Written by Libby James
Libby James is co-founder, director and an expert in all things merchant services. Libby is the go-to specialist for business with more complex requirements or businesses that are struggling to find a provider that will accept them. Libby is regularly cited in trade, national and international media.
Introduction
Payment Service Providers (PSPs) enable businesses to accept card payments, digital wallets and alternative payment methods through a single integration. In the UK and EU, PSPs manage transaction routing, fraud monitoring and settlement while simplifying onboarding compared to traditional merchant accounts. This guide explains how PSPs work, their advantages and limitations, and how they differ from acquiring banks and high risk merchant accounts.
The rapid expansion of e-commerce and digital payments has revolutionised the way businesses and customers engage with each other. With digital payments anticipated to exceed £7.9 trillion in transactions in 2023, and approximately 70% of customers opting for digital payment options, it’s clear that businesses must be equipped to offer diverse, reliable, and secure payment methods. This not only satisfies customer expectations but also enhances overall business performance.
Selecting the right payment service provider (PSP) is a pivotal decision that influences a company’s operational efficiency, customer satisfaction, and potential for growth. The ideal PSP should simplify payment processes, ensure robust security, support multiple payment methods and currencies, and provide insightful analytics to support strategic decision-making.
In this article, we’ll explore what PSPs are, what they do, and how to choose the one that best fits your business’s requirements.What’s in this Guide?
- What are payment service providers?
- What do payment service providers do?
- Payment service providers vs merchant account providers
- Payment service providers vs payment gateway providers
- Benefits of using a payment service provider
- How to choose a payment service provider
PSP Summary
A Payment Service Provider allows businesses to accept electronic payments through a single integration without establishing a direct acquiring bank relationship. PSPs simplify onboarding but may offer less pricing flexibility and risk control compared to traditional merchant accounts.
What Is a Payment Service Provider
A Payment Service Provider, commonly referred to as a PSP, is a company that enables businesses to accept electronic payments without establishing a direct relationship with an acquiring bank. Instead, the PSP aggregates merchants under its infrastructure and manages the technical, compliance and risk components of processing.
Examples of PSP functionality include:
• Card payment acceptance
• Digital wallet integration
• Fraud prevention tools
• Settlement management
• Compliance and onboarding services
What Are Payment Service Providers?
Payment service providers (PSPs) are companies that enable businesses to accept electronic payments from customers through various methods, such as credit cards, debit cards, digital wallets, and bank transfers, all via a single integration. They offer the infrastructure, security, and regulatory compliance necessary for businesses to process payments effectively and securely.
How Payment Service Providers Work
When a customer makes a payment:
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The transaction is submitted through the PSP gateway.
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The PSP routes the transaction to the appropriate acquiring bank.
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The bank authorises or declines the payment.
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The PSP settles funds to the merchant after deducting fees.
Unlike direct merchant accounts, the PSP sits between the business and the acquirer, simplifying integration but limiting certain controls.
What Do Payment Service Providers Do?
PSPs offer a comprehensive range of services that facilitate seamless payment transactions between businesses and customers. These include:
- Payment Gateway: A secure online portal that connects a business’s website or app to its payment processing system, enabling safe transmission of payment information.
- Payment Processing: Handling authorisation, clearing, and settlement of transactions by verifying transaction details and facilitating the transfer of funds between customer and business accounts.
- Fraud Detection and Prevention: Using advanced tools and machine learning algorithms to identify and prevent fraudulent transactions, reducing risks associated with chargebacks.
- Compliance and Security: Ensuring adherence to industry standards such as the Payment Card Industry Data Security Standard (PCI DSS) to securely process and transmit sensitive payment data.
- Currency Conversion: For businesses operating internationally, PSPs offer currency conversion services, enabling businesses to accept payments in various currencies and settle transactions in their preferred currency.
- Reporting and Analytics: Providing valuable insights into customer behaviour and transaction patterns to help businesses optimise their payment processes.
Payment Service Providers vs Merchant Account Providers
Both PSPs and merchant account providers facilitate electronic payments, but they serve distinct purposes and offer unique services:
- PSPs: Offer a one-stop solution, including a payment gateway and shared merchant account, making them ideal for small to medium-sized businesses seeking a straightforward, hassle-free setup.
- Merchant Account Providers: Usually banks or financial institutions that provide dedicated merchant accounts, typically more suitable for larger businesses or those with specific requirements.
| Feature | Payment Service Provider | Merchant Account |
| Onboarding speed | Fast | Slower underwriting |
| Direct acquirer relationship | No | Yes |
| Risk control | Managed by PSP | Managed by merchant |
| Pricing flexibility | Limited | Negotiable |
| Best for | SMEs and platforms | Established or high volume businesses |
PSPs are ideal for businesses seeking simplicity and rapid setup. Merchant accounts offer greater control and cost flexibility, especially for high turnover or high risk sectors.
