What is PayTo and what does its roll out mean for everyday payments?

New payments service PayTo went live this week and has been touted as an easy way for customers to pre-authorise real-time payments from their bank accounts.

In short, customers can enter into an 'agreement’ with participating banks and authorise payments to be made for various commitments from their smartphone.

For example, it might be a recurring subscription payment with a streaming service, or a regular electricity bill with an energy provider. A simple message request would be viewed in the user's banking app, and once agreed to, the biller would be authorised to pull money from the customer's account through PayTo when a bill is due.

The key difference here is the real-time automation of the process, meaning there is faster validation of the customer’s account, the availability of funds and on confirmation of payment.

The service is similar to a direct debit arrangement but National Payments Platform (NPP), the organisation behind PayTo, has said its product will have superior features to current direct debits and will ultimately replace them. The potential delay of a direct debit payment clearing, certainly seems to have been a factor in PayTo's creation.

Indeed, the Reserve Bank has backed NPP's belief in this service and expects banks to sign on with PayTo by April of next year. It's been reported widely that CBA, Bankwest and Bendigo Bank will be among the first ones using the service, with others to follow suit.

Is PayTo different to other payment services?

The advertised benefit of PayTo is that you can handle recurring bills, subscriptions and memberships with PayID, for example, rather than a BSB and bank account number. The service is said to be easy to use, instant and all payment details are held in the one app on your smartphone. So PayTo payers should have greater visibility over payment arrangements, says NPP.

On this front, there would be no need for your card nor would you have to remember your card details anymore. Similarly for businesses, retailers and large billers like utilities and government departments, PayTo will let them receive instant and secure payments from their customers’ bank accounts - an alternative to cards or online payment options.

Merchants and businesses also get the benefit of upfront validation that the customer’s account details are correct at the time a PayTo agreement is authorised. Additionally, the system checks upfront for adequate funds in the paying customer’s account, reducing rejected payments and exceptions.

Where did PayTo come from?

RBA Governor Philip Lowe last year addressed a great need for change in Australia's payments industry. Above all else he noted the declining use of banknotes and increasing use of electronic payments, the uptake of digital wallets, the growth of big tech in payments, increasing specialisation within payments and the rising need for payment security.

PayTo's arrival seems to take a step toward addressing these areas of focus and is the result of several years of work, a complex project involving financial institutions, fintechs and payment service providers. The actual transaction process is run across the National Payments Platform, an infrastructure built by Australian Payments Plus, which allows customers of different banks to make and receive real-time payments at all times.

Australian Payments Plus is the amalgamation of the country's three domestic payment companies - Bpay, Eftpos and National Payments Platform. So the people behind this latest rollout are surely well-versed in both the technical and process requirements of such a large-scale project. It is expected that PayTo will be more widely available by April 2023.

Meanwhile, the first payment service providers to offer PayTo include Azupay, Ezypay, Monoova, Paypa Plane, Zai and Zepto, according to NPP Australia.

If you're keen to read more about payments generally, check out our guide on Debit Card Fees and Features.