How to Choose the Right Payment Service Provider for Your Business?

Payments are an integral part of any business, facilitating supplier payments, global payroll, payment processing, and much more. It only makes sense then that choosing the right payment service provider (PSP) is a top priority for any business wanting smooth, efficient transactions. We’ll walk you through the ABCs of selecting the right PSP for your business for optimized financial operations.

What is a payment service provider?

A payment service provider—sometimes called merchant service providers—is a third-party company that helps businesses accept credit and debit card payments, Apple Pay, Payoneer, and other electronic payments. PSPs are the mediary between those making the payments and those receiving them.

How does a payment service provider work?

Online payment service providers help merchants set up commerce businesses and accept online payments. They accept electronic payments for a variety of methods such as:

• Credit or debit card: When a customer uses a card for a purchase, the provider processes the payment by verifying the card details, checking for available funds or credit, and getting authorization from the issuing bank. The funds are then transferred to the business’s account, usually after deducting a processing fee.
• Bank-based payments: For direct debits, the customer authorizes the service provider to withdraw funds from their bank account for recurring payments or one-time transactions. For ACH transfers, the payment is initiated between bank accounts, usually within the same country.
• Online banking: During checkout, customers are redirected to their online banking portal, where they log in and authorize the payment. The service provider verifies the transaction and transfers funds from the customer’s account to the business’s.
• Real-time bank transfers: The customer initiates the transfer through their banking app or platform and the funds are transferred almost immediately from their account to the business’s account. In this method, both banks must be part of the real-time payment network.

While payment service providers facilitate transactions and manage payments, it is important to understand how traditional financial institutions—like banks fit—into this landscape.

Is a bank a payment service provider?

While the short answer is yes, there’s some nuance to whether banks are service providers. Banks can act as PSPs, but not all PSPs are banks. PSPs specialize in the electronic payment process and manage the entire transaction from the customer’s account to the business’s. They can also offer additional services such as managing accounts, fraud prevention, and more.

Banks also provide many of the services PSPs provide, but they’re broader financial institutions with a wider range of services beyond just payment facilitation.

Payment service provider’s roles

PSPs enable electronic payment transactions between businesses and customers, but they also play other roles in ensuring secure, efficient, and integrated payment processing. Here’s a short list of what PSPs offer:

• Processing and settlement times: PSPs quickly route payment information between the business, acquiring bank, and card networks, ensuring the right funds are transferred efficiently to the business’s account.
• Payment gateway: PSPs provide a secure online platform—called a payment gateway— that connects the business’s website or applications to the payment networks for seamless online transactions and authorizations.
• Fraud detection and prevention: They utilize advanced algorithms and security protocols to monitor transactions in real-time, reducing the risk of fraudulent activities and chargebacks.
• Compliance and security: PSPs ensure their systems and processes comply with regulatory standards like PCI DSS. This protects sensitive payment data, reducing the risk of data breaches and fraud.
• Reporting and analytics: PSPs’ reporting and analytics tools provide businesses with insights into their transactions, customer behavior, and overall performance for informed decision-making.
• Currency conversion: For international businesses, PSPs’ conversion services allow businesses to accept payment in multiple currencies while automatically converting funds into the business’s preferred currency.
• Customer support: PSPs usually provide customer support to businesses, resolving payment-related issues and questions quickly and effectively.

Understanding payment service providers’ various roles play highlights the importance of differentiating PSPs and payment gateways. Though often used interchangeably, they serve different functions within the payment ecosystem.

Payment service provider vs. payment gateway

A PSP or merchant service provider is a third party that manages the processing, security, and transmission of payment data for businesses accepting online payments.
PSPs usually offer a range of services, including payment gateway integration, fraud prevention, and transaction processing. Payoneer, Square, and Stripe are all examples of merchant account providers.
The purpose of PSPs is to:

1. Process and manage the entire transaction from moving funds from one account to the other to mediating between the issuing bank, card/payment network, and acquiring bank
2. Authorizing payment and ensuring that funds are transmitted to the business’s account

A payment gateway is a key part of the PSP framework. It ensures secure data transmission, data encryption, transaction authorization, and integration with various payment networks.