Payment Service Provider vs. Payment Gateway: Understanding the Difference
- Payment Service Providers (PSPs): PSPs offer a comprehensive solution for businesses, encompassing a payment gateway, payment processing, merchant account services, fraud detection, currency conversion, and analytics—all through a single integration. This all-in-one approach simplifies the payment process and is ideal for businesses seeking a complete, hassle-free solution.
- Payment Gateway Suppliers: Payment gateway suppliers focus solely on providing the gateway component, which securely transmits payment information between customers, businesses, and banks. They do not handle processing, settlement, or offer additional services like fraud prevention, making them more suitable for businesses that already have a dedicated merchant account or prefer a modular setup.
PSP Regulation in the UK and EU
In the UK, PSPs operate under Financial Conduct Authority oversight and must comply with Payment Services Regulations and PSD2 standards. Compliance includes safeguarding customer funds, implementing strong customer authentication and maintaining anti money laundering procedures.
Understanding regulatory positioning helps businesses assess PSP reliability and risk.
Payment Service Provider Fees Explained
PSPs typically charge:
• A blended transaction rate
• Monthly platform fees
• Cross border transaction fees
• Chargeback fees
While onboarding is simpler than traditional merchant accounts, blended pricing can be higher over time for high volume merchants.
International Payment Services Providers
Merchant Advice Service (MAS) collaborates not only with UK-based Payment Services Providers but also has access to international solutions, catering to businesses across Europe, China, and Australia. Our experts can guide you on accepting multi-currency transactions through international Payment Services Providers.
Automated Billing Services
Merchant Advice Service, in collaboration with industry experts, offers automated billing services, streamlining monthly paperwork and invoicing for businesses. Speak to our advisors to explore how bill payment service providers can work for you.
Benefits of Using a Payment Service Provider
Partnering with a PSP can provide numerous benefits for businesses, particularly those operating online or conducting a high volume of electronic payments:
- Quick and Easy Setup: PSPs often provide easy-to-use APIs and integration tools, reducing setup time and complexity.
- Multiple Payment Methods: Accept a wide range of payment methods, such as cards, digital wallets, and bank transfers, all from a single platform.
- Global Reach: Support for multiple currencies and international payment methods to facilitate global transactions.
- Security and Compliance: PSPs ensure compliance with industry standards, providing a secure environment for transactions.
- Scalability: Support for businesses of all sizes, allowing for growth without the need to switch providers.
- Comprehensive Support: Dedicated customer support teams to help resolve any issues promptly and effectively.
When a PSP May Not Be the Right Solution
A PSP may not be ideal if:
• Your business operates in a high risk sector
• You require tailored reserve negotiation
• You process high monthly volumes
• You need complex settlement structures
In these cases, a direct merchant account or specialist high risk provider may offer better long term value.
Using the Payments Directory® to Find Suitable PSPs for Your Business
Payment Service Providers offer speed and simplicity for many businesses, but they are not a one size fits all solution. Understanding how PSPs compare with merchant accounts, high risk providers and direct acquiring relationships is essential for long term payment stability.
Merchant Advice Service helps UK and EU businesses evaluate whether a PSP, merchant account or specialist high risk solution best fits their commercial model. By assessing turnover, industry classification and growth plans, we guide businesses toward payment structures that support compliance, scalability and cost efficiency.
Speak to our team for tailored advice on choosing the right payment infrastructure.
FAQs
What is a Payment Service Provider (PSP)?
A PSP, or Payment Service Provider, is an alternative to a standard merchant account and payment gateway, offering a comprehensive service that includes technical payment processing and fund collection.
What electronic payment methods do PSPs integrate?
PSPs integrate various electronic payment methods, including credit/debit cards, e-banking, and e-wallets, allowing businesses to offer multiple payment options.
How does a PSP handle transaction processing?
PSPs collaborate with acquiring banks to manage the entire transaction process, from customer initiation to fund deposit into the PSP’s merchant account.
How does PSP service differ from payment gateway providers?
PSPs hold contracts with banks and acquirers directly, offering a comprehensive service that includes payment processing and fund collection, whereas payment gateway providers agree to contracts directly with the merchant.
How does a PSP differ from a standard merchant account and payment gateway?
Unlike a standard merchant account and payment gateway, a PSP provides a full service, handling both technical payment processing and money collection, while also managing contracts with banks and card acquirers.
Why choose a PSP over a standard merchant account?
Choosing a PSP streamlines the payment process, offering the advantage of a single contractual relationship, fraud prevention resources, flexibility in adding payment methods, and PCI compliance services.
What are the benefits of using a PSP for online payments?
PSPs simplify the payment process, accepting various payment methods to ensure businesses don’t turn away potential customers, ultimately boosting sales.
Can a PSP cater to international businesses?
Yes, Merchant Advice Service collaborates with international Payment Services Providers, offering solutions for businesses across UK, Europe, China, and Australia.
