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How Adaptive Payments are Changing the Customer and Vendor Experience

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Today’s digital world is continually shifting how sellers sell and buyers buy. With the advent of online marketplaces, which make it easier for buyers to purchase from multiple sellers in a single transaction, as well as the rising prominence of the gig and sharing economies, which are powered by platforms that offer an array of add-ons, services, and fees from multiple providers, the traditional one-to-one ratio between seller and buyer is no longer relevant. To meet this new reality, modern online marketplaces now employ adaptive payment methods.

What are adaptive payments and how do they work?

 Adaptive payments are payments made between one sender and multiple receivers–for example, let’s say you need a cell phone carrier, cable company, and internet service provider to fulfill your communication needs. Typically, you’d have to set up contracts with each company and repeat the process three times–but adaptive payments let you combine these under one provider to simplify processes and increase efficiency. 

Traditionally, if a buyer was looking to avail of multiple services offered by more than one provider of a similar category, they would need to purchase from and remit payments to each provider individually.

For example, a customer looking to fulfill their communications needs would be required to purchase from and make unique payments to a cable company, a cell phone carrier, an internet service provider, and a land line provider. In a traditional model, the customer would be required to enter a contractual relationship with each vendor, remit monthly payments to each vendor, and cover distinct costs from each vendor to account for things like credit card processing and bank fees.

With the introduction of marketplaces, bundling, and adaptive payments, these types of services can be combined under a single provider to simplify transactions while offering convenience, price concessions and other advantages to the customer. This simplifies the customer experience while providing vendors with an automated way to offer their customers more value.

The Skinny on Adaptive Payments

There are two primary types of adaptive payments:

Parallel payments, where payments that are sent directly to each receiver with the fees shared by each receiver respectively, and chained payments, where payment is remitted to one receiver who is liable for the overall transaction, including remitting payments to secondary receivers.

In the case of parallel payments, the amount paid to each vendor is fully transparent to the customer, even though they are only required to partake in a single transaction. In the case of chained payments, the customer only deals with a single receiver and does not have visibility or concern related to subsequent transactions.

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Details and Benefits: Parallel Payments

With parallel payments, when a shopper views an online shopping cart, they see a breakdown of the complete transaction, including how much money will be paid to each receiver. For example, if the cart shows three items, each sold by a unique supplier, and the marketplace itself is also taking a fee for the sale of each item, the customer would see all five receivers on their transaction as well as a breakdown of each receiver’s payment.

From the seller’s perspective, each receiver is treated the same. Any costs associated with the transaction are split between the receivers, removing the need for a primary seller to pass on fees or manage any subsequent transactions. From a business perspective, this reduces transaction overhead as each receiver is only concerned with their cut of the sale.

Details and Benefits: Chained Payments

With chained payments, when a shopper views their online shopping cart, they are making a single payment to one payment receiver – the store operator. When the payment is made successfully, the shop owner is accountable for remitting payment to each of the secondary recipients, typically handled through automation.

Unlike parallel payments, chained payments offer the primary receiver the ability to control the timing of the subsequent payment process. For example, if you’re operating a marketplace and want to release payments to secondary receivers on a delay, on a weekly or monthly basis, or when they reach a certain milestone or goal, you can. This gives you the ability manage your business relationship with secondary receivers and offer incentives for long-term engagement. It also gives you more control over your business continuity and cash flow by incentivizing ongoing relationships with secondary receivers.

Basic Example: Parallel vs. Chained Payment

For the sake of ease, we’ll start with a straightforward, oversimplified example. Let’s say you’re selling crocheted blankets on an online marketplace for $100 and have agreed to pay the yarn maker $20 for every blanket sold.

In the case of a parallel payment, when the customer purchases the blanket, their checkout process will clearly indicate that they’re paying both you and the yarn maker. They would see the breakdown indicating that they’re paying you $80 and the yarn maker $20. You would receive a straightforward payment of $80. Any associated fees related to the transaction would be split between you and the yarn maker at an 80/20 ratio.

In the case of a chained payment, when the customer purchases the blanket, they only deal with you. Their checkout process indicates you as the vendor collecting a charge for $100. They don’t know about or care about your arrangement with the yarn maker. Since you’ve agreed to pay the yarn maker $20 for the transaction, you would then be responsible for submitting that payment directly to the yarn maker. Any associated fees related to the transaction would be your accountability, however you can determine which fees to pass on to the yarn maker. Additionally, you would define when you release the payment to the yarn maker, giving you increased control over service continuity and cash flow.

Enterprise Example

A common example in enterprise technology relates to applications that offer the user the ability to store data in the cloud. When a customer purchases a cloud application, they are effectively purchasing the app itself, along with the data usage costs associated with hosting their data in the cloud. Often times, the cloud storage itself is owned and managed by a third-party company.

In the case of a parallel payment, the customer would see two distinct line items with two distinct receivers on their invoice. First, they would see a line item for the application itself, payable to the application provider. Next, they would see a line item for the data usage, payable to the provider of the cloud hosting. They would remit payment once, but the payments would be split respectively to each service provider.

In the case of a chained payment, the customer would only see one receiver on their invoice which would accept payment for the application and data usage. If the primary seller is purchasing data from another cloud services vendor, they would be responsible for remitting payment to that vendor according to the terms of their agreement.

When Parallel and Chained Payments Collide

In some cases, online marketplaces may use a combination of parallel and chained payments for distributing payment amongst various payees. For example, when a guest reserves a home on AirBnb, their payment is broken up by fee, including the rate for each night, cleaning fees, service fees, and state and local taxes.

Some of these fees are distributed using a parallel payment model. For example, the AirBnB service fee is automatically remitted to AirBnB; the host has no action or responsibility related to remitting that payment.

On the other hand, some of these fees are paid to the host with the expectation that they will be distributed using a chained payment model. For example, cleaning fees are paid directly to the host who has the responsibility of hiring and paying the cleaning service, as well as the accountability for any associated fees.


As technology continues to advance and online marketplaces become the norm, more and more vendors will need to look at adaptive payment methods and which options meet the strategic goals and needs of their organizations. By developing a strategy that aligns to business objectives, and supporting the strategy with automation, businesses will be positioned to expand their offerings and do more for customers.

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