PayTo is a relatively new digital payment method that allows customers to authorise payments directly from their bank accounts. Introduced in 2022 as part of the New Payments Platform Australia (NPPA) initiatives, PayTo represents a major step in modernising Australia's payment solutions.

PayTo is a payment option for businesses that use any Australian bank that has enabled PayTo, provided that they also have a bank account that is suitable for use with PayTo transactions. PayTo gives users enhanced control over managing payments, including bills, subscriptions and one-off payments, with features allowing them to view, authorise, pause or cancel their PayTo payment agreements through the security of their bank's digital platforms.

This guide will cover what businesses need to know about PayTo, including how it works, where it's used, how it compares with other payment methods and how to accept it as a payment method.

What's in this article?

• How does PayTo work?
  
• Where is PayTo used?
  
• Who uses PayTo?
  
• Benefits of accepting PayTo
  
• PayTo security measures
  
• Accepting PayTo as a payment method
  
• Alternatives to PayTo
  

How does PayTo work?

• PayTo access: To access PayTo, businesses in Australia need to be sponsored as a PayTo User. This process involves consulting with their bank, financial institution or payment service provider to enable PayTo capabilities. Once they've been sponsored officially, they'll be able to initiate payments from all accounts that have been enabled for PayTo on the NPP in Australia.

• PayTo agreement: When businesses want to initiate a sale with PayTo as the payment method, they create a PayTo agreement which details the terms for debiting a customer's account. These terms include the amount, frequency and duration of payments, and they could be for one-off, ad-hoc or recurring payments.

• Customer authorisation: The PayTo agreement is then sent to the customer's bank, building society or credit union, and will appear in the customer's internet or mobile banking app for authorisation. The customer needs to review and approve this agreement for the payment to be processed.

• Payment initiation: Once the customer has authorised the agreement, the business can start debiting the customer's account according to the payment terms. PayTo provides real-time validation of the customer's account at the time of mandate creation, as well as a real-time funds availability check at the time of payment – providing businesses with immediate confirmation of the success or failure of the transaction. There are also associated business rules to ensure that payment initiation messages are acted upon by the customer's financial institution.

• Changes to PayTo agreements: Businesses receive notifications when a PayTo agreement is paused, changed or cancelled by the customer. They can also amend, pause, resume or cancel them from the business side as required.

• Mandate records: PayTo has a centralised database for creating, storing and maintaining mandate records, which is owned and operated by NPP Australia.

Where is PayTo used?

PayTo is used in Australia for managing both one-off payments and recurring payments, such as subscriptions, online or in-app purchases, payroll and accounts payable. In a country where people made around 730 electronic transactions on average per person during the 2022–2023 fiscal year, there's high demand for digital payment methods, such as PayTo.

PayTo addresses many of the challenges associated with traditional direct debits, with features including real-time validation of customer accounts, fund availability checks and instant confirmation of payments. It can be used for in-app and e-commerce transactions, as well as to pay electronic invoices, thus enabling businesses to get paid faster and improving the procure-to-pay process. As an always-on service, PayTo also supports outsourced functions, such as payroll and accounts payable, enhancing overall business operations and eliminating the need for large floats with payroll providers.

Who uses PayTo?

In Australia, the following types of businesses use PayTo to improve their payment processes:

• Businesses and billers: PayTo is ideal for businesses and billers that need a reliable and efficient way to collect payments. PayTo is particularly useful for businesses that require a modern alternative to traditional direct debit methods. It also supports in-app and e-commerce transactions, making it an ideal solution for businesses that require a digital payment system. These businesses can use PayTo for one-off or ad-hoc payments, or for maintaining an "account on file" for customers.

• Payment service providers (PSPs): PSPs can integrate PayTo as an advanced payment service for their business clients. Payment gateways and processors that are looking to provide a more efficient payment solution may find PayTo especially helpful.

• Outsourced service providers: Third parties and accounting software providers managing outsourced processes, such as payroll and accounts payable, can use PayTo to streamline these functions. PayTo's "always on" feature ensures continuous, real-time payment processing.

• Financial services companies: Trading, investing and banking platforms can use PayTo for its instant fund transfer capability. This allows for immediate trading, which is important in the fast-paced environment of stocks and cryptocurrencies.

• Remittance companies: Businesses involved in currency conversion and remittances can use PayTo's immediate fund transfer function as a way to reduce market exposure and speed up the remittance process.

• Proptech companies: Property technology companies can use PayTo for faster and more reliable payment collection, enhancing the efficiency of their financial operations.

