How Does a Payment Service Provider Work?
Payment service providers connect merchants, consumers, card brand networks and merchant acquirers.
They provide the hardware and software like payment gateways to capture payment details and verify this data before sending it over to the processing bank to complete the payment.
Most companies are happy to use one payment service provider to cover all their payment needs whilst others utilize multiple PSPs that specialize in one payment type (i.e. eCommerce) and/or geographic location.
Working with multiple PSPs adds complexity and is really only beneficial to businesses with a large turnover and/or those operating internationally.
Examples of Payment Service Providers
Traditional payment providers have mostly focused on larger businesses, but there is now a plethora of great PSPs focused on SMEs and a breakdown of the different types of payment service providers can be seen here.
Some of the more well known PSPs include those listed below which can range from full service to specialised online payment providers.
Square: Square offers payment processing and hardware for micro and small businesses to accept in-person payments without committing to a monthly contract. The company eliminates the need for expensive hardware, allowing you to accept payments with your tablet or their low-cost mobile card reader.
Worldpay: Worldpay is a traditional payment service provider built for the digital age and better suited to larger companies that need the best rates for processing a high volume of in-person card payments. The company is a genuine market leader, but the quality of their service hasn’t quite caught up with the modern business demands – especially in regards to online payments.
PayPal: PayPal is an online payment service provider that supports card payments and supplies a basic payment gateway for transactions. PayPal’s transaction fees remain affordable for smaller online businesses although usability and customization options aren’t as impressive as some of the newer names in online PSPs.
Stripe: Stripe is establishing itself as a dominant player in online payment processing, offering competitive transaction fees and comprehensive payment services, including online card payments, invoicing, subscription billing and a terminal for in-person payments.
Braintree: Braintree is an online and mobile payment provider used by the likes of Airbnb, Uber and GitHub. The platform is designed for developers to customize their offerings at the code level and integrate it seamlessly with websites and mobile apps.
Payment Service Provider vs Payment Gateway: What Is the Difference?
A payment gateway is an interface that allows users to type in their card or payment details. The gateway provider verifies the information and sends it to the processing bank.
Once the transaction has been processed, the gateway confirms the transaction was successful and the purchase is complete.
Essentially, a payment gateway is a tool that approves or declines payments between the customer and your website. The transaction itself still needs processing which requires either a merchant account or a PSP that also provides or works with one.
A payment service provider offers an alternative to having a standard merchant account and a contract with another company to provide a standalone payment gateway.
PSPs offer a merchant account and a payment gateway under one roof and can therefore process payments as well as collect the funds.
Payment Service Provider vs Merchant Account: What Is the Difference?
A merchant account is a type of commercial bank account that enables businesses to accept card payments, store funds and deposit payments to your business account after the settlement date.
Merchant acquiring banks provide these accounts and partner with payment processor companies that physically process credit and debit card transactions.
In other words, you need a merchant account before you can accept card payments and you can apply for one directly from a merchant bank or through a PSP.
Payment service providers partner with merchant banks, allowing them to create merchant accounts on your behalf. Alternatively, many PSPs have pre-existing merchant accounts ready for new customers to use.
By using a payment service provider, you don’t need to approach merchant banks, apply for a merchant account and negotiate terms with companies that typically favour large, high-volume businesses.
4 Benefits Of Using a Payment Service Provider
We’ve already touched on several benefits of using a payment service provider but here is a full summary of the key reasons to work with a PSP:
Easier access to acquiring banks
Before you can accept card payments, you need to open a merchant account with an acquiring bank. This process takes time and acquiring banks have strict acceptance requirements that many businesses struggle to meet, especially smaller businesses.
A payment service provider makes it easier to secure a merchant account by partnering with acquiring banks and taking on responsibilities for them. Many PSPs now use pre-existing merchant accounts that are already approved for use.
Extensive payment options
Many PSPs enable businesses to take a wide range of payments methods through a single channel. They will also make it far easier to add additional payment methods in the future as your business changes or technology advances.
You can select a PSP that provides all the payment services you require in one contract rather than having to work with several other companies independently.
Bundling everything you need into a single service means you only need to deal with one company to make any changes or resolve technical issues.
Payment service providers are regulated entities at the forefront of payment security. It’s their responsibility to protect everyone involved in the transaction process from fraud and security breaches.
Today’s PSPs are heavily involved in the development and application of new security technologies that keep you and your customers safe.
How We Can Help You Find a PSP For Your Business
Finding the right payment services for your business can be difficult, especially in the digital age and all of the added complexity it brings.
Payment service providers have driven innovation and opened up digital payments for businesses of all sizes – from food stall micro-businesses to the rising stars in online retail.
If you’re struggling to find the right payment services for your business please complete our short form and we can help you find the ideal provider to meet your needs and negotiate the best rates for you.