Business

What is a Payment Service Provider (PSP) and Why Should You Partner with One?

February 26, 2021

Payment service providers (PSP), payment gateways, payment processors…

All these technical terms can get a bit confusing after a while! However, managing payments and providers is an essential part of managing and taking payments as a company. By understanding what PSPs do and how they can benefit your business, you'll be able to offer a much better payment experience to your customers and increase conversions. Here’s what we’ll be covering in this article:

Payment service provider definition

PSPs are third parties that help you, the merchant, accept payments.

PSPs are essentially in charge of handling the entire payment transaction from the moment your customer pays to the moment you receive the payment in your business bank account. This means they offer the payment interface, connect with acquiring and issuing banks and provide you with a merchant account. A PSP may offer some other services as well, such as invoicing. For example, at Pomelo Pay we also offer a transaction dashboard, an integratable online shop, payment links and QR code payments.

How does a payment service provider work?

The job of a PSP is to manage the entire transaction from customer payment to your bank account. There are three main steps each payment goes through: payment initiation, authorisation and transfer. Here’s how the process works:

  1. Your customer purchases an item online and details of the payment are sent to the issuing bank (their bank)
  2. The payment information is sent to the card network such as Visa and Mastercard
  3. The transaction is approved, and payment authorisation is shared with the card network and issuing bank
  4. All this information is shared with the PSP, which will let you and the customer know whether the payment has been approved
  5. Now that payment is authorised, the issuing bank can send funds to the card network.
  6. Mastercard/Visa takes their cut and then sends the money to the acquiring bank, where it is then deposited in your merchant account.

As you can see, the payment goes through quite a journey! The good news is that by partnering with a PSP, you don’t need to manage or even understand the entire process. The PSP manages the collection of money, transfers of details, authorisation of payment and the final deposit - all with a good user experience!

Payment service provider example

Pomelo Pay is an example of a payment service provider. We manage everything from the customer payment to the moment it gets deposited into your account.

But we don’t just offer payment transfers! In fact, we offer a lot more features including:

  • Manage several users from one main account (see how Amran from SkyTaxis does this with his taxi drivers)
  • Take card payments on-the-go with QR codes
  • Take local payment methods in different currencies
  • Integrate your top payment methods in your website or ecommerce shop
  • Take contactless payments! (coming soon!)

Our various features mean that partnering with a PSP such as Pomelo Pay brings a lot more benefits than just accepting payments. If you’re curious to see our features in real life, read some of our case studies of Pomelo Pay users:

5 benefits of partnering with a PSP

Here are a few of the benefits of using a PSP to manage your payments:

1. Convenience

By working with a PSP, you can outsource all your payments to one company, instead of having to do it yourself or having to partner with several payment providers. With Pomelo Pay, for example, you don’t even have to buy card readers - your phone can now accept card payments!

2. Better security

PSPs are regulated entities that specialise in managing payments. As more of the world goes online, more companies are becoming prone to cyberattacks and customers to fraud, which means that security is more important now than ever. Pomelo Pay is regulated by the FCA, has PCI level 1 and is a member of Mastercard - so you can give your customers peace of mind that their financial details are safe and secure.  

3. Higher conversions

Did you know that “lack of payment methods” is one of the main reasons customers abandon their shopping cart? By partnering with a PSP, you can offer a wide range of payment methods: debit card, QR code payment and Apple Pay, to name a few. With Pomelo Pay, for example, you can even accept WeChatpay and Alipay and sell to the Chinese market. In fact, you can even accept in several currencies! Many customers are put off by paying in GBP for example, and prefer paying in their own currency. If you’re planning on expanding or taking customers from abroad, using a secure PSP merchant account with several payment methods will increase conversions.

4. Faster payments

Since the PSP manages the transaction from end to end, your money goes through fewer providers and therefore fewer hoops to reach your bank account. Instead of waiting for days for your money to be processed, with Pomelo Pay your money gets deposited the next working day. This makes it a lot easier to manage the accounting and financial side of business.

5. More automation

PSPs are specifically built for merchants. This means you can forget about Excel spreadsheets or phoning up your accountant: with a PSP like Pomelo Pay, you’ll be able to see everything on one dashboard. You can even set up several users so your staff can collect payments and you can easily track their financials. For Sky Taxis, this means Amran no longer has to individually collect money from drivers or issue several card machines - everything is deposited into one account.

With Pomelo Pay, you see all your transactions on one dashboard and can quickly determine how your finances are doing on a day to day basis.

Payment Service Provider FAQ

Is a bank a payment service provider?

No, banks are not payment service providers, but they do play a large role in the payment process. Issuing banks issue debit cards and acquiring banks process payments on behalf of the merchant.

Payment service provider vs payment gateway

The payment gateway is just one part of the payment process: it’s the interface that the customer uses to submit a payment. It acts a bit like an online POS machine and is in charge of sending the payment information from the website to the card network.

PSPs manage the entire payment end to end and will have a payment gateway included.

Merchant account vs payment service provider

A merchant account is what allows you to process payments. The payment gateway deposits the funds into your merchant account. The funds are then automatically transferred to your business bank account; you don’t have control over the merchant account as it only serves as a place to hold deposits.

A PSP will offer you a merchant account and manage the transfers to your business bank account.