Before the online payment era, first- and second-party payments were dominant. The first-party is related to direct cash payments, while second-party payments are transfers, leveraging banks as intermediate. However, the boom of online shopping created a demand for new strategies to ensure security, flexibility, and agility.
3️⃣ Third-party payments
Third-party payments involve an additional player, usually a payment processor, to execute the transaction in addition to the seller and buyer. The payment processor receives the customer's payment information, reviews it, and uses anti-fraud systems before approving the transaction completion.
Paypal is an excellent example of a third-party payment player. It uses the information of a credit card provided by the buyer account to process the transaction. At the same time, the merchant has no contact with any sensitive information.
4️⃣ Fourth-party payments
The fourth-party payment actually involves six entities. The four main separated parties are:
▪️ Cardholder: The customer.
▪️ Merchant: Selects the gateways and the acquirer.
▪️ Acquire: Process the payment and ensure the money transfer.
▪️ Card-issuing bank: As the cardholder bank, it is responsible for confirming the card's validity and the existence of funds.
The other two entities, gateway and card scheme, share information and connect the four main parties:
▪️ Gateway: Collect and encrypt data to provide it to the acquirer.
▪️ Card scheme: It enables the communication between the acquirer and the card issuer. Popular examples are the Visa and Mastercard brands.
🤷🏽 ♀️ Which one should you choose for your business?
There is no golden rule when defining the checkout process or payment options you will make available for your customers. However, the available payment methods and security solutions, such as fraud systems, will determine the customer's confidence level in your e-commerce.
Are your business using third- or fourth-party payments? How has your experience been using them? Dive into the comments and let me know!
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