What is a payment service provider (PSP)?

Summary: 

• Payment service providers or PSPs help businesses quickly accept digital payments from customers and their banks.

• Popular PSPs have multi-currency support, integration capabilities, security features, fraud prevention measures, and speedy settlements. 

• When choosing a PSP for your business, make sure it can scale with your business, is easy to implement, and has strong customer support.

Payment service providers (PSP) help businesses securely accept digital payments, such as credit cards, digital wallets, and bank transfers. With over 5.2 billion customers estimated to use digital wallets by 2026¹, having a PSP could really help your business expand its reach, by allowing it to accept payments via digital wallets in more currencies, domestically and internationally.

PSPs typically provide both payment gateways and payment processing solutions. Read on to learn how PSPs work and how to choose the right one for your business.

How payment service providers work 

Payment service providers facilitate transactions between merchants and customers. They also authorise and settle transactions, ensure security, compliance, and fraud prevention.

Before PSPs existed, businesses had to manage transactions directly with banks and credit companies and had to handle security, compliance on their own. However, investing separately in different payments and fraud reduction technology meant that a business needed more people to manage separate relationships and integrations.

PSPs manage those relationships in one system by taking care of the entire payment value chain from checkout to final settlement. This feature makes PSPs easier to set up and manage, making them more cost-effective, especially for growing businesses.

Here’s a breakdown of how PSPs work in five steps:

1. The customer chooses a payment method and submits their payment details online or in person.

2. The payment details are encrypted by the payment gateway and then transferred to the payment processor. 

3. The processor verifies the card information and requests authorisation for the transaction from the customer’s issuing bank. 

4. If there are sufficient funds and the transaction is approved, the merchant will be notified.

5. Finally, the payment processor transfers the funds from the customer’s bank account to the merchant’s account, typically within a few days.

Key features to look for in payment service providers 

There are several essential payment service provider key features to look for, such as:

• Global payment capabilities: Your PSP should support payments from multiple payment methods, currencies and countries. This will make it easier to collect payments internationally.

• Ease of integration: Your PSP should offer integration options that will work with your existing website or eCommerce store. This will reduce the amount of time it takes before you can accept payments.

• Speed of settlements: Payment service providers can have different payment processing times. Aim to find a PSP with fast settlement times to receive payments in your account quickly.

• Security and fraud prevention: Partner with a reliable PSP that has robust payment security. They must comply with relevant regulations, such as Payment Card Industry Data Security Standard (PCI DSS), which ensures cardholder’s information remains secure.

Benefits of using a payment service provider

There are plenty of advantages in using a payment service provider for your business. The most direct benefit of a PSP is that it can enable you to grow your revenue potential. Offering multiple payment options can help expand your customer base by allowing local customers to check out in their local currency and using payment methods they’re familiar with.

PSPs also often have more straightforward and affordable fee structures, which can help your business keep transaction costs low. On top of that, some PSPs provide detailed payment reports and analytics, giving you insights that can help you make informed decisions. 

Challenges of using payment service providers

While payment service providers offer many pros for businesses, there may be some challenges to keep in mind. One of the primary concerns is cost. Apart from transaction fees, PSPs may charge setup fees, and other hidden fees which can eat into your profit margins.

For instance, while many PSPs may allow you to collect payments in multiple currencies, you may only be able to withdraw them in your home currency. If you get a payment in Euros but your account is in USD, the PSP will convert the Euros to US Dollars when you withdraw your earnings. This exposes you to currency conversion fees and exchange rate fluctuations, and many PSPs often charge a fee for this, which can increase your costs and affect your profits.

Another challenge is ‌reduced control over the payment process. Using a PSP can mean you’d have less control over the checkout experience, which can be crucial for maintaining a positive customer relationship. Some PSPs may offer only basic customisation options for the checkout page. Others have fixed checkout flows that you can't modify. This can make the checkout process feel disconnected from your brand, leading to a less cohesive customer experience.

