What is a payment service provider? And how do you choose the right one?

Simply put, payment service providers (PSP) are third-party companies that enable businesses to accept electronic payments from their customers.

Beyond payment processing, whether via credit card, digital wallet, or local payment methods, PSPs typically offer the following:

• Payment gateway: This is a secure online portal that connects a business’s website or app to their payment processing system.

• Fraud prevention: Fraud is on the increase worldwide. Thanks to advanced technology, including machine learning, PSPs can detect fraudulent transactions.

• Compliance: Financial regulations continue to evolve. That’s good news for consumers but can be a tricky burden for businesses. PSPs ensure compliance without the effort.  

• Reporting and analytics: As well as processing payments, the right PSP can also give businesses valuable insights based on this data.

A PSP functions as both a payment gateway and a payment processor, and can connect to multiple acquiring and payment networks. 

Some PSPs can also act as acquirers (aka merchant service providers), providing risk assessments and other financial services.

A payment service provider (PSP) and a merchant account provider (MAP) both facilitate payment processing for businesses.

MAPs are typically banks or financial institutions. They provide businesses with dedicated merchant accounts for processing transactions. Setting up a merchant account involves a thorough underwriting process, where the provider assesses the business’s financial stability and potential risk. This process can be time-consuming.

PSPs, on the other hand, streamline the process by not requiring the same level of vetting. This allows for faster setup and easier integration. PSPs offer "aggregated accounts," meaning multiple businesses share a single merchant account, which simplifies the process.

A PSP isn’t just a convenient way to accept payments, it’s an essential part of any business.

Rather than having to individually form and manage relationships with payment gateways and banks, PSPs handle this on your behalf, creating connections with acquiring banks through integrations and API tools, saving time and money. 

As well as making processing and accepting payments faster, PSPs provide access to an ever-evolving group of payment methods. That means happier customers and higher conversion rates, with customers empowered to pay the way they want, whether that’s a traditional credit or debit card, digital wallet, Buy Now, Pay Later, or a local payment method, regardless of where a business is located. 

Let’s take a closer look at what the right PSP can help your business thrive.

Expand globally

The right PSP can mean higher authorization rates. By understanding local nuances and formatting authorization requests to meet a bank’s particular requirements, the transaction is seen as domestic and safer than a transaction involving an unfamiliar processor. 

If you’re interested in reaching a truly global customer base, consider a full-stack PSP. Also known as a full-service PSP, this handles the gateway, processing, and acquiring in a single integration.

Stay compliant

A PSP ensures compliance for businesses, saving you the burden of making sure everything meets requirements. And with a PSP that’s established in multiple markets you can rest easy knowing that their systems and processes are compliant with regulations and industry standards in each location, such as the Payments Service Directive (PSD) in the EU, which recently put forward its new proposals.

Keep transactions secure

The best PSPs don’t just facilitate payments, they offer fraud prevention and security measures that protect your revenue and ensure customers’ transactions are safe. Thanks to machine learning, certain PSPs even enable you to set up rules tailored to your business and industry.

Gain actionable insights

Another advanced feature is reporting and analytics, where the PSP provides insights (such as the most common payment methods and average transaction value or ATV) to help you better understand your customers’ behavior. This data can help you make the right decisions for your business. 

There are a number of options out there. Choosing the best payment service provider depends on a number of factors, including your type of business and where you’re located. Here are some things to consider.

Business and industry

First of all, how big is your business? Some are tailored for small businesses and startups, others for enterprise-level companies. Then, think about your industry and your specific needs.  For example, are you in the hospitality or gaming industries? If you deal with sensitive payment information, you’ll need a PSP that offers payment tokenization. Or perhaps your business is a marketplace and you need a PSP that can handle complex money movement and the greatest number of payment methods?

Payment methods

Though credit and debit cards are two of the most obvious payment methods, they aren’t truly universal; in many countries local payment methods dominate. This is worth considering when choosing a PSP as some offer a limited selection of payment methods, particularly when it comes to local ones. 

Payment channels

If you’re planning on offering in-store or in-person payments, you’ll need to make sure the PSP either offers payment devices or has a partnership with a payment terminal service provider.

Fees

One key area of difference with PSPs is pricing structure. Some PSPs may charge a flat fee per transaction, while others charge a percentage based on the transaction value. Not all fees are obvious, such as setup fees, monthly fees, chargeback fees, and currency conversion fees. 

The best PSP is one that not only understands your business but will simplify complex processes, eliminate the need for working with multiple vendors, and ultimately help your business realize its ambitions faster by unlocking global growth and providing actionable insights— all while being transparent when it comes to fees. 

For enterprise-sized companies, the answer is Adyen. Adyen is trusted by leading businesses around the world. Not only does Adyen operate as a full-stack Payment Service Provider, but also gives its customers a true omnichannel solution to accept payments anywhere in the world.