A third party payment network is defined by several key characteristics:
- Central Organization: There must be a central organization with which a substantial number of providers of goods or services have established accounts. These providers must be unrelated to the central organization.
- Agreement to Settle Transactions: There must be an agreement or arrangement between the central organization and the providers to settle transactions for the provision of goods or services to purchasers.
- Standards and Mechanisms for Settling Transactions: The network must provide standards and mechanisms for settling the transactions between the providers and purchasers.
- Guarantee of Payment: The network must guarantee that the providers of goods or services will be paid for their provision of goods or services in settlement of transactions with purchasers.
These characteristics ensure that the network facilitates the transfer of funds from buyers to sellers, typically through an intermediary role played by the central organization. Examples of such networks include online auction payment facilitators like online marketplaces, which operate as intermediaries between buyers and sellers by transferring funds for the provision of goods or services.
Sources:
FS-2023-6
Publication 5316 (11/2023)
FS-2024-3
Rev. Proc. 2013-26
§ 6050W. Returns relating to payments made in settlement of payment card and third party network transactions
PLR 201719009