Benefits of accepting PayTo

PayTo offers many benefits to businesses when compared with other payment methods. These benefits are outlined below:

• Real-time customer verification: Businesses using PayTo benefit from immediate confirmation of customer account details and fund availability at the time of payment. This reduces the likelihood of failed transactions, chargebacks or disputes that can arise due to insufficient funds or incorrect account details.

• Faster transactions: Unlike traditional direct debit payments, which can have a response time of up to three days, PayTo processes payments in real time. This means that businesses can receive payments much faster, enhancing cash flow and operational efficiency.

• Instant payment notifications: PayTo notifies businesses in real time about changes to transaction statuses, including when customers modify, pause or cancel their payment agreements. This feature keeps businesses informed and enables quick responses when payment statuses are changed. PayTo also provides real-time customer and funds verification, along with notifications at every stage of the payment cycle.

• Customer validation: PayTo requires customers to accept payment agreements in their banking app before billing can commence. This additional step increases the security of transactions by ensuring that customer consent is provided and reducing the risk of unauthorised debits.

• Payment data: PayTo's rich data capability allows businesses to simplify their accounting and reconciliation processes. Detailed transaction information helps to match payments with their respective invoices or agreements.

• Uninterrupted service: PayTo offers continuous, uninterrupted payment processing services, including on weekends and bank holidays. In comparison, traditional banking systems may not process payments outside of working hours or on bank holidays.

• Simplified sign-up process: Businesses need to be sponsored as a PayTo User by their bank, financial institution or payment service provider. However, signing up for PayTo is completely digital and paper-free. In general, it offers a more straightforward and user-friendly experience compared with traditional direct debit setups, which may involve paper-based forms.

• Customer self-service: Customers are able to manage their own PayTo agreements within their banking apps. This allows them to move agreements between bank accounts or financial institutions without interrupting billing or creating additional administrative work for businesses.

• Reduced transaction costs: PayTo is a cost-saving alternative to credit card payments, which typically come with high transaction fees.

• Strong security measures: PayTo's infrastructure is designed with security and regulatory compliance in mind, thus minimising the risk of fraudulent transactions and issues with safeguarding sensitive financial data. This is a major improvement over traditional direct debit systems, which can be more vulnerable to fraud.

• Flexible payment features: PayTo allows businesses to tailor their payment strategies to optimise for speed, security or cost. This flexibility is especially useful in sectors that value features such as instant payment notification and validation.

PayTo security measures

PayTo employs the following security measures to ensure the safety and integrity of its transactions:

• Payment authorisation
  PayTo agreements are sent to the customer's internet or mobile banking app for authorisation, and a business can only debit the account in accordance with the payment terms that were previously agreed upon.

• Advanced authentication
  Because PayTo agreements go through the customer's mobile banking app, they benefit from the secure authentication practices used by banks to ensure that the person authorising a payment is the real owner of the account.

• Encryption
  NPP Australia manages a secure and encrypted database where PayTo agreements are stored centrally, thus safeguarding personal banking details against unauthorised parties that may try to intercept or decode this information.

• Continuous security updates
  Banks update their mobile banking security measures continuously, which means that the infrastructure through which PayTo functions remains up to date with the latest security protocols.

Accepting PayTo as a payment method

PayTo allows businesses to initiate real-time payments from their customers' bank accounts. However, accepting PayTo as a payment method comes with some specific requirements.

Requirements for accepting PayTo

Businesses must either have a bank account with an Australian bank that has enabled PayTo or work with a PSP that offers PayTo as a payment option. A participating financial institution or PSP facilitates the transfer of funds. Typically, an Australian Business Number (ABN) is also required to open a local business bank account.

How to start accepting PayTo

Whether a business is working with a bank or a PSP that accepts PayTo transactions, it must be sponsored by the relevant financial institution as a PayTo User. The business will then be able to initiate payments from its accounts that have been enabled for PayTo by creating PayTo agreements that detail the transaction terms, including the payment amount and frequency​​​​. Customers will need to authorise these agreements before any payment can be processed.

Alternatives to PayTo

Companies in Australia can choose from multiple digital payment methods, depending on their specific business needs. Here are some popular alternatives to PayTo:

• BECS Direct Debit: BECS Direct Debit is an Australian bank transfer system that is commonly used for recurring payments. It allows businesses to collect authorised payments automatically and directly from customers' bank accounts, and is popular among subscription services and for recurring B2B transactions.

• BPAY: BPAY is a popular bill payment system through which customers can make payments directly from their bank accounts. Integrating BPAY into an existing invoicing system allows businesses to receive payments directly.

• Payment apps: Certain apps, such as PayID and Osko, facilitate instant bank transfers, providing a convenient way for customers to make payments quickly. Once a business has registered a PayID and linked it to the preferred bank account, PayID transactions send the money straight to the business's account.