The main purpose of payment gateways is to:

1. Collect customer card information for payment
2. Encrypts it for later processing

To boil it down, a payment gateway collects the buyer’s card information, encrypts it for processing and a payment processor uses that information to charge the buyer’s bank or credit card provider.

In the section above, we mentioned Payoneer and Stripe as merchant account providers, but are they considered payment service providers? Here’s how they differ from PSPs.

Payment service providers vs. merchant account providers

Payment service providers (PSPs) and merchant account providers (MAPs) both help businesses process payments, but they differ in the type of account they offer and the application process:

Function

PSPs are a unified platform where businesses can accept various payment methods (credit/debit cards, digital wallets, and bank transfers) without needing a dedicated merchant account.
Merchant account providers set up individual merchant accounts for businesses, enabling direct connections to payment networks to process credit and debit card transactions.

Features

PSPs offer a range of integrated services, such as payment gateways, fraud detection, reporting, and multi-currency support, often with simplified pricing and easy onboarding.
MAPs provide more control and stability over payment processing with tailored solutions but often require a more complex setup and stringent approval process.

Relationship to merchants

PSPs aggregate multiple merchants into a single account, reducing the complexity for small businesses. This may result in a higher risk of account freezes and limited control over payment processing.
Each business has a merchant account, giving them more control over funds and transaction data. This increased level of control also reduces the risk of account holds.

Payment service provider pros and cons

Though using a payment service provider offers an array of benefits, they may come with downsides as well. We’ll explore the upsides and downsides to PSPs, beginning with the advantages.

Pros of PSPs:

• Easy setup and integration
• Provide a wide range of payment methods
• Enable global reach
• Maintaining security and compliance is easier
• Offer strong fraud detection and prevention
• Reporting and analytics features
• Predictable flat-rate pricing and billing
• Built to support scalability
• Tend to excel in customer support

Cons of PSPs:

• Less account stability
• Has volume limits
• Nonnegotiable flat rates

As we see from the pros and cons listed above, the pros of payment service providers outweigh the cons. While you will be charged flat rate fees, the ability to support compliant, secure payment methods can greatly benefit your business.

Choosing the right PSP will enhance the above benefits, but with so many online payment service providers on the market, it can feel daunting to select the right one.

How to choose a payment service provider

From scalability to pricing, here are the features and attributes to look for when picking a PSP for your business:

1. Payment methods: Your business will benefit the most from a PSP that supports the payment methods your customers prefer (eg. credit/debit cards, e-wallets, and so on).
2. One that supports the business currency: International businesses will need a PSP that supports the currencies they deal in.
3. Integration compatibility and options: Does the PSP easily integrate with your existing systems and platforms? Streamlined workflows can speed up operations and reduce payment processing issues.
4. Pricing and fees: PSPs may charge setup fees, monthly fees, transaction fees, and merchant account setup fees. Carefully read the pricing requirements and check for hidden costs.
5. Security and compliance: To abide by local and federal regulations, choose a PSP that adheres to strict security standards and compliance regulations.
6. Fraud detection and prevention: Fraud detection is crucial for any payment processor. Look for payment processors with security measures such as encryption, fraud detection, and chargeback protection.
7. Detailed reporting and analytics: Transaction reporting tools allow you to easily reconcile transactions. Some PSPs offer real-time monthly reports, regular payments, and so on.
8. Customer support: Good customer support is important. Most payment service providers offer 24/7 customer support.
9. Scalability: Can the PSP scale with your business growth and adapt to changing payment trends and technologies?
10. Reputation and reviews: Are existing customers happy with the PSP? Knowing how competitors evaluate the provider can help you understand if it will work for you.

Papaya Global’s payment services are offered through Azimo, Papaya’s licensed payments arm. Azimo is a payment services provider regulated in five Tier-1 jurisdictions. These licenses allow Papaya, together with its partners, to provide workforce payments worldwide. For further information on Azimo’s licences worldwide, check our licensing page