What is a payment service provider (PSP) and why is it important to your online business?
Over the past decade, more and more payment options have become available for customers to make online payments, making them more convenient than ever. Due to this trend, any business can benefit massively from offering multiple payment options to its customers. This helps in acquiring new customers, as well as retaining current ones. However, maintaining a growing number of payment options can create a lot of extra costs, labor, and security issues. This is where Payment Service Providers (PSPs) can help.
In this post we briefly explain what PSP is and what it does. For a detailed overview of the payment service provider' work and the payment process, you can read The symbiosis between Payment Service Providers and eCommerce businesses
What is a PSP?
If you want to accept online payments through your website, you’ll need a payment service provider (PSP). These payment service providers are online payment solutions for individuals or businesses that make it easy for your customers to pay for your products or services.
The PSP is a third-party organization often referred to as a payment gateway through which users make payments. PSPs are an essential part of the payment’s ecosystem. They provide many services, including payment initiation, settlement to merchants, risk management, fraud management, and network access. You can think of a PSP as the go-between that connects your online shop, your payment providers and your customers.
What does a PSP do?
A PSP works closely together with Acquiring banks managing the process from start to finish. To see how a PSP works, let’s go through an example of a basic online transaction — from the moment it’s initiated, to the moment you see the funds in your account:
- Your customer makes a purchase, enters his card details and clicks “pay”.
- This initiates the transaction, and the payment details will be sent to the payment gateway you have signed up with.
- The PSP then verifies the customer’s card details and checks whether the customer has enough funds in their card account to make the payment. The PSP does this with the help of a payment processor
- Once the customer’s card details are verified and it’s been confirmed that the customer has sufficient funds in their account, the PSP initiates a transfer of funds from the customer’s bank (issuing bank) to the merchant account you have associated with your business (acquiring bank).
- Finally, the PSP sends a transaction notification to you and the customer about the completed payment
In the case of a declined transaction for reasons such as invalid card details or insufficient funds, the PSP will terminate the transaction and send a status message notifying you and your customer of the failed payment.
In summary, a PSP ensures the safe and successful transfer of funds from your customer’s account to yours. That being said, there are other benefits that PSPs offer business owners in addition to facilitating payments. Signing up with a PSP offers several advantages, from transaction reporting to the ability to accept multiple payment methods in multiple currencies.
Why important to your online business?
Here are the most important aspects to encourage you to use a PSP provider:
- Your store will be available at any time, your customers will be able to connect to it and buy whenever they want, 24 hours a day.
- Accept multiple payment methods and multiple currencies. There are only two types of fees you need to pay: a one-time set-up fee, and a small monthly fee for enabling payments.
- Make transactions securely and prevent fraud which provides customers a better sense of security, and encourages them to go through the payment.
- They adapt perfectly to your business. It doesn’t matter the size of the company; thus, PSP providers can be useful for small companies as well as for large companies that are volume-driven.
- Payments are validated in real time, directly and securely to the bank account of your choice. Refunds are easy to make — all with your customer service in mind.
In summary, Payment Service Providers can help you reduce integration and processing costs, accept multiple payment methods and currencies, and safely and securely facilitate your payments. If you’re looking to expand your business, you will need to start accepting a wider variety of payments from your customers, allowing them to pay through whichever method they prefer. If this sounds like the direction you want to head in, Contact Us today!