.

Other PayTo applications

There are many PayTo uses, such as:

-Businesses that use proptech (property technology) and aim to increase the speed and accuracy of payment collection.

-Streamlining of accounts payable and payroll payments.

PayTo + GoCardless: A business game-changer

For the first time, businesses can totally customise their payments approach to achieve their corporate goals.

Businesses benefit from:

1.       Real-time funds verification and payment confirmation

2.       Real-time client account verification

3.       Platform infrastructure backed by APIs to guarantee a smooth procedure

4.       Secure data reconciliation; mandate details and payment reference – all in one convenient place.

5.       Instant notifications when customers cancel, pause, or change their payment details or agreement. 

6.       PayTo makes it easier for third parties to handle payments made on a business's behalf, such as accounts payable and payroll for corporations.

How does this look in real life?

PayTo rails can be used by telco firms to:

-Authenticate new customers while getting immediate payment notifications, enabling them to onboard consumers without any problems.

-Collect hardware costs and setup fees in advance while approving month-to-month payments.

·-Use intelligent features to handle failed payments resulting from insufficient funds,

– When the payee is confident about having enough funds in the account, a PayTo transaction can be used to recover the overdue amount. Uber, for instance, can use PayTo as a substitute for credit cards on file.

-Credit cards can be expensive for both retailers and customers who want to avoid debt traps.

However, they provide instant payment notifications, making them ideal for this type of transactions.

PayTo provides real-time payment notifications similar to those provided by credit cards, but at cheaper costs and with more security.

PayTo: an easier alternative for clients

With PayTo, customers have more control over both recurring and one-off account-to-account transactions.

This facilitates easier business transactions with companies and enhances the user experience as a whole.

PayTo helps make customers' daily administrative tasks easier while improving merchants' payment strategies.

PayTo benefits to customers include:

-Consumers will value being able to view, set, and manage payments all in one place.

-The ability to cancel, pause, or approve new payment agreements with a flick of their finger within the banking app. 

-The choice between a traditional or PayID account and BSB number, helping simplify the entire payment process. 

Customers have the option to pre-authorise real-time withdrawals from their bank accounts, which increases security and efficiency while lowering the risk of failed transactions as a result of insufficient account balances.

They can also help get rid of fraud bans/blocks from banks and update erroneous account information.

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For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA