A Payment Service Provider (PSP) is a third-party company that enables merchants to accept electronic payments through various methods—credit cards, bank transfers, mobile wallets, and more. According to Wikipedia, a PSP “offers shops online services for accepting electronic payments by a variety of payment methods including credit card, bank-based payments such as direct debit, bank transfer, and real-time bank transfer based on online banking.”
In simple terms, a PSP streamlines the payment process by working with acquiring banks and payment processors to manage transactions from start to finish. From the moment a customer enters their card details to when the funds reach the merchant’s account, the PSP handles it all.
Why Use a PSP?
Merchants benefit from lower costs and simplified integration. Instead of setting up each payment method individually, a PSP offers bulk processing discounts and a unified system that supports multiple payment options.
Core Services Offered by a PSP
1. Merchant Account Setup
PSPs assist merchants in opening dedicated merchant accounts or provide access to aggregated accounts under their umbrella. This speeds up onboarding and simplifies compliance with acquiring banks.
2. Support for Multiple Payment Methods
With a PSP, merchants can accept:
- Credit and debit cards
- Mobile money
- Mobile wallets
- Bank transfers
A Fiserv study found that 43% of customers prefer businesses that offer multiple payment options—making this a key driver of customer satisfaction.
3. Multi-Currency Support
PSPs enable merchants to accept payments in various currencies, facilitating cross-border transactions. This is especially valuable for businesses expanding into global markets.
4. Security & Compliance
Security is a top priority. PSPs help merchants comply with PCI DSS standards and offer fraud prevention tools, risk management, and secure hosted payment pages. According to Bizrate Insights, over a third of online shoppers hesitate to buy due to security concerns—making PSPs essential for trust.
How Does a PSP Process Online Credit Card Transactions?
Here’s a simplified breakdown of the authorization process:
- Customer submits card details.
- PSP sends data to the acquiring bank’s processor.
- Processor forwards it to the card network (e.g., Visa, MasterCard).
- Network contacts the issuing bank.
- Issuing bank approves or declines the transaction.
- Response flows back through the network to the PSP.
- PSP notifies the merchant and customer.
How Are Funds Settled to the Merchant?
Once authorized:
- Issuing bank sends funds to the card network.
- Funds are deposited into the merchant’s account via the acquiring bank or PSP.
- Settlement timelines vary—some PSPs offer flexible options like 24-hour settlements or prepaid cards.
Benefits of Using a PSP
- Simplified payment integration
- Lower transaction costs
- Enhanced security and compliance
- Multi-currency and multi-method support
- Faster onboarding and settlement.