Third Party

A third party is a person or entity that helps facilitate some action, such as a transaction, but is not one of the main players involved. Mediators, mortgage brokers, and job agencies are a few examples of third parties.

Say a customer buys something from an online store. Although the shop cannot accept advanced cash online, other transaction methods, such as credit card payments, are accepted. The online shop uses a credit card processing service to handle such types of transactions. Therefore, the person or agency providing the processing service in this context is referred to as the third party.

The third-party payment processor receives the buyers' payment details once they finish the online checkout procedure. The payment processor contacts the credit cardholders' issuing banks to confirm or verify the transaction. If accepted, the deal is finished, and the business gets paid.

Although the third-party payment processor isn't one of the main parties, such as the buyer and seller, the transaction is nevertheless completed without their help. However, things may be different in the case of the Pay on Delivery or Cash on Delivery approach. Likewise, there can be different third parties involved in different types of services in various fields.

How do third parties operate?

Various businesses, such as the real estate market, e-commerce, and finance, are served by third parties. When the objectivity or competence of a third party is required to facilitate a transaction, they are frequently called upon.

Here is another illustration: imagine a business engages a third-party employment service to find skilled workers. The employer and the prospective employee are the main players in this "employment transaction". The employment agency is a middleman who is a facilitator of the "transaction" of hiring a qualified worker.

The company will pay the agency a portion of the candidate's starting salary if the applicant is hired. The commission and/or contingency fee charged by the employment agency is to be paid only when the recommended candidate is hired.

Pricing Model of Third Parties

Third parties employ a variety of pricing models to generate revenue, such as:

Commission-Based

The third party receives payment depending on whether the client purchases or sells a product, such as in trading stocks. The payment might also be based on achieving a specific goal, like a collection agency collecting money from customers that owe money.

Hourly-Based

Depending on the number of hours the third party works, a fee is accrued.

Flat Fee-Based

The customer pays a set sum for certain goods or services.

Third-Party Applications in Various Sectors

Various sectors and fields of expertise use third-party services. Typical examples include the followings:

Collection Agencies

Some businesses might employ a collection agency to get in touch with clients on their behalf to recover past-due payments.

Delivery Services

Many restaurants collaborate with third party delivery services to fulfil customers' food orders at their homes.

Employment Services

Employment agencies facilitate the introduction of jobs to suitable candidates on behalf of employers. However, the candidates are hired only after the final decision by the employer.

Insurance Brokers

People or organisations specialising in insurance brokerage services assist clients in finding the best insurance policy and insurer.

Investment Brokers

These monetary experts purchase and sell securities orders for their customers. Investment brokers may also provide advisory services to their clients, advising them to buy particular financial products.

Logistics Partners

Some businesses may contract with a third-party logistics company to handle business activities, such as shipping and warehousing.

Mediators

They serve as neutral third-party to assist two parties in reaching a resolution.

Mortgage Brokers

They guide borrowers through the loan procedure and also connect them with mortgage lenders.

Payment Processors

They make card transactions between businesses and customers easier.

Real Estate Firm

In the real estate sector, the third party holds important documents, money or other valuables in the trust of each party involved until the conditions established by both parties (property seller and buyer) are met.

Advantages of Third Parties

• Convenience: Payment gateways via third parties, such as those used by businesses, enable them to accept various payments, such as debit and credit cards.
• Increased Efficiency: People and businesses can hire a third party to handle time-consuming operations and procedures like searching for a mortgage lender or delivering customer orders.
• Neutrality and Objectivity: Sometimes, a transaction requires the assistance of a neutral third party who maintains objectivity. For instance, Third-party Real Estate companies keep important documents and money in trust until all parties have satisfied their obligations.

Disadvantages of Third Parties

• Concerns about Privacy: Certain third parties, such as payment processors or financial brokers, need sensitive financial information, including card and bank details. Sensitive information may be exposed as a result in the case of a data breach.
• Cost: Upfront expenditures and continuing charges for premium or convenient services and products can add up rapidly.
• Scam or Fraud Risk: Not all third parties are knowledgeable or reliable. One may be a victim of fraud if he/ she deals with dubious third parties.