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What is a PSP (payment service provider)?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedAug 20212 min read

Payments can be complicated, but if you want to accept debit or credit card payments at your business, you’re going to need to understand the terminology behind them. Payment service providers are an important part of the payment ecosystem, and for any business that wants to deliver a simple payment experience to their customers, it’s something that you should get to know in more detail. But what is a PSP? Find out everything you need to know with our definitive guide.

Payment service provider definition

Payment service providers – also known as merchant service providers or PSPs – are third parties that help merchants accept payments. Simply put, payment service providers enable merchants to accept credit/debit payments (as well as Direct Debit, bank transfer, real-time bank transfer, etc.) by connecting them to the broader financial world. They provide both a merchant account and a payment gateway, ensuring that businesses can collect and manage their payments in a simple and efficient way.

What do payment service providers do?

In short, payment service providers work with acquiring banks (payment processors) to manage the entire transaction from start to finish. Here’s how the transaction process works in a little more detail:

First, the customer initiates payment and transaction details will be sent to the acquitting bank.
Then, the information is sent to the credit card network, which then sends the transaction details to the issuing bank (bank that issues the card to the customer).
After deciding whether or not to approve the transaction, the issuing bank passes the decision back to the credit card network, which passes it back to the acquiring bank.
Then, the decision is passed back to the payment service provider, which shares the result with the customer and the merchant.
After payment has been authorised, the issuing bank will send the funds to the credit card network, which passes them back to the acquiring bank to be deposited in the PSP’s merchant account

What services does a payment service provider offer?

Aside from allowing businesses to accept card and bank-based payments, payment service providers also offer a range of other services that can improve the payment experience for customers and merchants alike. So, what do payment service providers do in addition to processing transactions?

Security – Many payment service providers offer high standards of security for PSP payments. By staying PCI DSS compliant, businesses can rest assured that their customer’s financial data is secure.
Currency processing – In addition, many PSPs facilitate cross-border payments by processing multiple currencies. This is a crucial service for any business that’s looking to gain a foothold in the global market.
Transaction reporting – Furthermore, many payment service providers will offer transaction reporting features, enabling you to reconcile transactions more effectively. Generally, this will consist of monthly reports, although some providers offer real-time reporting.

To work out which payment service provider is best for your business, you should consider the cost, flexibility, and speed offered by each provider. Think about your existing payment infrastructure and how each payment service provider will work within it.

What are the benefits of using a payment service provider?

There are a number of benefits associated with PSPs and PSP payments. Most importantly, they take care of the entire payment process, so you can focus on your core business without having to worry about whether you’re able to get paid. Furthermore, PSP payments can come from any number of channels, including credit cards and Direct Debit. By accepting as many payment methods as possible, you can ensure that you aren’t turning away any potential customers, and thereby boost your sales.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.