What Is a Third-Party Payment Processor? 4 Examples for Retailers

Successfully running a business doesn’t come without its challenges. Besides scoring sales, there are many moving parts to manage daily. One of these is payment processing. 

How can you process payments in different forms with accuracy and minimal hassle? 

That’s where a third-party processor does the heavy lifting for you. Once integrated into your sales process, it allows you to seamlessly collect payments in all forms without needing a merchant account of your own. 

Below, you’ll learn how a third-party payment processor works, the pros and cons of using one, and how to choose the best one for your unique business needs. 

What is a third-party payment processor?

A third-party payment processor is a service that lets businesses accept card payments without requiring their own merchant bank account. Think of it as a financial middleman that handles all your transaction processing for you. 

Ultimately, a third-party payment processor makes it simpler to start accepting payments from customers, whether via online payments, a brick-and-mortar setup, or both. Instead of dealing with complex banking relationships and paperwork, you can set up payment processing in days rather than weeks. 

How does third-party payment processing work?

When a customer makes a purchase, their card information travels securely from your payment terminal or online checkout to the payment processor. The processor then communicates with the customer's bank and the credit card networks to verify the payment and check for sufficient funds. Once approved, the processor transfers the money from the customer's account to your business account, typically within 1-2 business days.

While traditional merchant accounts work through similar steps, third-party processors simplify the process by pooling multiple businesses under one master merchant account. This shared approach is why services like PayPal or Stripe can get you up and running quickly, though they typically charge slightly higher per-transaction fees than traditional merchant accounts.

Third-party processors vs. merchant account providers

There are a few major differences between the way third-party payment processors and merchant account platforms work.

 

Funds accessibility

Going with a third-party payment processor option over your merchant account means you might have to wait a bit longer to access your funds.

Of course, a lot of the logistics of when and how your funds can be accessed will depend on the third-party processor or merchant account provider you choose. 

For example, with Shopify Payments, payout timing varies by country. In the United States, payouts typically range from same-day to 5 business days depending on your store's activity and bank verification method. 

UK-based accounts receive payouts within 3 business days, while US-based accounts can get faster access to funds by enabling two-step authentication and verifying their bank account through Plaid. 

Fund management

Opting for a direct merchant account for your business means your account will be dedicated to managing your business funds only. This is not the case with third-party payment processors. 

Third-party processors group your funds with hundreds if not thousands of other merchant funds into a single account. Through the use of tags, they’re able to verify which funds and transactions belong to your business. 

Scalability

As your business grows, so will your transactions. While many assume bigger volume means higher fees, third-party payment processors typically offer better rates as you process more payments. 

Though these rates won't be quite as low as having your own merchant account, their additional benefits could make them worth keeping even as you scale. 

Approval process

Usually, third-party payment processor accounts are easy to open. In most cases, it’s an instant process once you provide your business information and connect your business account. Usually, it requires that you have a bank account that accepts electronic transfers.

Opening a merchant account, however, takes longer—-maybe even weeks. This is because it requires a longer verification process that involves specific compliance measures. 

Opening a merchant account also requires a positive credit rating. They usually ask for your financial track record too; any previous merchant accounts need to be disclosed. If you opt for a merchant account, you’ll also need to be ready to uphold their specific account requirements to stay in good standing. 

📌 Already using Shopify? Shopify Payments is the fastest way to start accepting payments in-person, online, and on the go. It’s included in all Shopify POS plans, so you can skip lengthy third-party activations and go from setup to selling faster.

Account risks

Finally, risk factors differ between a third-party processor and a merchant account provider. While third-party payment processors are popular because of their convenience, they’re also more susceptible to sudden interruptions in payout schedules, account freezes, or even possible termination. In terms of account risks, a merchant account provider tends to be the more stable option, with less chance of sudden freezes or account terminations. 

Shopify Payments: An all-in-one payment solution for Shopify merchants 

Shopify customers in supported countries and regions have access to Shopify Payments, a native payment processing solution fully integrated into the Shopify platform. This built-in payment processor allows merchants to handle transactions directly within their Shopify admin.

With Shopify Payments, you can process credit card transactions and other popular payment options seamlessly across various sales channels, including in-person, online, and mobile. All transaction data is automatically synced in one dashboard, giving you a complete view of your cash flow and financial reporting.

Shopify Payments offers consistent rates and quick payouts so you always know what you’ll be paid and when—no unexpected surprises. You can also sell with peace of mind knowing all Shopify card readers are PCI-compliant and meet EMV standards for chip payments. Shopify also supports you with robust fraud protection and helps you manage and reconcile chargeback disputes.

But Shopify Payments offers so much more than payment processing. Accepting in-person payments on Shopify POS immediately connects you to over 150 million buyers on Shop. When a Shop user shops at your store, their email is automatically surfaced at checkout. They get one-tap digital receipts and you have an opportunity to seamlessly acquire a new customer. 

Learn more about how the Shopify POS checkout is optimized for customer connections. 

For Shopify merchants, the primary advantage of using Shopify Payments is the ability to manage all payment processing, transaction history, and financial reporting within your existing Shopify admin. This eliminates the need to juggle multiple platforms or reconcile data across different systems, making it a convenient, all-in-one payment solution.

4 common third-party payment processors for retailers

You’ve likely already come across—or even used—some third-party payment processors, each with its own features and fee structures. A few well-known names include the following third-party payment processors list:

PayPal

PayPal is a common third-party payment processor for both online and in-person payments. Its fee structure ranges from 2.29% plus $0.09 to 3.49% plus $0.09, depending on the payment method and type of transaction. It can integrate with Shopify POS and many other POS systems, as well as most ecommerce platforms. 

