What is a payment service provider (PSP)?

Summary: 

• Payment service providers (PSPs) help businesses securely and efficiently accept digital payments from customers via methods like credit cards, digital wallets, and bank transfers. These third-party companies play a central role in the payment ecosystem by connecting merchants, customers, and financial institutions.

• Popular PSPs offer features such as multi-currency support, robust integration capabilities, security and fraud prevention tools, and fast settlement times.

• When choosing a PSP for your business, make sure it can scale with your business, is easy to implement, and has strong customer support.

With over 5.2 billion users expected to adopt digital wallets by 2026¹, having a PSP that supports these payment methods can help your business expand its reach both domestically and internationally.

PSPs typically provide both payment gateways (the interface customers use at checkout) and payment processing (moving funds between banks), acting as intermediaries across the payment ecosystem.

When selecting a PSP, look for one that is scalable, easy to implement, offers excellent support, and aligns with your business’s payment needs.

Introduction to payment service providers

Payment service providers enable businesses to accept electronic payments from their customers, playing a vital role in the payments industry. By connecting merchants to the broader financial system, payment service providers allow businesses to accept a wide range of payment methods, including credit and debit cards, online payments, and digital wallets. This connection simplifies payment acceptance processes, reduces administrative burdens, and helps businesses deliver a secure payment experience to their customers.

Many PSPs offer a comprehensive suite of payment services, acting as payment gateways, merchant account providers, and transaction reporting tools. These services help businesses manage payments, track transactions, and ensure every payment is processed securely and efficiently. By partnering with a reliable payment service provider, businesses can focus on growth while leaving the complexities of payment management to the experts.

How payment service providers work 

Payment service providers (PSPs) facilitate electronic transactions between merchants and customers. They manage key parts of the transaction process, including routing payment information, communicating with acquiring banks and card networks, authorizing transactions, and initiating settlement. PSPs also offer tools to support compliance, security, and fraud prevention, helping ensure payments are processed efficiently and safely.

Before PSPs existed, businesses had to manage transactions directly with banks and credit companies and handle security and compliance independently. However, investing separately in different payment and fraud reduction technologies meant businesses needed more people to manage separate relationships and integrations.

PSPs manage those relationships in one system by taking care of the entire payment value chain from checkout to final settlement. This feature makes PSPs easier to set up and manage, making them more cost-effective, especially for growing businesses.

Here’s a breakdown of how PSPs work in five steps:

1. The customer chooses a payment method and submits their payment details online or in person.

2. The payment gateway encrypts the data and transfers it to the payment processor. 

3. The processor verifies the card information and requests authorization for the transaction from the customer’s issuing bank. 

4. The merchant will be notified if sufficient funds are approved and the transaction is approved.

5. Finally, the payment processor transfers the funds from the customer’s bank account to the merchant’s account, typically within a few days.

Payment service providers handle electronic payment transactions, including bank-based payments, to ensure secure and efficient processing for merchants and customers.

Payment gateway, payment processor, and merchant account: What’s the difference?

Understanding the differences between a payment gateway, payment processor, and merchant account is essential for businesses choosing the right payment service provider.

• A payment gateway is the technology that captures and encrypts customer payment details at checkout and securely transmits them to the payment processor. It acts as the digital interface between your business, the customer, and the acquiring bank.

• A payment processor is responsible for routing the transaction details between the customer’s issuing bank and your acquiring bank. It authorizes the transaction and ensures the funds are transferred appropriately.

• A merchant account is a type of business bank account where the funds from approved transactions are temporarily held before being deposited into your regular business bank account. It enables businesses to accept credit card, debit card, and digital wallet payments.

Many payment service providers bundle these services into a single platform, making it easier for businesses to accept a variety of payment methods and manage transactions efficiently. By understanding how these components work together, businesses can make more informed decisions and provide a smoother payment experience for their customers.

Key features to look for in payment service providers 

There are several essential payment service provider key features to look for, such as:

• Global payment capabilities: Your PSP should support payments using multiple payment methods, such as credit cards, e-wallets, and direct debit, as well as multiple currencies and countries. This will make it easier to collect payments internationally.

• Ease of integration: Your PSP should offer integration options that will work with your existing website or eCommerce store. This will reduce the time it takes before you can accept payments.

• Speed of settlements: Payment service providers can have different payment processing times. Aim to find a PSP with fast settlement times to receive payments in your account quickly.

• Security and fraud prevention: Partner with a reliable PSP with robust payment security. They must comply with relevant regulations, such as Payment Card Industry Data Security Standard (PCI DSS), which ensures cardholder’s information remains secure.

• Support services: Opt for a provider that offers responsive customer support and dedicated assistance for security, technical issues, and fraud protection to keep your operations running smoothly.

• Regulatory compliance assistance: Look for a PSP that helps your business meet local and international regulations, such as anti-money laundering (AML) and know-your-customer (KYC) requirements, especially if you operate across borders.

Security and compliance: keeping your transactions safe

Security and compliance are at the heart of effective payment processing. Payment service providers are responsible for ensuring that every transaction is protected by robust security measures and that their systems comply with industry regulations, such as PCI DSS. Many payment service providers use advanced technologies like encryption and tokenization to safeguard sensitive payment data, helping to prevent data breaches and protect against fraudulent transactions.

By choosing a reputable service provider, businesses can be confident that their payment processes are secure and compliant with the latest standards. This not only protects the business and its customers but also helps maintain trust and deliver a secure payment experience every time. With the right payment service provider, businesses can focus on growth, knowing their payment processing is in safe hands.

