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What is a Payment Service Provider?

Published 02/05/2020

A payment service provider (or PSP) is used by any business which accepts transactions, such as credit and debit cards, around the world.
To put it simply payment service providers are a vital part of a business which accepts online electronic payments. PSP’s effectively allow merchants to use multiple payment methods so their customers can pay via debit and credit cards in one seamless transaction. Payment service providers work behind the scenes to help manage the technical side of things for the merchant - taking care of things like bank accounts, the relationships with the external network and technical connections. Ultimately, a payment service provider offers a sense of security for both the merchant and consumer. 

How do payment service providers work?

Payment providers essentially are used as a gateway to verify payment information and send that securely between merchants, consumers and banks. We have broken down how they work below: 

  1. Details of a transaction are sent to the merchants acquiring bank once the customer begins the payment. 

  2. All of that information is then transferred to the credit card network, which sends the payment details to the customer’s bank (issuing bank) 

  3. The issuing bank then passes its decision back to the credit card network, who in turn give that back to the merchants acquiring bank.

  4. The payment service provider is then given that decision who passes it to both the consumer and the merchant.

  5. Money from the issuing bank is then sent to the credit card network once the payment has been accepted. The funds are then transferred to the acquiring bank and put into  the PSP’s merchant account.

What are the features and benefits of a PSP?

There are a number of features and benefits for a business to have a PSP. We have outlined them below: 

Security Benefits

There are a number of security benefits for using a payment service provider, with the main being that PSP’s help to protect merchants against card fraud. Anyone who accepts credit and debit card payments must comply with the Payment Card Industry Data Security Standards (PCI DSS) terms and conditions. These are administered by credit card companies and are in place to ensure the consumer’s data is handled securely. Businesses who are compliant with PCI DSS can have peace of mind that a customer’s financial data is secure throughout their whole transaction journey. 

Cost Benefits 

When choosing a payment service provider it’s important to factor in costs. Generally, the cost of a PSP involves a small fixed fee per purchase and a small percentage of the total amount paid. But it is worth noting that there are variations depending on the provider. 

Reporting Benefits 

Reporting payments is essential for any business. Most PSP providers do offer companies monthly reports for both payments and transactions as standard but there are some which provide real-time reporting but be aware that can be an expensive option. 

Card Accepting Benefits 
It is so important nowadays for merchants to offer a number of online payment methods for their customers. According to Fiserv, 43% of consumers prefer to spend with a business that offers multiple ways to pay. Therefore PSPs help to improve customer service. By accepting as many as possible, you can ensure you are keeping your current customers happy and are not turning away any potential customers. Merchants need not worry about setting up individual payment methods as this is carried out by the PSP.

Are Payment Service Providers regulated?

PSPs are regulated by the Financial Conduct Authority (FCA) and must provide information about their regulation status to customers. The regulations ensure that providers can guarantee that merchants will have good standards of service provision and that they work within a level playing field. 

Benefits of using a Payment Service Provider

In summary, reputable payment service providers take care of the entire payment process for a business. Ultimately using a PSP allows a business to accept payments from different types of cards, which as already mentioned, looks far more attractive to consumers and can help boost sales.

PSPs also provide comprehensive transaction reporting and help protect against card fraud. Both are vital to the day to day running of a business which works online. Effectively, payment service providers offer peace of mind to the merchant.