A payment service provider (PSP) is a third-party company that allows businesses to accept electronic payments, such as credit card 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 card usually consists of the bank's name, a card number, the cardholder's name, and an expiration date, on either ...

payments. PSPs act as intermediaries between those who make payments, i.e.

consumer A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...

s, and those who accept them, i.e. retailers. They will often provide

merchant services Merchant services is a broad category of financial services intended for use by businesses. In its most specific use, it usually refers to merchant processing services that enables a business to accept a transaction payment through a secure (encr ...

and act as a payment gateway or payment processor for

e-commerce E-commerce (electronic commerce) refers to commercial activities including the electronic buying or selling products and services which are conducted on online platforms or over the Internet. E-commerce draws on technologies such as mobile co ...

and brick and mortar businesses. They may also offer

risk management Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...

services for card and bank based payments, transaction payment matching, digital wallets, 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 ...

, currency exchange and fraud protection. The PSP will typically provide software to integrate with e-commerce websites or

point of sale The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...

systems.

Operation

PSPs establish technical connections with acquiring banks and card networks, enabling merchants to accept different payment methods without the need to partner with a particular bank. They fully manage payment processing and external network relationships, making the merchant less dependent on banking institutions. PSP can also offer

services for card and bank based payments, transaction payment matching, reporting, fund

and fraud protection. Some PSPs provide services to process other next generation methods ( payment systems) including cash payments, wallets, prepaid cards or

voucher A voucher is a bond of the redeemable transaction type which is worth a certain money, monetary value and which may be spent only for specific reasons or on specific goods. Examples include house, housing, travel, and food vouchers. The term vou ...

s, and even paper or e-check 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), a bureau of the

United States Department of the Treasury The Department of the Treasury (USDT) is the Treasury, national treasury and finance department of the federal government of the United States. It is one of 15 current United States federal executive departments, U.S. government departments. ...

that collects and analyzes information about financial transactions in order to combat

money laundering Money laundering is the process of illegally concealing the origin of money obtained from illicit activities (often known as dirty money) such as drug trafficking, sex work, terrorism, corruption, and embezzlement, and converting the funds i ...

, terrorist financiers, and other financial crimes. European payment service providers are supervised based on the European Payment Services Directive.

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. Compliance with PCI DSS 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 as follows: * 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 were more than 900 payment providers in the world. More than 300 offer services just for Europe and North America. The global payment service provider market is expected to reach $US88 billion by 2027 from $US40 billion in 2019.

Regulatory history

China

In 2010, the People's Bank of China issued administrative measures regarding online non-financial payment services. These measures retroactively recognized the legal status of online third-party payment platforms like Alipay. Prior to the 2010 measures, these services existed in a legal grey area.

References