6 Aug 2024 Article

What is a Payment Service Provider (PSP)?

Payment service providers (PSPs) are an important part of the payments ecosystem. They facilitate electronic payment transactions and enable businesses to accept a wide range of payment methods.

As a business owner, selecting a PSP is an important decision. Your PSP can significantly impact your company’s performance, customer experience, and potential growth. That’s why it’s essential to choose the right provider for your business.

In this article, we’ll cover what payment service providers are, what they do, and the benefits your business stands to gain from using a PSP.

Topics we will discuss include:

What is a payment service provider (PSP)?
What do payment service providers do?
What is a third-party provider (TPP)?
- What is the difference between a PSP and a TPP?
  - Services provided
  - Target users
  - Regulatory framework
  - Integration and APIs
The benefits of using a payment service provider
How to choose the right PSP for your business

What is a payment service provider (PSP)?

A payment service provider (PSP) is a company that offers merchants online services for accepting payments.

PSPs enable merchants to accept electronic payments via a variety of payment methods, including credit cards, direct debit, bank transfers, and real-time bank transfers based on online banking.

Examples of PSPs include:

Adyen
PayPal
Stripe
Mollie

PSPs provide a number of back-office value-added services which make them particularly well-suited for small and medium-sized enterprises (SMEs). Larger merchants are more likely to integrate individual payment methods directly.

Note: Brite Payments is also a PSP as it offers several other payment methods, including iDEAL and Swish, and facilitates payments using its own proprietary payments network, Brite IPN, but it is perhaps better described as a third-party provider (TPP). We’ll cover the difference between PSPs and TPPs later in this article.

What do payment service providers do?

There are several different models for payment service providers. At their core, however, most PSPs facilitate transactions between merchants and their customers by connecting to multiple acquiring banks, card networks, payment processors, and alternative payment methods.

Some of the key functions and features of PSPs include:

Payment processing: PSPs handle the technical and logistical aspects of processing payments, including the authorisation, capture, and settlement of funds.
Multiple payment methods: Payment service providers support a wide range of payment methods, such as credit and debit cards, digital wallets (e.g. PayPal and Apple Pay), and account-to-account payments – some providers even support cryptocurrencies.
Security and compliance: PSPs provide security features such as encryption and fraud detection to protect sensitive payment information. They also ensure compliance with a variety of regulatory standards, such as PCI-DSS.
Currency and global payments: Many payment service providers offer services that allow merchants to accept payments in multiple currencies and from customers around the world.
Reporting and analytics: Most PSPs provide detailed reporting and analytics tools, enabling merchants to track and manage their transactions, identify trends, and make data-driven decisions.
Integration: Payment service providers offer a variety of integration options – e.g. APIs and plugins for e-commerce platforms – that make it easier for merchants to integrate payment processing into their websites or apps.

What is a third-party provider (TPP)?

A third-party provider (TPP) is an unaffiliated company or entity that offers services to facilitate interactions between consumers and merchants or businesses. They’re especially prominent in the context of open banking and payment services.

Many e-commerce businesses use third-party providers to process and manage payments – and with good reason.

TPPs offer convenient services like instant payments, real-time account information, and seamless money transfers. They also introduce competition into the financial services market, encouraging traditional banks to innovate and improve their offerings.

What is the difference between a PSP and a TPP?

Although both PSPs and TPPs are essential players, they serve different functions in the financial services ecosystem.

Payment service providers handle the technical aspects of processing payments. PSPs enable merchants to accept electronic payments through various methods, including credit and debit cards, digital wallets, and account-to-account payments.

Third-party providers facilitate interactions between consumers and their financial institutions. They typically operate within the framework of open banking and offer services like account information aggregation and payment initiation.

Let’s take a closer look at some of the key differences between PSPs and TPPs.

Services provided

PSPs primarily provide payment processing services, enabling merchants to accept and process payments through multiple channels.
TPPs focus on leveraging bank data and open banking APIs, offering account aggregation and payment initiation services.

Target users

PSPs facilitate the acceptance of electronic payments, mainly serving merchants and businesses.
TPPs provide financial insights, payment initiation, and data aggregation services, serving both consumers and businesses.

Regulatory framework

PSPs are regulated under payment processing standards and regulations, ensuring secure handling of payment information.
TPPs operate under open banking regulations, such as PSD2 in the EU, which mandate secure access to bank accounts and transaction data with user consent.

Integration and APIs

PSPs provide APIs and integration tools that enable merchants to incorporate payment processing capabilities into their websites and apps.
TPPs use open banking APIs to connect with financial institutions and access account information or initiate payments on behalf of users.

The advantages: How payment service providers can benefit SMEs

As we mentioned earlier, payment service providers are particularly popular with SMEs. For owners of SMEs, there are numerous benefits to using a payment service provider – especially for merchants that operate online or conduct electronic payment transactions.

PSPs handle the entire payment process, allowing you to focus on other important activities without having to worry about whether you’re able to get paid.

In addition to the advantages of the key functions and features listed above, using a payment service provider also offers the following benefits, from the subscription economy to operational savings:

Convenience: PSPs offer a variety of payment options through a single platform, eliminating the need for businesses to integrate with multiple payment systems separately.
Scalability: A PSP can easily scale with your business as it grows, handling increased transaction volumes without significant additional investment on your part. PSPs also offer flexible solutions that can be tailored to your specific business needs, and many can ease internationalisation by providing relevant local payment methods.
Speed and efficiency: PSPs help improve your cash flow by ensuring fast transaction processing and settlements. Some PSPs also offer instant payments, reducing the time you have to wait for funds to be available in your account.
Advanced features: Payment service providers offer advanced features such as mobile payment options and one-click payment solutions for returning customers. They also manage recurring payments – a great feature for subscription-based businesses.
Customer support: PSPs provide dedicated customer support to help you with any issues related to payment processing, account management, and technical troubleshooting. Some providers also offer end-user support, which helps enhance your overall customer experience.
Cost efficiency: Outsourcing your payment processing to a PSP can save you on the costs associated with setting up and maintaining your own payment infrastructure. Many PSPs also offer competitive transaction fees and flexible pricing models, both of which can be great for small and medium-sized businesses.

How to choose the right PSP for your business

The right PSP can help you provide a smooth, secure payment experience for your customers while simultaneously optimising the operational efficiency and revenue growth of your business.

There are many PSPs on the market, but not all options are the right fit for your business. When assessing your options, we recommend considering the following:

Supported payment methods: The key to success is offering the right payment options to the right customers at the right time. Make sure your PSP supports payment methods popular with your target customers.
Currency support: If you operate internationally or plan to expand to global markets, look for a PSP that supports multiple currencies and provides currency conversion services.
Pricing and fees: Some PSPs charge a flat fee per transaction, while others charge a percentage based on the transaction value. Compare pricing and fees to ensure you find the right solution for your business.
Reputation and reviews: Before settling on a PSP, it’s a good idea to read reviews from other businesses to get an understanding of whether the PSP is a good fit for you.

Choosing the right PSP can significantly impact your company’s performance, customer experience, and potential growth. By doing your research and comparing different options, you can find the provider that best aligns with your business needs.

Want to know more about selecting the best payments method?

Get in touch with our payments experts at Brite to learn more about which TPP or PSP would best suit your business needs. From A2A payments and Pay by Bank to account information services and recurring payments, we have you covered.