Explained: Everything SMEs need to know about the federal government’s new PayTo platform

This SmartCompany Plus article — originally published on April 6, 2022 — has been unlocked so all SMEs can access to information about PayTo that is going live on July 1, 2022.

Learn more about SmartCompany Plus here.

A major change is coming for small businesses when the federal government’s new real-time payments initiative PayTo goes live from July 1, 2022.

A part of the New Payments Platform, PayTo is a new digital payments service that can be used by payers to pre-authorise one-off or recurring real-time payments from a bank account.

Put simply, PayTo is a major upgrade to direct debits.

What this means is an improved experience for customers and businesses, allowing customers to see and control recurring payments through their bank app, and allow businesses to confirm funding availability in real-time, reducing the rate of failed payments.

In practice it will mean businesses are able to set up direct links to bank accounts, rather than credit or debit cards reducing reliance on the card infrastructure. This will help businesses to accept more secure payments and also vastly reduce the incidence of chargebacks.

PayTo will help businesses that rely on paper-based and manual processes to access more digital services from their bank account.

What does this all mean for businesses?

In practice, PayTo will give SMEs the ability to change the way payments are collected, making them faster and more secure and allow them to send a digital payment mandate (or payment request) straight to their customer’s bank account.

Today, most people have used the NPP to make a fast payment from their bank account to another bank account via PayID or Osko, which was introduced in 2018.

PayTo will allow businesses to send a digital mandate (or payment agreement) straight into a bank account. A payer (the business’s customer) will be able to go to their bank account and agree to the payment. This agreement then creates a secure instruction for the payer’s bank to send a real-time payment to the business’ bank account — in real time (even on public holidays!)

It means rather than linking a credit card or PayPal to a payment, customers will be able to link a bank account directly and still process a real-time payment.

The mandates (or payment agreements) could be for a one-off payment — maybe to pay a tradie or for a coffee — or it could be an agreement for recurring payments, such as insurance payments or a subscription.

It could even be an agreement with a value threshold but no specific amount; useful for payments such as phone or electricity bills where the amounts will vary between billing periods.

What does this all mean for customers?

PayTo will enable customers to digitally authorise, view, modify and manage the mandates they have agreed to in their bank account. This gives the customer transparency about their payments and security (only they, as the bank account owner can agree to and manage their payments).

If the payment is recurring, the payer only needs to agree once but the mandate will continue to be displayed in their bank account.

The new platform will also see customers better able to change and move “mandated payments” i.e. recurring subscriptions, for example, being able to shift payments to different accounts or cancel subscription payments via PayTo.

Mobility of payments between bank accounts is good, because it means that fewer payments will fail because an account is closed.

The ability to cancel payments seems like a new piece of control for payers, however, it is not. Payers can cancel direct debit payments today and also block card payments. The difference that PayTo brings is the real-time notification.

Business systems can receive alerts as soon as a payer cancels a mandate, allowing the business to respond if they choose to.

This is better for the customer relationship management and also reduces costs (current payment systems will only let the business know the payment has been stopped when a payment is attempted and rejected, which often comes with the cost of a failed payment).

It should be noted that stopping a payment does not cancel any contract the customer has with the business in any of these scenarios.

In the lead up to July 1, 2022, SMEs should prepare for the imminent changes.

1. Learn about PayTo

   SMEs will need to assess the opportunity that PayTo presents for their business and, in turn, how that affects their customers. You may need to consider communications to prepare customers for any upgrades to how they can pay, and how you could migrate ‘old’ direct debits to the new PayTo system.

2. Talk to your bank

   Talk to your bank to find out what will be available and how to prepare your business to connect to PayTo. Your bank may already have plans to open access to PayTo for its business customers.

   If you have a relationship with a payment provider, you can also ask about when and how it will support PayTo as a service for your business.

   You might also want to think about how you could pay your suppliers with PayTo. Potentially you will receive a payment mandate in your business bank account, so businesses should also talk to the bank about its plans for this.

3. Talk to your tech providers

   Talking to your tech providers will be essential to make sure its services are compatible with PayTo. If you have a system connected to direct debits today, it will be ingesting files and batch payments with limited transaction data on a fairly static schedule.

   PayTo will mean that you will receive payments individually as transactions in your bank account, with more data and at any time of the day or week. This will offer enormous benefits for cashflow and reconciliation, but may need some adjustments to be made to systems like accounting or inventory.

Beyond PayTo

We are at the beginning of a turning point for our payment systems in Australia. It’s such an important time, and PayTo is the next step on the pathway to turn our economy into a digital, real-time and always available economy.

This shift will open opportunities and help businesses to grow through more transparent, secure and immediate cashflow.