In a three-party model, exemplified by American ExpressAmerican Express american-express A global financial services corporation offering credit cards, charge cards, travel-related services, and merchant acquiring. and by e-wallet providers such as M-PESA, WeChat, and Paytm, the same payments provider plays the role of both issuerIssuer issuer A bank or financial institution that issues payment cards to consumers. Responsible for authorizations and chargebacks. and acquirerAcquirer acquirer A financial institution or payment processor that manages the merchant account, enabling businesses to accept card payments. Acquirers receive all transactions from the merchant and route them to the appropriate issuing bank., providing accounts and payments hardware to both merchants and consumers. Hence it sets the rules and prices, authorizes and processes transactionsTransactions transactions Interactions where value is exchanged for goods or services., moves funds from the customer to the merchantMerchant merchant An individual or business that accepts payments in exchange for goods or services., 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 fraudFraud fraud Criminal deception involving unauthorized payments or use of financial credentials. 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