What does split funding refer to in payment processing?

Split funding in payment processing specifically refers to the practice of directing a portion of the funds from a single transaction to multiple parties, such as a merchant and a third-party service. This is commonly used in transactions where partnerships or affiliate arrangements exist, allowing automatic allocation of funds as established by the agreements between the involved entities.

This method streamlines the payment process, ensuring that each party receives their appropriate share immediately upon completion of the transaction. It can be particularly relevant in scenarios like payment gateways where a service provider may want to distribute funds to both the vendor and a service partner involved in the transaction.

Other options do not accurately capture the essence of split funding. For instance, receiving payments directly in cash does not involve the splitting of funds among multiple parties, and sharing transaction fees between merchants and consumers does not pertain to the direct allocation of funds resulting from a transaction. Similarly, segregating funds for tax purposes deals with the separation of funds for accountability and compliance, rather than a division of payments among multiple recipients right after a transaction.