Third-party payment processors: How they work and how to choose one

Key takeaways

• Third-party payment processors let you accept online payments without setting up a dedicated merchant account. They handle transaction routing, fraud checks, and compliance for you.

• The right provider gives you transparent pricing, support for multiple currencies and payment methods, and easy integration with the tools you already use.

• Airwallex brings payment processing, a payment gateway, and multi-currency accounts together in one platform, so you can accept payments in 180+ countries without stitching together multiple providers.

A third-party payment processor is a service that handles online transactions for your business. It routes payments, checks for fraud, and manages compliance, so you can start accepting payments without setting up a dedicated merchant account.

Many businesses try to manage this with a patchwork of gateways, plugins, and bank accounts. That works, until it doesn’t. Settlement delays, reconciliation headaches, and clunky checkouts start getting in the way of growth. Third-party payment processors take care of transaction routing, fraud checks, and compliance, so you can focus on selling.

With eCommerce revenue hitting US$4.32 trillion in 2025 and still climbing,¹ having a payment setup that can keep up with demand isn’t optional anymore.

This guide breaks down what third-party payment processors are, how they work, the trade-offs to think about, and how to choose one that supports your long-term growth.

What is a third-party payment processor?

A third-party payment processor is a service that lets your business accept online payments without opening a dedicated merchant account with a bank. It sits between your checkout, your customer’s bank, and your own bank, handling the payment in real time so funds move from the customer to your business quickly and securely.

Think of a third-party processor like a shared checkout counter. Instead of building your own till system and connecting it directly to every card network, you plug into one that’s already set up and already processing payments for thousands of other businesses. You get the benefit of established systems without the setup time or cost.

It also helps to separate a few terms that often get mixed up:

• A payment processor handles the transaction itself, verifying funds, communicating with card networks, and moving money.

• A payment gateway is the technology that captures and encrypts payment details at checkout, then passes them to the processor.

• A merchant account is a type of bank account that holds funds from card transactions before they’re transferred to your business account.

Third-party processors usually bundle all three functions together, and that’s a big reason they’re so popular with businesses that want a simpler setup.

How third-party payment processors work

The trip from clicking "Buy Now" to seeing the payment confirmation page only takes a few seconds, but a lot happens behind the scenes. Third-party payment processors handle that whole process for you, linking your customer, their bank, your checkout, and your business account.

Here’s how it works when a customer in Berlin buys a product from your UK store:

• When the customer starts a purchase, the processor collects and encrypts their payment details.

• The processor communicates with the customer’s bank and payment networks to verify funds and approve the transaction.

• If the payment is approved, the funds are temporarily held in a shared merchant account, which is a pooled account the processor manages for many businesses.

• After deducting processing fees, the remaining funds are transferred to your business account.

Because you’re using a shared merchant account, you don’t need to set up one of your own. That makes third-party processors a faster option for businesses that want to start accepting payments without delays. The trade-off is that payouts may take longer than the same-day or next-day settlements you can get with a dedicated merchant account. Settlement times vary by provider, and they usually range from one to several business days.

Now that the process is clear, it helps to look at who the main players are in this space.

Examples of third-party payment processors

Several well-known third-party processors serve businesses of different sizes and in different industries. Here are some of the most common names you’ll come across:

• Airwallex: A global payment platform built for businesses selling across borders. Airwallex combines payment processing, multi-currency accounts, and local acquiring in 35+ markets, which makes it a strong fit for companies that need to accept payments in multiple currencies without juggling separate providers.

• PayPal: One of the most widely recognised third-party processors, used by millions of consumers and businesses worldwide. PayPal is especially popular for its buyer protection features and strong brand recognition at checkout.

• Stripe: A developer-focused platform known for its flexible APIs and extensive documentation. Stripe is often picked by tech companies and startups that want to build custom payment experiences.

• Square: Originally built for in-person payments with its card readers, Square now offers online payment processing too. It’s popular with small businesses and retail operations.

• Adyen: An enterprise-focused processor used by large global brands. Adyen offers unified commerce solutions that connect online, in-store, and mobile payments.

Each processor has its own strengths when it comes to pricing, global reach, and supported payment methods. The right choice depends on where you sell, how you sell, and what your customers expect at checkout.

Before getting into how to choose one, though, it’s worth understanding the trade-offs that come with using a third-party processor in the first place.

Advantages and disadvantages of third-party payment processors

Third-party processors offer real benefits, but they also come with trade-offs. Looking at both sides helps you decide whether they’re the right fit, or whether a dedicated merchant account makes more sense for your business.

Advantages:

• Fast setup without a dedicated merchant account. You can start accepting payments in hours instead of weeks. There’s no long application process or underwriting. You just sign up, integrate, and go live.

• Compliance and security handled for you. Third-party processors manage PCI DSS compliance, data encryption, and tokenization on your behalf, so you don’t have to build or maintain that setup yourself.Many also include AI-powered fraud detection tools.

• Support for multiple payment methods and currencies. Most processors let you accept credit cards, debit cards, digital wallets like Apple Pay and Google Pay, and local payment methods, all through a single integration.

• Lower barrier to entry for small businesses and startups. With no setup fees and pay-as-you-go pricing, you can start processing payments without a big upfront investment.

Disadvantages:

• Potentially higher per-transaction fees at volume. Flat-rate pricing, such as 2.9% + £0.30 per transaction, is easy to budget for. But if you’re processing £100,000 a month, interchange-plus pricing through a dedicated merchant account could save you a lot.

• Slower fund settlement. Because funds move through a shared merchant account, payouts usually take longer than the same-day or next-day settlement you’d get with a dedicated account.

• Less control over checkout customisation. Some processors limit how much you can tailor the payment experience to match your brand, especially on hosted checkout pages.

