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In Banking, What Is a Third Party Transfer?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 November 2016
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Within the banking industry, a third party transfer is a type of transaction that involves making out and depositing a payment into the account of a party other than the individual or entity who received the payment. This type of activity has been common in banking for many years and can be managed manually or using electronic transfer technology to complete. A third party transfer may involve the issuance of third party checks or even using online third party transfer protocols to manage tasks such a paying bills with the aid of a funds transfer.

One of the older approaches to this type of transfer involves the use of a check. In this scenario, a check is issued as a payment by a buyer to a seller. Instead of depositing the check into the seller's account, the seller chooses to endorse the check over to a third party, possibly as a means of settling an outstanding debt. Using the endorsement as authority, the bank of the third party accepts the check and applies the credit to the customer’s account. While the third party was not involved in the original transaction between the buyer and seller, that party does ultimately benefit from the transaction.

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More recently, the ability to manage bill paying functions online have made it possible to use the same basic process of a third party transfer electronically. With this application, a bank customer can provide a bank with written authorization to honor requests for payment from specific creditors when and as they are presented. It is not unusual for the creditor to use a third party agency that manages financial transactions on behalf of that creditor to interact with the bank and complete the transfer of funds from the account at the bank to the bank of the creditor. This allows the creditors to present the bill electronically to the bank and have the payment process without any delays. An approach of this type can be used to manage everything from monthly utility bills to mortgage or car payments, or even other recurring expenses such as the payment or premiums on life insurance policies.

The key with a third party transfer is that authorization is provided to manage the transaction by introducing a third party into the process. In many cases, this means that rather than a client and vendor managing the transaction between themselves, the bank or other financial institution functions as the third party, using instructions provided by the client and vendor to manage the transactions seamlessly. Since transactions of this type can be documented and often completed quickly and easily, this approach has become increasingly common for not only business enterprises, but also for individual households who prefer to manage bill paying with as little effort as possible.

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Terrificli
Post 2

@Vincenzo -- Finding the exact reason for that is difficult, but I've heard a couple of good explanations.

The first, and most plausible, has to do with fraud. People get all worried about transactions on the Internet because of widespread reports of electronic fraud. So, it seems transfers have to run through a series of checks to make sure they are valid. I like that explanation because it reveals an intent on the part of my bank to make sure my money is protected. Like that a lot.

Another explanation is that those electronic transfers aren't instant. They are done in batches. When you send someone some cash on the Internet, it is buffered in a sense. The money

doesn't move at all for a time. It will be picked up during the next batch operation and that can vary from institution to institution.

Again, there are a lot of explanations flying around about why transactions take some time. There are a couple that seem plausible. Take your pick.

Vincenzo
Post 1

Here's something I don't understand. Why on earth do these third party, electronic transactions take so long? It takes a couple of days to transfer cash from my bank to, say, the state when I'm paying taxes. It takes time to move my own money from an electronic source to my bank.

I thought one of the great things about all this connectivity was the ability to move things like cash around instantly. So, what's the deal?

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