The growing popularity of cashless transactions and the push for digital finance have changed the financial landscape. With the growing volume of online transactions, businesses have to deal with the overwhelming challenges of payment processing. Interestingly, a payment service provider or PSP could offer an ideal solution for e-commerce transaction processing for different types of businesses.
Market research reports indicate that digital transactions would amount to almost $9.5 trillion in 2023. Businesses have to adapt to the demand of customers for conducting online transactions by leveraging digital payment methods. Therefore, it is crucial for businesses to choose payment service providers for improving their performance, growth and customer experience. Let us learn more about payment service providers, what they do and the important questions you should ask before choosing one.
What is a Payment Service Provider?
Payment Service Providers or PSPs are the companies which serve as a third party between the seller and buyer for facilitating electronic payment transactions between different parties. PSPs help different businesses accept a broad range of payment methods, such as credit cards, bank transfers, debit cards and digital wallets.
A payment service provider could work as a single independent platform or integrated with a website or app. Payment service providers can offer the required infrastructure, compliance and security measures alongside regulations that can enable secure and efficient payment processing.
How Do Payment Service Providers Work?
Payment service providers work by collaborating with acquiring banks to control the payment process. You can understand the working mechanism of payment service providers with the help of the following workflow.
- First of all, a buyer completes a purchase on an e-commerce platform with their debit card or credit card.
- The POS merchant system or the payment gateway ensures encryption of the card details entered by the buyer before sending them to the PSP.
- Now, the payment service provider would identify and connect with a specific credit card network for reporting the transaction to the bank which issued the card.
- The issuing bank would verify the legitimacy of the transaction and send the approval or denial code to the card network.
- After receiving the transaction approval code, payment service providers would provide notifications about the transaction status to the merchant or seller. At the same time, the PSP transfers funds to the bank account of the seller.
Are Payment Service Providers Different from Payment Gateways?
Payment gateways are different from payment service providers as the gateways are APIs which serve as channels of communication. Payment gateways provide a connection between point-of-sale systems and card processing platforms. The responsibility of payment gateways is to ensure secure transfer of payment information from the seller’s website to payment processing platforms for managing transactions. On the other hand, a payment service provider works in the background. The responsibility of the PSP is to facilitate transfer of transaction data between the issuing bank and the acquiring bank or platform.
What are the Services Offered by Payment Service Providers?
One of the trusted ways to find the right payment service providers is to look for the services they offer. Apart from online transaction processing, PSPs could also provide currency processing, fraud detection and transaction reporting capabilities.
Payment service providers could provide flexibility for processing multiple currencies to enable cross-border payments. It serves as a promising advantage for businesses which want to expand their business in global markets.
PSPs should also follow PCI DSS compliance to ensure higher security standards for safeguarding the financial data of merchants and their customers.
Furthermore, payment service providers also help merchants in recording and reconciling their transactions through real-time and monthly reports.
How Can You Choose the Right Payment Service Provider?
The right payment service provider can help merchants offer a secure and seamless payment experience to their customers. At the same time, an effective PSP could also help merchants in optimizing revenue growth and operational efficiency. Here are some of the important factors you should look for in payment service providers.
- Currency Support
Businesses which operate in international markets would need a PSP capable of supporting multiple currencies. In addition, the PSP should also provide the facility for currency conversions.
- Security and Compliance
The most crucial factor for choosing a payment service provider points to security. Merchants should choose PSPs which could follow the industry-standard security practices alongside ensuring PCI DSS compliance. Payment service providers which follow important security standards can provide the assurance of security for storage, processing and transmission of sensitive transaction data. Compliance with security standards and information protection regulations helps in reducing the risks of fraud and data breaches.
- Fraud Detection Mechanisms
Following the security standards is only one aspect of dealing with problems of financial fraud. It is important to choose payment service providers which offer effective tools for fraud detection and prevention. Such types of PSPs could help reduce financial losses while maintaining your reputation.
You should also check whether a payment service provider could adapt to the changing needs of your business and growth. Expansion of business would mean that you would have more transactions to process. In addition, you would need more features and payment methods for accommodating the emerging needs of customers.
- Customer Support
Another crucial factor for choosing payment service providers is the effectiveness of their customer support mechanisms. You should look for PSPs which offer responsive customer support services with relevant responses to user queries. Easier access to customer support plays a major role in ensuring a seamless payment experience for customers.
- Flexibility of Integration
You can also evaluate the effectiveness of payment service providers by checking the flexibility of integration of PSPs with an existing application, website or e-commerce platform. Does the PSP offer SDKs, plugins and APIs for integration with existing systems? In addition, you must also check whether the PSP is compatible with different technology stacks.
The journey to find a reliable payment service provider may lead you to multiple alternatives. However, the importance of PSPs in supporting the growth of digital payments also invites concerns regarding selection of PSPs. You would have to entrust payment service providers with sensitive merchant and customer data. In addition, payment service providers also ensure seamless experiences for customers, thereby increasing their trust in merchants. Find an effective PSP tailored to your needs and navigate through the challenges of digital payments with ease.