There is now an array of different payment service providers (PSPs) throughout the industry, but what is their role in the payment journey, why do businesses choose them, and how do they differ?
A payment service provider (PSP) can often be viewed as a third-party security guard for businesses looking to settle customer payments efficiently.
In essence, a payment service provider is a company which enables payment businesses to accept and settle, either physically or digitally, by connecting them to the payment lifecycle.
PSPs can support a variety of payment methods, including debit and credit cards, digital wallets like Apple Pay, as well as alternative payment methods such as pay-by-bank and buy now, pay later.
Once the customer performs a prompt to enable a payment, the PSP gets to work on connecting to the relevant banks and card networks to securely perform the payment, from authorisation to settlement.
The PSP process
First, the PSP must ensure it has accounts set up with the relevant issuing and acquiring banks, as well as the card network facilitating the transaction.
The PSP will then utilise its proprietary technology to integrate into the businesses payment stack. This could be either a physical card terminal or a ‘checkout’ prompt to perform the transaction.
Once the customer taps or clicks their card or chooses their preferred payment method, the PSP then transfers the customers’ information to the relevant issuing or acquiring banks.
The PSP will then send requests to the banks to check if the customer has sufficient funds to enable the transaction. The PSP will then also send a message to the merchant’s acquiring bank to notify them of an incoming deposit.
Before the issuing and acquiring banks can approve the transaction, it must undergo security checks. The PSP will use its technology to encrypt the customer’s card information, while also adhering to PCI compliance, as well as money laundering and know-your-customer (KYC) checks.
Once these checks have been verified and approved by the banks, the PSP then collects the transaction and deposits it into the merchant’s account. This will be visible within a dashboard to ensure the merchant can see the transaction has been successfully completed and settled.
Why businesses choose payment service providers
PSPs have afforded businesses time and speed when it comes to performing payments on behalf of their customers.
Without PSPs, businesses will have to set up accounts with all the relevant issuing and acquiring banks, and card networks such as Visa and Mastercard, which can be long and strenuous, potentially taking up to months to do so.
PSPs enable businesses to onboard these accounts in hours or minimal days, which can help businesses then focus on other manual processes.
There are also a range of supported payment methods that PSPs provide for businesses, as opposed to the limited methods only accepted at specific banks. Being able to adopt payment methods such as Apple Pay, PayPal, and Klarna, also enhances a businesses ability to retain customers and therefore, boost sales.
The customers’ card information and personal details are also stored and protected by PSPs, meaning businesses will not have to handle the data security process and will not be liable for any data leaks, which can prove to be costly and damage reputations.
The different types of payment service providers
A business selecting a PSP varies on the company’s model, if it is targeting a specific market or audience, or the cost of the service and technology they provide.
Multiple PSPs serve multiple different functions. Below are some examples of PSPs and their functions:
Payment aggregators – Stripe, PayPal, Square
Payment aggregators (or payment facilitators) allow multiple merchants to operate under a single master merchant account. Instead of setting up their own merchant account, businesses are onboarded as “sub-merchants.”
Payment gateways – Adyen, Checkout.com, Stripe
A payment gateway securely captures and transmits payment data from the customer to the acquiring bank, while a processor handles the actual routing of the transaction through card networks.
Merchant account providers – Fiserv, Lloyds Merchant Services, Worldpay
Merchant account providers (acquiring banks) issue merchant accounts, enabling businesses to accept card payments and receive funds.
Specialised payment providers
These providers focus on a specific market and sometimes for a specific purpose, as opposed to the aforementioned providers which like to support the entire payment lifecycle.
Direct debit specialists – GoCardless, FastPay
They specialise in bank-to-bank pull payments (e.g. Direct Debit), often optimised for recurring billing and subscription models.
Mobile payment specialists – Alipay, Venmo
They offer mobile-first digital wallets and peer-to-peer payments, often using QR codes, in-app flows or stored balances.
Crypto payment specialist – Ripple Payments, Coinbase
They enable crypto-fiat conversion, settlement, and cross-border payments using blockchain infrastructure, often aiming to reduce cost and settlement time.
Open banking (A2A) providers – TrueLayer, Tink
They enable account-to-account (A2A) payments directly from a customer’s bank, bypassing card networks and reducing transaction costs.
