With the advance of online marketplace models the demand for split funding functionality increases. However, many payment service providers (PSP) are reluctant to offer split payment processing functionality to their customers on top of already provided merchant services. Payment service providers are discouraged by the risks and challenges, associated with traditional split funding platforms.
Challenges of a traditional split funding model
When a chargeback is issued or refund requested by a customer, the challenges of a traditional split funding mechanism become obvious. The primary merchant or affiliates can be unable to pay their shares of the amount (due to lack of funds or other reasons). In this situation the heaviest burden may fall upon the PSP (while the outstanding debts will be recorded as future payables by the merchant and affiliates). That is why the model can be called a PSP-centric one.
Challenges of a merchant-centric split funding model
In a merchant-centric split funding model, when a payment comes in, the merchant has to return all outstanding debts to the PSP. And when a chargeback is issued by a customer, the whole amount should be covered by a merchant, while the share, owed by affiliates, should be recorded as future payables. In this way, the split payment model becomes much more transparent and attractive for payment service providers.
Read more about split funding challenges in the respective article on Paylosophy.