What Is a Payment Service Provider, and Does Your B2B Need One?

by | Sep 15, 2022 | Blog

A payment service provider (PSP) is a third-party professional service provider for online businesses that facilitates payments. A PSPS offers online services to eCommerce merchants for accepting electronic payments via a variety of payment methods, including credit card, direct debit, bank transfer, and real-time bank transfers online.

Essentially a PSP allows merchants to accept a wide variety of payments through a single channel. This makes the acceptance process faster and more secure. The PSP works with acquiring banks (payment processors) to manage the entire transaction process from start to finish. A PSP is responsible for all the customer data input when a payment is made, from their credit card details to final funds acceptance in the merchant’s bank account.

Working with a PSP saves a merchant money. A PSP has an integrated system with bulk processing power. This means lower costs for the PSP and lower costs for merchants who use a company to process payments.

What are PSP services?

A PSP offers various services for securely accepting, processing, and managing payments. A turnkey payment solution would ideally integrate the following services in one solution:

Merchant accounts at the acquiring bank.

For online payments to be accepted, a merchant needs a merchant account at an acquiring bank. To open an account, the merchant first needs to apply and wait for approval, a process that takes some time, and can see a merchant face multiple rejections based on simple factors that an inexperienced merchant might overlook. A PSP can help with the application process and even offer access to aggregated merchant accounts, a sub-account created for each merchant under the PSP’s preexisting account with the acquiring bank. This expedites the merchant’s launch process. However, onboarding is still a process that requires rigorous investigation of the merchant for compliance reasons based on international banking agreements.

Support for multiple payment methods.

Different payment methods have different acceptance and authorization requirements. Using a PSP means you can offer your customers a wide range of payment methods through one simple integration. The PSP provides access to a range of payment methods, simplifying acceptance for merchants.

Multiple payment options are one the most important customer satisfaction points. A recent study showed that 43% of customers were more satisfied when offered multiple billing and payment options, which helps to secure leads and close sales. A PSP can give merchants payment acceptance from credit cards, debit cards, mobile wallets, mobile money, and cryptocurrency.

An integrated system also offers merchants an online payment platform with all transaction details in one dashboard location.

Support for multiple currencies.

PSPs can also support multiple processing and settlement currencies. This is vital to the growth of online businesses that can facilitate quick and easy international payments. The PSP needs to have a partnership with an acquiring bank that offers processing services for the currencies you want to accept. Not all acquiring banks allow processing for all currencies. For example, most banks will accept US dollars and Euros, but no bank will accept the North Korean won, as it does not meet international banking regulations.

Accepting multiple currencies is crucial for merchants looking to break into the global market or export goods to neighbouring countries. A PSP offers an aggregated payment solution that merchants need.

Security services, including risk management and PCI DSS compliance.

Recent research found that over a third of online shoppers are reluctant to make purchases because of fear of credit card and personal data fraud.

PCI DSS is a compulsory certification for all businesses handling credit card information. It proves that a business has a secure network and protects cardholder data using a variety of different measures, including offline secure servers, at least two-factor authentication and secure online connections. Merchants can meet these requirements by using a payment page hosted by a PCI DSS-compliant PSP. Without this compliance, an online store is unlikely to secure sales.

Using a PSP – How an online credit card transaction takes place.

When a customer submits credit card details online, the PSP, using an API, carries out the ‘authorization’ process on behalf of the merchant. In just a few seconds, the PSP performs the following actions to confirm payment:

  1. The transaction details are sent to the acquiring bank’s processor.
  2. The information is submitted to the credit card network.
  3. The network sends the transaction details to the issuing bank – this is the bank that issued the card to the customer.
  4. The issuing bank approves or declines the transaction.
  5. This decision is sent back to the credit card network, which sends the result to the acquiring bank’s processor.
  6. The processor then communicates the result to the PSP.
  7. The PSP shares the result with the customer and merchant.

What path do the funds to be paid to the merchant take using a PSP?

If the card payment transaction is authorized, the funds are sent to the merchant via a process called ‘settlement’:

  1. The issuing bank sends the funds to the credit card network.
  2. The network sends the funds to the merchant account at the acquiring bank or the PSP’s merchant account.
  3. If funds are sent to the PSP, the merchant can choose how to receive the funds, such as to a prepaid card or eWallet.
  4. If a merchant has a dedicated merchant account at the acquiring bank, it will receive the funds from the merchant account to its company bank account (‘settlement’) each month in arrears. If it has an account under the umbrella of the PSP, the settlement period can take up to 24 hours.

Using a PSP makes it easier for a merchant to accept and manage many different payment types and offers merchants unparalleled security services and convenient multi-currency functionality. The growth opportunities for your online business are dependent on your ability to accept payments. Customers are attracted to businesses that provide secure payment services, multiple payment options and fast transactions.