• Risk of account holds or freezes. With pooled accounts, processors manage risk across all their merchants. If your transaction patterns trigger their fraud algorithms, even when nothing’s wrong, your funds could be held whilst they investigate.

With those trade-offs in mind, it’s worth comparing third-party processors directly with dedicated merchant accounts to see which model fits your situation.

What's the difference between third-party payment processors and merchant account providers?

Third-party processors and merchant account providers are easy to mix up because many processors now offer both. So, here’s how they differ across the things that matter most, so you can choose the right setup.

Which is right for your business?

If you’re a startup or SME that wants to start accepting payments quickly, a third-party processor is usually the better fit. Setup is fast, pricing is predictable, and you don’t have to manage compliance yourself.

If you’re processing high volumes, say over £50,000 a month, and you need faster settlement or custom pricing, a dedicated merchant account may make more sense. You’ll get more control, but you’ll also take on more responsibility for compliance and integration.

If you want both speed and scale, look for a provider that combines the simplicity of a third-party processor with the capabilities of a full payment platform. That way, you won’t need to switch providers as you grow. With that comparison in place, here’s what to look for when you’re evaluating specific providers.

How to choose a third-party payment processor

The right third-party payment processor should be quick to implement, cost-effective, work with your existing tools, and support your business as it grows. Here’s what to look at.

Check pricing and fee transparency

Payment processing fees can eat into your margins if you’re not careful. Most third-party processors use flat-rate pricing, a fixed percentage plus a per-transaction fee, which is easy to understand but can get expensive at higher volumes.

Beyond the headline rate, keep an eye out for hidden costs: chargeback fees, PCI compliance fees, currency conversion surcharges, and instant payout fees. If you’re charged 1–2% on currency conversion on top of your per-transaction fee, that can add up quickly for international sales. Some providers, like Airwallex, offer interbank FX rates that can reduce this cost a lot.

Question to ask: What’s the all-in cost per transaction, including currency conversion and any monthly fees?

Look for multi-currency and cross-border support

If you sell internationally, or plan to, your processor needs to handle multiple currencies and local payment methods. That means more than just accepting foreign cards. It also means local acquiring, which is processing payments through local networks for higher approval rates, and support for the payment methods your customers are already using.

For example, if a customer in Japan wants to pay with Konbini, which is a popular convenience store payment method, your processor needs to support that or you’ll lose the sale. Airwallex supports 160+ payment methods across 180+ countries, with local acquiring in 35+ markets.

Question to ask: Which currencies and local payment methods do you support in my target markets?

Confirm eCommerce platform compatibility

Your processor should work with the tools you already use. If you’re running a Shopify, WooCommerce, Magento, or BigCommerce store, check whether the processor offers pre-built plugins that let you go live without developer work.

Some processors offer no-code plugins for quick setup, whilst others need API integration for more customised experiences. Airwallex offers Payment Plugins for all four major platforms, plus flexible APIs if you need a tailored checkout.

Question to ask: Do you have a pre-built plugin for my eCommerce platform, and how long does integration typically take?

Assess security and compliance

A good third-party processor handles most compliance requirements for you. Look for PCI DSS Level 1 certification, which is the highest level, tokenization to protect card data, and fraud detection tools that flag suspicious transactions before they cost you money.

Using a PCI-compliant processor also reduces your own PCI scope, which means fewer security questionnaires and audits on your side.

Question to ask: What’s your PCI DSS certification level, and what fraud prevention tools are included?

Evaluate setup speed and integration options

The sooner you can start accepting payments, the sooner you can start making sales. Some processors let you go live in a day with a no-code plugin. Others need weeks of developer work.

Look for processors with pre-built integrations, well-documented APIs, and responsive developer support. If you’re not technical, put plug-and-play solutions first, especially ones that don’t need custom code.

Question to ask: How quickly can I go live, and what support do you offer during integration?

If cross-border reach and multi-currency support are priorities, here’s how we can help.

Accept payments globally with Airwallex

If you’re selling internationally and want to stop juggling multiple providers, Airwallex brings payment processing, a payment gateway, and multi-currency accounts together in one platform. You can accept payments in 180+ countries, with 160+ payment methods and local acquiring in 35+ markets, which means higher approval rates and lower costs on cross-border transactions.

Setup is fast: choose no-code plugins for Shopify, WooCommerce, Magento, or BigCommerce, or build a custom checkout with our APIs. Airwallex also offers Business Accounts with interbank FX rates and Spend Management tools like Bill Pay and reimbursements, so you can see all your payments, FX, and spending in one place. Get started with Airwallex.

Frequently asked questions

What is a third-party payment processor?

A third-party payment processor is a service that lets your business accept online payments without setting up a dedicated merchant account. It routes transactions between your customer, the card networks, and your business account, handling fraud checks, encryption, and compliance along the way.

What are examples of third-party payment processors?

Common examples include Airwallex, PayPal, Stripe, Square, and Adyen. Each one differs in pricing, global reach, and supported payment methods, so the right choice depends on where and how you sell.

How quickly do third-party payment processors settle funds?

Settlement times vary by provider, but most third-party payment processors settle funds within one to seven business days. Some providers offer faster settlement for an additional fee.

What's the difference between a third-party payment processor and a merchant account?

A third-party processor lets you start accepting payments using a shared merchant account managed by the processor. A dedicated merchant account is set up specifically for your business, which gives you faster settlement and more control, but it also means a longer application process and more compliance responsibility.

Are third-party payment processors secure?

Yes, reputable third-party processors are PCI DSS compliant and use encryption, tokenization, and fraud detection to protect transactions. Using a compliant processor also reduces your own PCI scope, which means fewer security requirements on your side.

Sources and references

• https://www.statista.com/outlook/emo/ecommerce/worldwide