What Is a Third-Party Provider (TPP)? Everything you need to know about TPPs
Whether it’s for software, infrastructure, or payment services, businesses often rely on Third-Party Service Providers (TPPs) to fulfil specific needs.
Under open banking regulations, TPPs are essential for carrying out specialised financial tasks that fall outside the business’ expertise. However, they can also present certain challenges that make due diligence imperative.
In this article, we’ll cover what Third-Party Providers are within modern payments, why businesses need them, and the benefits and challenges of working with different types of TPPs.
What is a Third-Party Provider in payments?
In payments, a Third-Party Provider (TPP), also known as a Third-Party Service Provider or Third-Party Payment Processor, is a business or organisation that offers financial services and solutions by leveraging customer data from banks or financial institutions.
TPPs play a central role in the success of open banking, which allows financial data to be shared between banks and authorised third parties – but more on that later.
There are many different Third-Party Providers in the payments space. For example, open banking payment solutions enable real-time transfers (or account-to-account payments) from a customer’s bank account to a merchant. Today, these solutions are widely used in industries as varied as e-commerce and iGaming and are often referred to as Pay by Bank at checkout.
Brite Payments is an example of a TPP, though it’s also a payment provider. It offers multiple payment types and facilitates instant payments using its own proprietary payments network, Brite IPN.
Under EU regulations like the Revised Payment Services Directive (PSD2) and the upcoming Payment Services Directive 3 (PSD3), TPPs can securely access a customer’s financial data using secure APIs provided by an Account Servicing Payment Service Provider (ASPSP), provided the customer has given them explicit permission.
TPPs must adhere to strict security and compliance standards, such as Strong Customer Authentication (SCA), to protect sensitive data and transactions.
You might also be interested in: ‘What Is an Account Servicing Payment Provider (ASPSP)?’
Third-party providers and open banking explained
As we mentioned above, open banking is a system that, with the customer’s consent, allows the sharing of financial data between banks and authorised third parties – such as TPPs – through standardised APIs. This empowers TPPs to offer innovative and personalised financial services, creating a more dynamic and competitive ecosystem.
In essence, TPPs act as a bridge between banks and consumers through value-added services that leverage the data made accessible through open banking.
Two examples include:
- Account Information Service Providers (AISPs): A key role of TPPs is acting as AISPs, which aggregate and analyse financial data from multiple bank accounts to help users manage their finances.
- Payment Initiation Service Providers (PISPs): Through PISPs, consumers can make payments directly from their bank accounts without relying on traditional card networks – a faster and often more cost-effective solution.
In roles like these, TPPs drive innovation in financial products and services. They boost the customer experience by offering tools like budgeting apps, investment platforms, and seamless payment options. In short, TPPs are key players in the open banking ecosystem.
Why do you need Third-Party Service Providers?
In a rapidly evolving market, TPPs play an essential role in enhancing businesses’ financial operations, improving the customer experience, and staying ahead of the competition.
TPPs provide a long list of benefits, including:
- Enhancing the customer experience: Businesses can offer users personalised financial insights and improve engagement and loyalty. TPPs also enable real-time payments, and the potential of smart reconciliation services, reducing wait times for funds to clear.
- Helping reduce costs: Leveraging TPPs allows businesses to save on the high fees often associated with traditional card networks and traditional bank transfers. TPPs offer automation, reducing the operational costs that come with manual or older financial processes.
- Providing access to valuable financial data: TPPs provide aggregated financial data that helps businesses understand customer behaviours, optimise pricing strategies, and identify new market opportunities. Real-time access to financial data also helps businesses monitor and manage their cash flow more effectively.
- Supporting compliance and risk management: TPPs often handle the heavy lifting when it comes to financial regulations, such as PSD2 (and PSD3) or Strong Customer Authentication (SCA), ensuring businesses remain compliant. Using secure APIs, they also help reduce the risks associated with traditional payment systems.
- Providing a competitive advantage: Integrating TPPs enables businesses to quickly roll out new products and services, helping them stay ahead of their competitors. They are more nimble and not burdened by bad practices or older technology.
- Supporting growth and expansion: TPPs, such as Brite Payments, facilitate cross-border payments and compliance, making it easier for businesses to expand and scale internationally. They also allow businesses to adapt to market changes quickly, integrating new financial tools as needed.
The challenges of Third-Party Providers
However, while TPPs have substantial benefits, a few challenges are important to consider and address.
These include:
- Data security and privacy: TPPs rely on access to customers’ financial data. It’s important to choose a provider that offers strong security measures.
- Trust and adoption: Users may hesitate to share their banking information with third parties due to privacy concerns, which can sometimes hinder seamless service adoption.
- Regulatory challenges: Regulations like PSD3 require continuous updates. TPPs must stay compliant, so it’s important for them to stay on top of the regulations.
It’s worth noting that these points are primarily challenging for less reputable TPPs. This makes it important to research potential TPPs before committing to a service. With due diligence and the right TPPs on your side, your business shouldn’t have anything to worry about.
Conclusion
Third-party providers are at the forefront of a changing payments landscape across Europe. Merchants and customers are no longer tied to the old ways of doing business or traditional payment networks that benefit neither.
If you would like to learn more about the benefits of using a TTP for your instant payments, contact us. At Brite, we’re at the forefront of open banking payments and providing our customers with the best possible payment experience now and in the future.
Or if you would like to learn more about the benefits of instant A2A payments (the payment technology behind Pay by Bank) then check out our explainer now.