In a three-party model, exemplified by American Express and by e-wallet providers such as M-PESA, WeChat, and Paytm, the same payments provider plays the role of both issuerIssuer Issuer (or Issuing bank) A bank that issued a card for a shopper to make cashless payments via an ecommerce website, inside a mobile app, or in a physical store. To be able to issue a card, an issuer must be a member of one or several card networks. Sometimes a shopper’s bank is referred to as an issuer even if there is no card issued. This is to distinguish between a shopper’s bank, which sends funds, and a merchant’s bank, which acquires funds. and acquirerAcquirer (or Acquiring bank) Acquirer (or Acquiring bank) A bank or a financial institute, which acquires funds for its merchant from a shopper. To accept card payments, an acquirer should be licensed by corresponding card networks and either partner with a payment processor, or be a payment processor itself. , providing accounts and payments hardware to both merchants and consumers. Hence it sets the rules and prices, authorizes and processes transactions, moves funds from the customer to the merchant, and so forth—all in-house.
In a given transaction, after (1) the customer authenticates a payment (2) the merchant submits it to the payments provider, which authorizes the transaction directly; (3) the payments provider then debits the consumer’s account and (4) credits the merchant’s account, minus the merchant discount fee.
In a three-party model, the provider can draw value from having control and visibility over both sides of the market. For instance, having full insight into transaction records for both merchants and consumers can enhance data analytics capabilities, including fraud monitoring. The provider can also make selectivity a source of competitive advantage, allowing American Express, for example, to negotiate MDRs from merchants on the acquiring side thanks to having pursued a higher-income clientele on the issuing side of the business