Reviews are mostly positive, as users like PayPal’s ease of use and features. Those features include the ability to accept a wide range of payment methods, including debit and credit card payments and digital wallets in several global currencies. It also offers a simple process for guest checkout and payment installment options. 

Cybersource

Cybersource is another global payment processing platform, offering more than 50 global currencies. Rather than checks or automated clearing house (ACH) bank transfers, Cybersource disburses funds via debit accounts, prepaid card accounts, and credit accounts. 

In addition to payment processing, Cybersource offers a payment gateway and fraud and risk management for suspicious activity. Reviews are mixed, and cite poor customer service and value. Pricing information isn’t readily available.

Stripe

Stripe is another option for third-party payment processing with its Stripe Payments platform. Its flat-rate fees keep pricing simple: 2.9% plus a $0.30 flat fee on all transactions—there are no hidden fees. It features an open API, which makes it flexible for integrating with a number of business tools and POS system options. 

Stripe earns similar ratings as PayPal, and users also like its features and ease of use. It offers options for brick-and-mortar stores, online retailers, and subscription-based businesses, offering more than 135 global currencies and buy now, pay later (BNPL) functionality. 

Adyen

Adyen is a payment processor specifically targeted to enterprise-level retailers and businesses—not so much for small businesses. In addition to in-person and online payment processing, it offers customer loyalty programs and advanced analytics reporting. 

It uses Interchange+ pricing, mostly ranging from 2.9% plus $0.13 to 3.99% plus $0.13 per transaction, depending on the payment method. Users rate Adyen highly, particularly for ease of use and features.

Pros and cons of third-party payment processors

For retail businesses that sell both online and in-person, the most powerful solution is a payment processor that's fully integrated with your ecommerce platform. This unified approach offers unmatched convenience: a single dashboard for all transactions, seamless inventory syncing across channels, and simplified financial reporting. 

While transaction fees might be slightly higher than traditional merchant accounts, the total value is compelling when you consider the included features: built-in fraud protection, instant payouts, automated fund management, and the ability to sell across multiple channels including social media, online marketplaces, and in-person. 

For most retailers, having all commerce and payment tools in one platform creates significant operational efficiencies that far outweigh any marginal cost savings they might find with a traditional merchant account.

Advantages

• Instant/fast account approval process versus weeks for merchant accounts
• No credit rating or financial track record requirements
• Minimal setup requirements — just business info and a bank account
• Accepts multiple payment methods and currencies (depending on provider)
• Ideal for small businesses with lower transaction volumes
• Simple all-in-one solution that handles fund management

Disadvantages

• Higher transaction fees than merchant accounts (e.g., 2.9% + $0.30 per transaction)
• Customer support quality varies by provider, with some services receiving mixed reviews
• Longer waiting period to access funds (typically 2-7 days for initial payouts)

How to choose a third-party payment processor

Choosing a third-party payment processor requires looking closely at the specific features that come with it. These include: 

Costs and fees

Fees can differ significantly between payment processors. Some charge monthly fees plus a percentage of card payments based on whether it’s an in-person or online transaction. 

These charges can add up quickly.

As you compare third-party options, consider how monthly costs and fees will stack up according to your average sales volume.

Keep in mind that some third-party processors might offer lower transaction fees, but might also require a higher monthly payment or offer limited customer support. 

💡 PRO TIP: Shopify Payments is included in all Shopify POS plans, no sign up or setup fees required. Control your cash flow better and pay the same pre-negotiated rate for all credit cards.

Integrations with your POS

How easily can your third-party payment processor integrate with your point-of-sale (POS) system? If it isn't able to integrate directly with your POS, in-store payments will be processed separately from order data, forcing you to manually reconcile transactions. This creates several challenges: 

• Staff must manually enter sale amounts
• End-of-day reconciliation becomes more time-consuming
• Processing returns or exchanges becomes complex as inventory
• Funds must be managed separately

For example, Shopify Payments is fully integrated with Shopify POS, automatically unifying all your sales data. Your online and offline sales are supported and accounted for in one system, something many major third-party payment services providers aren't able to do. This seamless integration helps prevent errors, saves time on daily reconciliation, and simplifies transaction management.

Customer support

While support may not be your first consideration, it becomes crucial during time-sensitive situations. Look for providers offering multiple communication channels, clear response times, and dedicated account managers. This level of support becomes particularly valuable as your business grows and your payment processing needs become more complex.

Accepted payment methods

Different third-party payment providers accept different cards. For example, Shopify Payments accepts the following when processing payments: 

• Visa
• MasterCard
• American Express
• Discover
• Diners Club
• Elo
• JCB
• China Union Pay

Before choosing a payment solution, make sure it accepts your shoppers' preferred payment methods—this simple step can prevent lost sales and frustration at checkout.

International support and currency conversion 

Are you an international business that needs a third-party processor that supports international currencies online? Take some time to learn which payment processors can do that. 

You’ll have an easier time receiving funds, providing refunds, and settling any disputes that may arise. You’ll also be able to avoid passing on conversion costs to your customers.

Is a third-party payment processor right for your retail store?

A third-party payment processor is the way to go if you’re optimizing for convenience, low fees, and minimal hassle. It makes it easy for startups and growing small businesses to securely manage card payments without wrestling with the technical backend setup to make it all work. 

The good news is that it’s easy to get started using third-party payment systems. Once you’ve made your choice, it’s a matter of opening an account and connecting it to your store platform.