What is a Payment Service Provider (PSP)?

A Payment Service Provider (PSP) is a company that facilitates electronic payments, including credit and debit card transactions, for businesses. PSPs act as intermediaries, connecting payment networks, banks, and merchants to streamline the payment process.

What does a Payment Service Provider do?

PSPs manage the entire payment transaction process, from customer initiation to merchant notification. This involves communication with card networks and issuing banks to authorize and verify transactions, ultimately informing both customers and merchants about the success or failure of a transaction.

How do payments work with a PSP?

PSPs typically utilize two pricing models:

• Price per transaction: A fixed cost for each transaction, suitable for businesses with high-value items.
• Percentage of each transaction: A percentage fee for each transaction, ideal for businesses with numerous lower-cost transactions. Often, a combination of both models is used, such as 2.9% of the transaction plus a fixed fee of $0.30.

Is a Payment Service Provider the same as a Merchant Account Provider?

No, there are distinct differences between PSPs and merchant account providers. While both enable businesses to accept online payments, a PSP aggregates multiple businesses under a single account, simplifying processes and reducing approval times. Merchant account providers offer custom accounts to individual businesses, which may involve longer onboarding procedures. PSPs may also be more dynamic in assessing risk, potentially affecting account transactions.

What are the pros of using a PSP?

Pros of using a PSP include:

• Turnkey solutions for quick onboarding.
• Access to a wide range of payment tools and services.
• Transparent and often lower transaction costs.
• Compliance, including PCI-DSS, is typically included.
• Support for multiple currencies and payment methods.

What are the cons of using a PSP?

Consider the following cons when using a PSP:

• Increased risk of frozen or terminated accounts due to the collective risk model.
• Potential transaction volume limits.
• Less flexibility compared to bespoke solutions from merchant account providers.