Now that you know the pros and cons of payment service providers, look at some examples of PSPs as you begin your search.

Examples of payment service providers

Ready to start looking for an online payment platform for your business? Here are the top three payment service providers.

Airwallex

If you’re seeking to handle payments across borders and in multiple currencies, Airwallex may be a good fit for you. Airwallex helps you accept a wide range of international payment methods in over 130+ countries. Payments can also be settled like-for-like in multi-currency accounts, saving you on unnecessary FX fees. Airwallex has easy integration options, from no-code and low-code to fully customisable solutions for payment gateways and payment processing.

Airwallex Payments is part of Airwallex’s all-in-one solution which also features a Business Account that can help you manage foreign exchange transfers with low or no foreign transaction fees. It also has a built-in Expense Management tool, and has many integrations that can connect to your existing tools such as accounting software.

PayPal

PayPal is a well-known PSP that is widely used globally. It offers a user-friendly platform, allowing businesses to quickly set up and accept payments. PayPal lets businesses accept many payment methods, including credit cards, digital wallets, and bank transfers. This makes it easy for customers to pay for things with methods they’re familiar with.

Like many other providers, PayPal also provides strong security features like fraud protection and buyer/seller protection, which boost customer confidence. While PayPal provides essential security features and flexibility for online payments, it can be limiting for businesses operating across borders, as you may need a different bank account for each settlement currency.² This often results in higher conversion fees and added complexity when managing multiple currencies.

Stripe

Stripe is a powerful and versatile PSP that offers a wide range of features and services to help businesses process payments, manage subscriptions, and handle various financial transactions. Stripe also operates point-of-sale (POS) systems that streamline in-person transactions³.

However, businesses who prefer to consolidate their financial operations into to reduce the complexity of managing their multiple systems, and improve data accuracy will need to find alternatives.

How to choose the right PSP for your business

Looking to find the right PSP for your business? Here are some tips to help you choose the right one:

• Assess your needs: Different types of businesses may need specific PSP features. For example, if you have an international customer base, you’ll want a PSP that can not only accept a wide variety of payment methods and currencies, but also settle payments like-for-like. This will help you manage fees and costs.

• Seek customisation: Flexibility is important when integrating a PSP into your website or marketplace so that you can have better control over your checkout experience regardless of your resources.

• Evaluate customer support: Helpful and reliable customer service can go a long way especially when dealing with payment issues or technical challenges. Look for a PSP that offers 24/7 support, multiple contact channels, and a reputation for resolving issues quickly. This will ensure that your payment process remains smooth, reducing any hiccups for your business.

Unlock business growth with a payment service provider that does more

Choosing the right payment service provider (PSP) can be a game-changer for your business. PSPs help boost checkout rates and ensure a seamless payment experience for your customers by enabling you to accept a wide range of payment methods and currencies.

Whether you’re a small business seeking cost-effective solutions or a global company aiming for streamlined operations, the right PSP equips you with the tools to manage payments efficiently and fuel long-term growth.

With Airwallex, your business can accept payments from major card schemes and 160+ payment methods from more than 180 countries. Businesses can also take advantage of no-code and low-code integration options and like-for-like settlement with multi-currency Business Accounts.

We're regulated in all markets we operate in, with 60+ licenses and permits globally. Join the 100,000 businesses that trust us to process over US$100 billion in global payments volume.

Disclaimer text: We wrote this article on [current date] We based the information on our own online research and were not able to manually test each tool or provider. The information is provided for educational purposes only, and a reader should consider the specific requirements of their business when evaluating providers. This research is reviewed every six months. If you would like to request an update, feel free to contact us at [email protected].

Sources:

1. https://business.bankofamerica.com/resources/benefits-of-digital-payments.html 

2. https://developer.paypal.com/braintree/articles/get-started/currencies 

3. https://stripe.com/pricing