A payment service provider (PSP) is a third-party company that assists businesses to accept electronic payments, such as
credit cards and
debit cards 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. ...
, 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 ...
.
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 merch ...
*
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
Stripe, striped, or stripes may refer to:
Decorations
* Stripe (pattern), a line or band that differs in colour or tone from an adjacent surface
* Racing stripe, a vehicle decoration
* Service stripe, a decoration of the U.S. military
Entertainme ...
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
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
.
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) 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 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 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 ...
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 jurisdiction ...
, 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 ...
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) t ...
.
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 da ...
. 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 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
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Payment gateway
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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 incr ...
*
Payments as a service
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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
References
{{Payment service providers