In Banking, What Is a Third Party Transfer? Meaning, 8 Facts

Third party transfer means the transfer of funds from an account held by one person (the sender) to an account held by someone else (the recipient). 

In Banking, What Is a Third Party Transfer?

A third party transfer is a type of financial transaction in which money is sent to someone other than the intended receiver and put into their bank account.

This has been going on for years in the banking industry, and it can be handled manually or through the use of electronic transfer technologies.

In Banking, What Is a Third Party Transfer?

The use of a third party check or online third party transfer protocols to handle a financial transaction such as bill payment is an example of a third party transfer.

Understanding Third-Party Transfer

When a buyer and seller engage in a business transaction, an intermediary, or third party, acts as a go-between.

The role of the neutral party is up to interpretation. Acting as a middleman between a buyer and a seller, determining the conditions of the transaction at hand, or doing any other activity for the company that is slightly outside its core expertise are all instances of this function.

Several accounting standards rely on the precise documentation of third-party transactions. It’s important to highlight that the third party in this transaction has no links to any of the other two.

A third-party transaction occurs when Company A sells stock to Company B, who then sells the finished goods to Company C.

A Third Party Transfer In The Past

The use of a check is a typical approach for carrying out this transfer. In this case, a customer sends a check to a seller in exchange for an item or service.

In Banking, What Is a Third Party Transfer?

The seller may be attempting to pay a debt by endorsing the check to someone other than themselves rather than putting it into their own account.

The endorsement is recognized by the second party’s bank as authority to accept the check and commence the account credit. Despite the fact that the third party was not directly involved in the initial transaction between the buyer and seller, they benefit from the deal in the end.

A Third Party Transfer Nowadays

Due to the ability to perform bill payment activities online, the same essential notion of a third-party transfer has recently been viable to utilize electronically. With this form, a client can expressly authorize the bank to pay specific creditors whenever they make a legitimate payment demand.

To complete the transfer of funds from the bank’s account to the creditor’s account, it is not commonplace for the creditor to use a third-party agency that administers financial transactions on behalf of that creditor to connect with the bank.

This speeds up the payment process by allowing creditors to submit bills to the bank electronically. This strategy may be used to handle any recurring expenditure, from monthly energy bills to mortgage or vehicle payments to monthly life insurance premiums.

The key with a third party transfer

When a third party is engaged in a transfer, they are given authorization to conduct the transaction on the sender’s and recipient’s behalf.

In Banking, What Is a Third Party Transfer?

Instead of the client and vendor conducting the transaction directly, the bank or other financial institution serves as a third party, following the client and vendor’s instructions to guarantee a flawless transaction.

This strategy is popular not just among corporations, but also among individuals who want to manage bill payments with as little effort as possible, owing to the convenience with which such transactions may be logged and often conducted.

Example of a Third-Party Transfer

Every day, firms in a variety of industries engage in a variety of transactions that frequently include third parties.

Insurance brokers, for example, function as independent agents, advertising various insurance plans to clients. The broker works as a go-between between the client and the insurance company, allowing the latter to earn a new client while the former receives access to a better insurance policy with better terms and price.

If the broker successfully introduces a new customer to the insurance business, the broker is compensated by the firm in the form of a commission.

A mortgage broker, similarly, operates as a go-between in a transaction between a lender and a borrower, attempting to match the latter’s needs with the former’s financing alternatives.

Payment for third-party goods and services is now possible through digital platforms.

Transactions covered under Third Party Transfers

NEFT

National Electronic Fund Transfer (NEFT) was established in 2005 and is controlled by the Reserve Bank of India (RBI). It allows clients of participating financial institutions to electronically transfer funds between any two NEFT-enabled bank accounts.

In Banking, What Is a Third Party Transfer?

NEFT was largely considered as the greatest means to transmit money fast online until 2016, when UPI was launched. If a consumer want to make a NEFT transaction, they must do it during regular banking hours.

Variation between branches is conceivable. NEFT’s regular business hours are Monday through Friday, 9:00 a.m. to 7:00 p.m., and Saturday, 9:00 a.m. to 1:00 p.m.

                           Pros                           Cons
No processing charges Batchwise clearing mechanism
No maximum limit set by RBI 23 half-hourly settlement cycles

RTGS

Real Time Gross Settlement’s principal job is to process extraordinarily big monetary transactions. Unlike NEFT, there is no waiting period connected with this payment transaction.

Because the transfer is closely monitored by the RBI, the transaction is considered settled and complete as soon as it is executed. For the transfer to be completed, both the sender’s and the recipient’s banks must support RTGS.

Keep in mind that RTGS payments are restricted to banking hours. This type of payment is available Monday through Friday, 9:00 a.m. to 4:00 p.m., and Saturday, 9:00 a.m. to 2:00 p.m.

                              Pros                               Cons
No upper limit Minimum amount of transfer is Rs 2 lakhs

IMPS

Money may be transmitted instantaneously between a user’s bank account and the account of any IMPS beneficiary by utilizing the Immediate Payment Service (IMPS).

IMPS is available 24 hours a day, seven days a week through a number of channels such as ATMs, internet banking, and others.

Customers may do transactions at any time of day or night because the service is available 24 hours a day, seven days a week.

                            Pros                              Cons
Can be used 24*7 to transfer funds Service Tax
Mobile-friendly

 

Special Considerations

Third-party transactions mediated by online payment systems are becoming more prevalent as technology progresses and changes the nature of digital interactions.

A buyer can use a digital platform to pay for an item or service from a vendor. The buyer sends payment to the third-party provider, who examines the buyer’s account to ensure the funds are available and conducts a debit transaction.

In Banking, What Is a Third Party Transfer?

Following that, the monies are sent to the vendor’s account, which is normally hosted on the same platform. The money can be withdrawn to a bank account or utilized for other transactions once they have been transferred into the seller’s account, which might take minutes or days.

PayPal is an example of an online payment platform that acts as a neutral third party in retail transactions.

A seller promotes a product or service, and a consumer purchases it by inputting credit card information into the PayPal website. Because it is processed through PayPal, this is a third-party transaction.

Conclusion

A third party transfer, also known as an electronic money transfer, is a payment or transaction that is not started by the payer but is instead handed to a third party for processing, often a bank or financial institution.

In the banking business, a third party transfer (or electronic money transfer) is any payment or transaction that is not performed directly by the client but is instead entrusted to a third party, often a bank or financial institution, to complete on their behalf.

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