A Payment Service Provider (PSP) is a company that offers services to both entrepreneurs and banks, facilitating the execution of diverse online payment transactions. These payments can be conducted through various channels, including credit cards, bank transfers, electronic wallets, and more.
The term “PSP” is a widely accepted abbreviation derived from “payment service provider”. Additionally, alternative terms such as “electronic payment processor” and “electronic payment provider” are also used interchangeably with the term “payment service provider”.
In European countries, the operations of payment service providers are governed by the European Payment Services Directive.
In simpler terms, a payment service provider acts as a middleman between the purchaser making the payment, the seller receiving it, and the bank facilitating Internet acquiring (you can learn more about Internet acquiring here). Essentially, the role of a PSP is to facilitate the online payments for its customers.
Generally, a payment service provider engages with multiple acquiring banks and diverse card payment networks. It oversees the processing, management, and archival aspects of payments, while also handling relationships with external networks. This arrangement allows businessmen to be less dependent on specific banking institutions.
Additionally, leveraging the services of electronic payment providers opens access to an expanded array of payment services. These companies can extend offerings such as invoicing services, support for multiple currencies, real-time currency conversion, and robust risk management for their clients.
Ensuring payment security is a crucial responsibility of payment service providers. To achieve this, a variety of anti-fraud tools are employed, including encryption, data access control, tokenization, regular network testing, and others. Adhering to the paramount global standards of PCI DSS (Payment Card Industry Data Security Standard) serves as a guarantee for secure payments.
Payment service providers typically charge for their services using one of two common schemes: a fixed fee for each transaction or a percentage of the financial transaction amount. The connection of interested parties to the processing may incur separate charges.
To offer payment services in compliance with legal requirements, a company must obtain a payment licence. Various countries have distinct categories of these legal permits, varying based on the types, features, and scope of services offered.
In the European Union (EU) and the European Economic Area (EEA), the authority to provide payment services is conferred through a Payment Institution Licence.
The registration and issuance of this authorization are overseen by the national regulatory authority of the country where the PSP is based. The criteria for supplier companies and the conditions for obtaining a payment licence differ across each country.