Pull Systems vs. Push Systems
Table of Contents
- A pull system is a payment system where the payee is the originator of the transaction.
- A push system allows only the payer to originate a transaction.
- Pull systems rely on trusted third parties and thus incur costs, which users bear in the form of fees and long settlement times.
What Is a Pull System?
A pull system is a payment system that allows payees to pull funds out of a payer’s account into their own. In a pull system, the payee is the originator of the transaction. A pull system requires payers to provide payees with sensitive financial information, including routing and account numbers, in the case of ACH payments, or a PIN in the case of debit cards.
Pull systems are most useful for recurring payments, such as subscriptions or monthly bills, because the payer does not need to take any action to authorize the payment. This convenience comes at the expense of the payer’s control over their account.
A pull system requires more trust between payers and payees because the payee has more ability to abuse their power. Pull systems allow certain entities, such as banks or merchants, to pull money out of payers’ accounts and transfer it to their own. This is how all debit card and many ACH transactions work.
Although they usually do so in an honorable manner, these entities are perfectly capable of emptying a customer’s account or being forced to do so by governments. This vulnerability extends beyond banks to nearly every company to which you submit your bank account information. Any such company is perfectly capable of emptying your account, leaving you at the mercy of your bank for a refund.
Pull systems are functional for a majority of users, particularly in well-established and regulated financial environments. However, the vulnerabilities of these systems include chargebacks, dispute management, and occasionally, theft. These vulnerabilities result in banking fees, insufficient funds penalties, credit card fees, and long settlement periods.
What Is a Push System?
A push system is a payment system that requires users to send the desired payment out of their account into the account of the receiver. In a push system, only a payer can serve as the originator of a transaction. True push systems allow users to retain full control of their funds at all times.
Partial Push Systems
Traditional payment systems such as wire transfers, Venmo and PayPal payments, and some ACH transfers are partial push systems. They allow only the payer to originate a transaction. However, all of these systems allow the system operator—the bank or corporation in charge of the specific payment method—to pull money from your account, reverse payments, or simply close your account at any time.
This backdoor is not often used, but its existence means that it is possible for someone other than the owner of funds to spend those funds.
Bitcoin is a true push system; it allows only the owner of funds to send those funds to someone else. This requirement is mathematically enforced by the entire Bitcoin network, and there are no exceptions to this rule.
As long as a user maintains secure control of their private keys, they are the only individual capable of spending their bitcoin. If they share these private keys with a custodian, that custodian is capable of spending the bitcoin as well.
A push system eliminates the possibility that a payee can take more than they are sent, and thus, less trust is required. This means that dispute resolution is of far less importance, because the payer is the only user capable of originating a payment, so long as their passwords or private keys are not compromised.
As a result of their inherent trustlessness, push systems can minimize the overhead costs incurred by trusted third parties, and users can enjoy lower fees and quicker settlement times.
Push systems place all responsibility on the payer. True push systems like Bitcoin, in which transactions are irreversible, punish payer error severely. If a payer sends an incorrect amount of bitcoin or sends bitcoin to an incorrect address, they have no recourse. Additionally, if a user’s private keys are compromised, they could be at risk of losing their bitcoin.