Understanding Payment Service Providers

A payment service provider is a company that allows businesses to accept digital payments, including credit cards, debit cards, and Direct Debit transactions. Often called payment processors or merchant service providers, they offer an alternative to setting up a separate merchant account and using a gateway supplied by another firm.

Some providers focus on a single payment type or specialise in a specific area, while others cover a wide range of services for their clients.

How Payment Service Providers Operate

A payment service provider connects sellers and buyers by using payment networks and acquiring banks. They supply the hardware and software needed for taking payments, then confirm these transactions before sending them on for final processing. This step involves capturing card details, checking them, and relaying the information to the bank.

Using One or More Providers

Many businesses only need a single payment service provider to handle their transactions. Some firms, especially those with high turnover or that trade worldwide, might use more than one. This can be more complex, though it can also allow a company to access multiple specialisms or regional markets.

Examples of Payment Service Providers

Below are a few well-known providers, ranging from full-service solutions to those that specialise in online payments.

Square

Known for card readers that let small businesses take in-person payments with minimal setup. Many micro-enterprises find Square’s straightforward approach a good fit for limited budgets.

PayPal

Recognised worldwide for online payments. Fees can be attractive for smaller sellers, although design choices and custom features may not be as flexible as some other providers.

Stripe

Emerging as a popular choice for online transactions. Stripe offers tools for invoicing, subscription management, and in-person sales with its own payment terminal.

Braintree

Used by well-known names in the tech sector. It targets developers who want to customise payments on websites and mobile apps.

PSPs vs Payment Gateways

A payment gateway is the online point where a buyer enters card details. It checks the information and forwards it to a bank for approval. Once the bank finalises the transaction, the gateway confirms the result.

In other words, the gateway deals with collecting and passing on card details. Processing the transaction still needs a merchant account or a payment service provider that works with or supplies its own.

Key Services Offered by PSPs

Payment service providers combine the roles of a merchant account and a payment gateway, often under one contract. They handle the processing and manage any funds collected from sales. This means businesses do not need to negotiate with banks or use separate gateway software.

Payment Service Providers and Merchant Accounts

A merchant account is a special type of bank account used for receiving card payments, storing funds, and then transferring them to a business current account when settlements occur. Banks known as acquirers usually supply these accounts and work with payment processors to carry out the actual transactions.

By partnering with banks, payment service providers set up merchant accounts for their clients. Some providers even have existing accounts that new customers can use straight away.

Advantages of Working with a PSP

Easier Path to Merchant Accounts

Banks have strict requirements for merchant accounts, and the approval process can be tough on new or smaller businesses. A payment service provider often removes these obstacles by taking on responsibility for risk and compliance.

Range of Payment Methods

One provider can allow you to accept many payment types through a single service, and you can update these as your business grows.

Convenience

A single contract can cover everything from processing transactions to handling customer support. This approach removes the hassle of dealing with separate suppliers.

Stronger Security

Many providers are regulated and invest in advanced security systems. They handle data protection and guard against fraudulent activity, so you can focus on running your business.

Finding the Right PSP for Your Business

Choosing a payment service provider can be challenging. PSPs have transformed digital payments for companies of all sizes, from market stalls to large online retailers. If you need help selecting the right solution, it might be wise to explore independent advice or speak with payment consultants. 

This is where 26M comes in, we are independent consultants and offer free advice to help businesses find the best deal for them.