Key takeaways
- There are five main ways to structure your flow of funds, split into two approaches: outsourcing to a third party like a PSP to reduce compliance overhead, or keeping funds on your own accounts for maximum flexibility and lower cost.
- Using a PSP simplifies operations but comes with real trade-offs: higher fees, slower settlement, and potential account limits or freezes that are outside your control.
- Many companies combine both approaches, using a PSP to collect payments and their own accounts for payouts, gaining cost and control benefits where it matters most without taking on the full engineering effort upfront.
The flow of funds is a concept familiar to those who have worked with payments or in the financial services industry. It describes the steps involved in moving money from one bank account to another. Seemingly straightforward, the intricacies of the different models are often overlooked. It is important to understand these details to ensure you employ the best option for your business.
There are five core flows that we have observed from our interactions with hundreds of companies. These can broadly be divided into two buckets: outsourcing the flow of funds to reduce complexity and compliance work; and handling funds directly through a company's own accounts. Some companies may opt to combine both methods. Below are the five main setups.
Direct settlement
Direct settlement means funds are transferred directly to the destination account from the source account.
In the context of business payments, an example might be a full-stack insurer paying out funds to customers and collecting premia or repayments directly on their bank accounts.
Another example might be a marketplace where the buyer and seller settle the transaction outside of the platform, meaning that the buyer pays the seller directly without the funds touching the marketplace's bank accounts. Note that for marketplaces, such a model is quite uncommon as it leaves them out of the transaction.
A company in the flow of funds
In this approach, money moves from the source to the destination through a company's account.
Taking a different marketplace example, the buyer would first transfer the funds into the accounts of the marketplace, which then takes a cut for their services and subsequently pays out to the seller. This model brings security into the transaction since the marketplace acts as an escrow while ensuring they receive their share in the transaction.
Handling money movement end-to-end on your accounts gives you the most flexibility and is the most cost-efficient. However, it can mean you have to manage risk and compliance in-house.
Using a payment service provider's accounts
PSPs are third-party providers that sit in the funds flow, meaning money moves through their bank accounts.
In this model, a PSP manages the funds flow end-to-end without money touching the company's accounts. The PSP collects incoming payments into their accounts and pays them out to the destination accounts.
For some companies, services from payment service providers can be valuable. PSPs handle compliance on their behalf, offer safeguarded accounts for customers' funds, and handle complex cases, such as split payments, leading to less overhead for the company to manage.
Outsourcing money movement to a PSP has considerations in terms of cost, speed of settlement, and flexibility. PSPs have to charge hefty fees as they bear risk handling funds on their accounts. An additional party in the funds flow means it will take at least two times as long for the money to hit your accounts. Not to mention potential account limits and freezes.
Using an insurance provider or fronting bank
The third party in the funds flow can be an institution other than a payment service provider. This model is common among tech-first insurers and lenders, where the third party is an insurance partner or a fronting bank. It involves an underwriter on one side of the transaction and a business or consumer on the other. How the accounts are structured is driven by regulatory requirements and preferences of the underwriters.
Commonly, the funds move from the underwriter's accounts to the business' account and, lastly, to the end customer. Alternatively, the company uses the partner's account to disburse the funds. Funds can then either be collected to the company's account or directly to the partner's account.
A combination of your own accounts and those of a PSP
Many companies outsource payment acceptance to PSPs as it is a substantial engineering effort to integrate and orchestrate all popular payment methods across markets. Therefore, a company would first collect payments into a PSP's account. The PSP then transfers the funds to the company's account according to a predetermined cadence, after which they initiate a payout to the destination account.
For example, this model is common for investment apps, marketplaces, and consumer-facing insurers. They would often use a PSP for collecting payments but leverage their accounts to make payouts.
Moving into the funds flow and handling payouts on your accounts will entail cost benefits and give you more control and transparency.
How Atlar can help
For companies that want the cost and control benefits of handling funds on their own accounts, Atlar provides the infrastructure to do it at scale. Our direct bank connections let you bypass PSP fees and settlement delays while avoiding the months of integration work it would take to build in-house.
The Atlar API supports credit transfers and direct debits across your banking partners, with real-time balance visibility and webhook notifications to track every transaction as it moves. AI-powered reconciliation takes care of matching incoming payments to your records, eliminating manual spreadsheet work.
Finance teams get a single dashboard to oversee cash positions and payment activity, with approval chains to enforce internal controls. Native integrations with NetSuite and Microsoft Dynamics keep your ERP updated automatically as funds move.
Companies like Beamery and Natural Cycles use Atlar to manage their flow of funds across multiple banks. To explore whether Atlar is a fit for your setup, book a 30-minute platform demo.
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