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What Is A Payment Service Provider?

Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

Whether you’re a new or established business, taking payments can be time consuming and tiresome. Using a form of merchant services can help you accept card payments, but it’s not always easy to set up.

If you’re a high risk merchant, even just getting a merchant account may prove tricky. Merchant acquirers often put applicants through tough vetting procedures, making it difficult for new businesses to get started. However, there are alternatives.

Payment Service Providers (PSPs) can help businesses manage their payments, and accept a greater variety of applicants. Though high risk and new merchants carry the same risk, PSPs can more easily recover losses, so they’re more likely to accept you.

But how do they work? We’ll run through what payment service providers are, the benefits, and how to choose between a PSP and merchant account.


What is a Payment Service Provider?

A Payment Service Provider (PSP), is essentially a third party payment processor that allows merchants to take payments. Helping to simplify the way businesses manage their payments, PSPs combine both a merchant account and a payment gateway.

PSPs offer support to businesses accepting electronic, digital and e-payments. They deal with the payment processing and settlement, and handle all the tricky bank, card acquirer and credit card processing contracts so that merchants don’t have to.


Figure holding phone


How does a PSP work?

PSPs basically ensure that transactions are carried out from the moment the customers provide their details, to the merchant receiving payment.

It’s best understood using an example transaction:

  1. A customer chooses to buy a product, and enters their payment details.
  2. The payment gateway receives the transaction request.
  3. The PSP verifies the details entered and that there are enough funds.
  4. The PSP moves the required amount from the customer’s account to the merchant’s account.
  5. The PSP notifies both the customer and the merchant of the successful transaction.

If the transaction is declined as a result of incorrect details or low funds, the payment service provider ends the transaction and again, both the customer and merchant are notified that it could not be completed.


The Benefits of a PSP

As a merchant, it can be tricky trying to ensure you attract as many customers as possible, whilst consequently dealing with an onslaught of payments.

Particularly for new merchants, it can be overwhelming trying to understand card processing fees, or simply how credit card processing works in the first place. Fortunately, using one or multiple PSPs can make your life a lot easier as they handle the entire payment from start to finish.

In addition to simplifying payments, there are a bunch of benefits to PSPs.


Secure transactions

PSPs typically hold very high security standards, and are required to report their fraud statistics at least once annually to the Financial Conduct Authority (FCA). The majority of large scale PSPs have built-in fraud prevention, and encrypt any information being transmitted. This can help reassure customers that their data will remain secure when buying from you.

Accept different currencies

If your business is primarily online, or targeted towards global customers, it’s important to make sure you can process various currencies. Most PSPs will support multiple currencies, but if you’re looking to expand to a specific country, it’s best to check if your PSP supports it.

Keep up to date with transactions

Numerous PSPs provide transaction reports as often as monthly, allowing merchants to more quickly and effectively reconcile transactions. You may be able to get real time reports from certain payment service providers, however these will often come at an additional cost.

Reach more customers

Offering different payment methods will help your business appeal to a greater market. Many PSPs will offer something similar to a direct debit service, where you can take recurring payments from your customers for a subscription type service.

Phone showing apps


Example Payment Service Providers

There are a number of payment service providers on the market, but among the most popular are:

Whether you want to accept payments in person, or online with a virtual terminal, PSPs make it easy.


How to choose the right Payment Service Provider

When choosing between a payment service provider or a merchant account, you should consider what benefits they’ll bring to your business, and what you as a merchant are looking for. Are you hoping to try something short term? Or simply appeal to more customers?

Here’s our top things to consider:

  • Cost - For PSPs, there are rarely setup or monthly fees to consider, you’re typically just charged a fee per transaction that applies to all payment methods. With a merchant account you’ll follow pricing based on the pricing structure. SMEs may be more cost efficient with a PSP, while larger income businesses might benefit from the choice and support of a merchant account provider.
  • Fraud protection - Choosing a PSP with strong fraud protection is beneficial for both you and your customers. The best systems will have procedures in place that help detect fraud before transactions reach completion. With merchant accounts you may end up paying additional fees to guarantee security.
  • Contract length - Most payment service providers work on pay as you go systems, so you’re rarely tied into long-term deals that are difficult or expensive to get out of. With a merchant account, it can be more difficult to terminate. Long term merchant account contracts are often cheaper, but you could end up paying costly termination fees for changing your mind.
  • Support - Though PSPs provide a greater variety of services, they don’t come with the same support as merchant accounts. If you’re looking for more guidance, then a merchant account is the best choice.


The right choice for you will really depend on the type of business you run, and what you’re looking for. PSPs offer a great deal of flexibility, and are a great way to get started with a variety of different payment types. However if your business operates on a larger scale and you need regular support, a merchant account will provide the assistance you need.

If you’ve got a few minutes to spare, CardSwitcher’s handy comparison tool could save you a lot! Compare card processing costs with ease with us and save up to 40% of what you currently pay.

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Written by:
Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

Stephen brings a wealth of experience honed through years in the financial sector, particularly in the card processing payments industry. His illustrious career spans key roles at PwC, Natwest, and the role of CFO at WorldPay, before going on to found card processing comparison site, CardSwitcher. He is passionate about helping growing businesses to understand the card processing landscape so they can make savvy financial decisions.