A payment service provider (PSP) is a third-party company that assists businesses to accept electronic payments, such as
credit cards
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
and
debit card
A debit card, also known as a check card or bank card is a payment card that can be used in place of cash to make purchases. The term '' plastic card'' includes the above and as an identity document. These are similar to a credit card, but u ...
s payments. PSPs act as intermediaries between those who make payments, i.e.
consumers
A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. T ...
, and those who accept them, i.e.
retailers
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
.
Some of the most renowned PSPs are:
*
Adyen
Adyen is a Dutch payment company with status of an acquiring bank that allows businesses to accept e-commerce, mobile, and point-of-sale payments. It is listed on the stock exchange Euronext.
Adyen offers merchants online services for merchan ...
*
PayPal
PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support online money transfers, and serves as an electronic alternative to traditional paper ...
*
Stripe
Operation
PSPs establish technical connections with
acquiring bank
An acquiring bank (also known simply as an acquirer) is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks ...
s and card networks, enabling merchants to accept different
payment methods without the need to partner with a particular bank. They fully manage
payment processing
A payment processor is a system that enables financial transactions, commonly employed by a merchant, to handle transactions with customers from various channels such as credit cards and debit cards or bank accounts. They are usually broken do ...
and external network relationships, making the merchant less dependent on
banking institutions.
PSP can also offer
risk management services for card and bank based payments, transaction payment matching, reporting, fund
remittance
A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland. Money sent home by migrants competes wit ...
and fraud protection. Some PSPs provide services to process other next generation methods (
payment systems
A payment system is any system used to settle financial transactions through the transfer of monetary value. This includes the institutions, instruments, people, rules, procedures, standards, and technologies that make its exchange possible.Biago ...
) including cash payments, wallets,
prepaid cards
A stored-value card (SVC) is a payment card with a monetary value stored on the card itself, not in an external account maintained by a financial institution. This means no network access is required by the payment collection terminals as funds ...
or
voucher
A voucher is a bond of the redeemable transaction type which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods. Examples include housing, travel, and food vouchers. The term voucher is also a ...
s, and even paper or
e-check
Electronic funds transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of b ...
processing.
PSP fees are typically charged in one of two ways: as a percentage of each transaction, or as a fixed cost per transaction.
US-based online payment service providers are supervised by the Financial Crimes Enforcement Network (or
FinCEN
The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terr ...
), a bureau of the
United States Department of the Treasury
The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and t ...
that collects and analyzes information about financial transactions in order to combat
money laundering
Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
, terrorist financiers, and other
financial crime
Financial crime is crime committed against property, involving the unlawful conversion of the ownership of property (belonging to one person) to one's own personal use and benefit. Financial crimes may involve fraud (cheque fraud, credit card fr ...
s.
European payment service providers are supervised based on the European
Payment Services Directive
The Revised Payment Services Directive (PSD2, Directive (EU) 2015/2366, which replaced the Payment Services Directive (PSD), Directive 2007/64/EC) is an EU Directive, administered by the European Commission (Directorate General Internal Market) to ...
.
Types
There are three categories of payment service providers:
* Payment institutions: enterprises holding a licence specifically for providing payment services.
* Exempt payment service providers: organisations exempt from the licence requirement under the Exemption Regulation.
* Banks and electronic money institutions: organisations authorised to act as a payment service provider under their licences, to the extent permitted under those licences. They are excepted from the licence requirement for payment service providers.
Security
Each merchant remains responsible for his own actions and must accordingly ensure that the selected provider observes the guidelines, e.g. with regard to
data protection
Information privacy is the relationship between the collection and dissemination of data, technology, the public expectation of privacy, contextual information norms, and the legal and political issues surrounding them. It is also known as data pr ...
. Compliance with
PCI DSS
The Payment Card Industry Data Security Standard (PCI DSS) is an information security standard used to handle credit cards from major card brands. The standard is administered by the Payment Card Industry Security Standards Council and its use i ...
guidelines is important. There are four levels of PCI compliance, that must be respected by the PSP. Depending on the volume of transactions as well as other details about the level of risk assessed by payment brands, the payment service provider has to follow higher standards.
The levels are following:
* Level 1 – Over 6 million transactions annually;
* Level 2 – Between 1 and 6 million transactions annually;
* Level 3 – Between 20,000 and 1 million transactions annually;
* Level 4 – Less than 20,000 transactions annually.
Market size
There are more than 900 payment providers in the world. More than 300 offer services for Europe and North America. The global payment service provider market is expected to reach ~ $88 Bn by 2027 from ~ $40 Bn in 2019.
See also
*
Payment gateway
A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. The p ...
*
E-commerce payment system
An e-commerce payment system (or an electronic payment system) facilitates the acceptance of electronic payment for offline transfer, also known as a subcomponent of electronic data interchange (EDI), e-commerce payment systems have become incre ...
*
Payments as a service
Payments as a service (PaaS) is a marketing phrase used to describe a software as a service to connect a group of international payment systems. The architecture is represented by a layer – or overlay – that resides on top of these dispar ...
*
Payment processor
A payment processor is a system that enables financial transactions, commonly employed by a merchant, to handle transactions with customers from various channels such as credit cards and debit cards or bank accounts. They are usually broken dow ...
*
Unified Payments Interface
Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI). The interface facilitates inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions. It is used o ...
References
{{Payment service providers