What is a 'Chained Payment'

A chained payment is a parallel method of payment that involves a sender making one payment to multiple recipients. Chained payments involve some form of link that connects the sender to a primary recipient who is connected to secondary recipients of the funds sent.

Breaking Down 'Chained Payment'

Technological advances are rapidly shifting the commercial landscape from a physical one to a digital sphere. In the financial industry, traditional services and products that could be obtained in a physical location and by conversing with a human financial professional can now be gotten online thereby foregoing costs of transportation and minimizing valuable time expended meeting with a human.

Fintech, technology in finance, aims to disrupt the norm of doing things by making services and goods accessible to everyone at minimal costs. In other words, Fintech innovations aim to promote financial inclusion of all people in all continents. Financial inclusion dictates that a consumer should be able to access and make payments for products on any platform at a small cost. Digital payment platforms and online retailers are warming up to this ideology of maximizing the customer’s experience and are inventing new ways goods can be purchased by the customer conveniently. Innovative payment mechanisms like digital chained payments are being implemented for consumers who have a need to make payments to multiple sources or providers of a good or service while minimizing transactional costs.

Chained Payment in Practice

The traditional method of making payments to sellers or multiple service providers would require the buyer or user to send payments to each of them individually. For example, an individual may have to make separate payments for their Internet Service Provider (ISP), cable service company, cell phone data provider, and land line service provider. Each of these payments may carry costs that arise from bank fees, credit card processing fees, mailing fees, or even fees from the individual service providers. Lately, technological advances have made it possible for these services to be bundled into one service by a provider, making the single payment process that ensues more convenient and cost-effective for the user.

As more services are made available online, the need for companies to be able to pay multiple vendors in their supply chain network in a cost-effective manner is in high demand. PayPal’s Adaptive Payments modules is the most popular tool used for making one payment to several vendors. The platform’s API enables developers to build chain payment apps and systems that are linked to PayPal. This makes it plausible for a merchant to control its clients’ transactions within a single interface without incurring set-up costs, monthly minimums, cancelation charges, or monthly fees.

A chain payments transaction has multiple players including one sender of the funds, one primary receiver of the funds, and multiple secondary receivers that make up the supply chain network of the primary receiver. The primary receiver must have a PayPal business account, while the other parties on the chain can have any type of PayPal account. Either way, a PayPal account is necessary to complete a chained payment,

Chained Payment Example

Consider an example using an online travel agency, OneStop. When a traveler schedules a trip using the site, they book a flight, reserves a hotel room, and make reservations to rent a car at the airport using OneStop. The online agency gives the traveler their final bill which comes to $650 including $50 in commissions. If the traveler (sender) approves the amount, PayPal deducts $650 from the traveler’s account, deposits $50 to the agency’s (primary receiver) account, $300 to the airline (secondary receiver), $200 to the hotel (secondary receiver), and $100 to the car rental company (secondary receiver). Through a single interface using PayPal, a service user and provider are able to pay several recipients with one click of a button.

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