What Is a Payment Service Provider?
If you are one of the millions of businesses accepting card payments, it’s important to understand what you need to accept payments successfully and securely. This is an essential part of sustaining a business that sells products or services. A 2020 Federal Reserve report finds that 74 percent of transactions are from credit or debit cards. Indeed, this payment trend will continue to grow as more customers transition to a more convenient cash-free lifestyle. Let’s look at what a payment service provider is, how it works, and the benefits of using this service.
What Is a PSP?
A payment service provider (PSP) refers to a third-party company that provides payment services to businesses that accept online payment methods. These methods may include credit cards, debit cards, e-wallets, cash cards, bank transfers, and much more. Examples of PSPs include Amazon Pay, PayPal, Stripe, and Square. PSPs are also known as third-party payment processing companies or merchant service providers. Indeed, these payment providers ensure that your transactions are completed securely and efficiently.
How Payment Service Providers Work
A payment service provider helps merchants accept digital payments. To do this, PSPs work with merchants, banks, and card networks to manage the entire transaction process. The following example will outline this payment process.
Scenario: Meet Bob, a customer making an online purchase for his kids’ gifts this holiday season. He will be using a credit card to buy various books on Amazon.com. After several hours of research, Bob orders two educational books from Amazon. When he initiates this credit card payment, the transaction details will be sent to the PSP.
- After several hours of research, Bob orders two educational books from Amazon. When he initiates this credit card payment, the transaction details will be sent to the PSP.
- The PSP sends the transaction information to the credit card network.
- The card network will then send Bob’s transaction details to the issuing bank (the bank issuing the card to Bob).
- The issuing bank will determine whether to approve or decline the charge based on having sufficient funds and no suspicious activity. If approved, the issuing bank will send the decision back to the credit card network.
- The network will then send it over to the PSP, which shares the final decision with Bob and Amazon.
- Once the payment is approved, the card network will transfer the appropriate funds from the issuing bank to the acquiring bank. The funds will then be deposited into the merchant’s (Amazon’s) account to complete the transaction.
As you can see, PSPs use a strategic process that helps merchants receive payments from customers’ accounts seamlessly and securely.
The Benefits of Using a PSP
There are several benefits of using a PSP for your business. Let’s take a look at the top advantages below.
- Accepts several payment methods: PSPs support several payment methods via a single channel, making it easy for customers to choose their preferred payment type. This boosts customer satisfaction and checkout experiences, thus increasing overall business revenue. Businesses only need to pay the one-time setup fee and a monthly fee for processing payments.
- Accepts numerous currencies: PSPs also support innumerable currencies, allowing businesses to sell products and services to a global customer base. This is crucial if you plan to scale your business beyond the states.
- Adds new payment methods quickly and easily: Payment service providers automatically allow businesses to add new payment methods. This is a crucial feature as payment trends will continue to evolve. Indeed, companies must offer the latest payment options for customers (i.e., cards, digital wallets, and wearables).
- Ensures transactions are processed securely: PSPs send and receive transaction information through security measures. This may include SSL (Secure Socket Layer), encryption, and tokenization. These security measures ensure that only customers can view their payment details, which helps customers view your business as trustworthy. Indeed, this trust is a catalyst in customers purchasing on your site.
- Prevents fraud: PSPs will only approve transaction requests after a customer’s card information has been verified, sufficient funds are available, and there are no signs of suspicious activity. If these requirements are not met, the provider will decline the request and inform the customer and business of this decision. Indeed, this is an essential security step to mitigate fraud charges that cost businesses money and cause headaches.
- Offers monthly payment reports: Depending on your company size, you may benefit from receiving monthly payment reports regarding all payments and transactions made to your business. Like any business, it’s helpful to compare your transaction reports to ensure everything is accurate. Luckily, PSPs offer these reports as part of the service. If necessary, some PSPs will provide real-time reporting, which may be ideal for enterprises that receive hundreds of thousands of payments every day.
- Opening accounts with acquiring banks: PSPs can help businesses set up a merchant account with an acquiring bank. This is a crucial step to accepting card payments. Since providers may have existing accounts with acquiring banks, setting up a merchant account will likely take less time.
A PSP Can Help Your Business
As illustrated in this article, there are several benefits of using a payment service provider. The most important advantage is that these providers take care of the payment process for businesses. In turn, this gives companies more time to focus on meeting objectives, driving sales, and scaling. Indeed, PSPs melt away businesses’ worry about receiving payments from customers. Since these providers accept a wide range of payment methods and currencies, it is easier for customers to choose their preferred payment type. Thus, customers will be more likely to purchase your products and services.
If your business is considering using a PSP, it’s essential to choose a provider that handles payments securely. Since PSPs specialize in payments, it’s crucial to partner with a data protection company that can eliminate the risk of data theft. At TokenEx, we offer payment tokenization to secure payment data in a way that does not affect your business processes. Contact us today to see how we can help protect your most sensitive data.