Actionable insights and reporting

One of the key advantages of working with payment service providers is access to actionable insights and comprehensive reporting tools. These features allow businesses to monitor their payment processes in real time, track payment authorization rates, and analyze transaction reporting to identify trends and opportunities for improvement.

Many payment service providers offer detailed analytics on payment methods, customer behavior, and transaction fees, empowering businesses to make data-driven decisions. By leveraging these insights, businesses can optimize their payment services, streamline operations, and ultimately increase revenue. Real-time reporting also enables quick responses to any issues, ensuring that payment processes remain efficient and effective.

Customer support and service

Reliable customer support is a crucial aspect of any payment service provider. Businesses need to know they can count on their provider for prompt assistance with any payment issues, disputes, or technical challenges. Many payment service providers offer 24/7 customer support, multiple contact channels, and dedicated account management to ensure that help is always available when needed.

Excellent customer service means businesses can accept payments smoothly, whether it’s credit card payments, debit card payments, or bank transfers. Support for multiple payment methods and global transactions ensures that businesses can serve customers around the world without interruption. By choosing a payment service provider known for outstanding support, businesses can keep their payment processes running efficiently and maintain a positive payment experience for their customers.

Benefits of using a payment service provider

There are plenty of advantages to using a payment service provider for your business. The most direct benefit of a PSP is that it can enable you to grow your revenue potential. Offering multiple payment options can help expand your customer base by allowing local customers to check out in their local currency and using payment methods they’re familiar with.

PSPs also often have more straightforward and affordable fee structures, which can help your business keep transaction costs low. Some PSPs offer lower transaction fees for high-volume businesses and may charge a monthly fee or monthly fees as part of their pricing plans. Additionally, some PSPs provide integrated financial management tools that combine payments, analytics, and other services to help streamline business operations.

Challenges of using payment service providers

While payment service providers offer many pros for businesses, there may be some challenges to keep in mind. One of the primary concerns is cost. Apart from transaction fees, PSPs may charge setup fees or other fees beyond the standard rates that can affect your profit margins.

For instance, while many PSPs may allow you to collect payments in multiple currencies, you may only be able to withdraw them in your home currency. If you get a payment in Euros but your account is in USD, the PSP will convert the Euros to US Dollars when you withdraw your earnings. This exposes you to currency conversion fees and exchange rate fluctuations, and many PSPs often charge a fee for this, which can increase your costs and affect your profits.

Another challenge is ‌reduced control over the payment process. Using a PSP can mean less control over the online checkout experience, which can be crucial for maintaining a positive customer relationship. Some PSPs may offer only basic customization options for the checkout page, while others have fixed checkout flows that you can’t modify. This can make the online checkout process feel disconnected from your brand, leading to a less cohesive customer experience.

Now that you know the pros and cons of payment service providers (PSPs), you can begin your search by looking at some examples.

Examples of payment service providers

Are you ready to start looking for an online payment platform for your business? Payment service providers bring together merchants, banks, and payment networks to enable seamless, secure transactions. These providers enable businesses to accept a wide range of payment methods, simplifying the payment process and supporting growth.

Airwallex

If you’re seeking to handle payments across borders and in multiple currencies, Airwallex may be a good fit for you. Airwallex helps you accept a wide range of international payment methods in over 130+ countries. Payments can also be settled like-for-like in multi-currency accounts, saving you on unnecessary FX fees. Airwallex has easy integration options, from no-code and low-code to fully customizable solutions for payment gateways and payment processing.

Airwallex Payments is part of Airwallex’s all-in-one solution, which also features a Business Account that can help you manage foreign exchange transfers with low or no foreign transaction fees. The solution also has a built-in Expense Management tool and many integrations that can connect to your existing tools, such as accounting software.

PayPal

PayPal is a well-known PSP that is widely used globally. It offers a user-friendly platform, allowing businesses to quickly set up and accept payments. PayPal lets businesses accept many payment methods, including credit cards, digital wallets, and bank transfers. This makes it easy for customers to pay for things with methods they’re familiar with.

Like many other providers, PayPal also provides strong security features like fraud protection and buyer/seller protection, which boost customer confidence. While PayPal provides essential security features and flexibility for online payments, it can limit businesses operating across borders, as you may need a different bank account for each settlement currency.² This often results in higher conversion fees and added complexity when managing multiple currencies.

Stripe

Stripe is a powerful and versatile PSP that offers a wide range of features and services to help businesses process payments, manage subscriptions, and handle various financial transactions. Stripe also operates point-of-sale (POS) systems that streamline in-person transactions³.

However, businesses that prefer consolidating their financial operations to reduce the complexity of managing their multiple systems and improve data accuracy will need to find alternatives.

How to choose the right PSP for your business

Looking to find the right PSP for your business? Here are some tips to help you choose the right one:

• Assess your needs: Different types of businesses may need specific PSP features. For example, if you have an international customer base, you’ll want a PSP that can accept a wide variety of payment methods and currencies and settle payments like-for-like. This will help you manage fees and costs.

• Seek customization: Flexibility is important when integrating a PSP into your website or marketplace so that you can have better control over your checkout experience regardless of your resources.

• Evaluate customer support: Helpful and reliable customer service can go a long way, especially when dealing with payment issues or technical challenges. Look for a PSP that offers 24/7 support, multiple contact channels, and a reputation for resolving issues quickly. This will ensure that your payment process remains smooth, reducing any hiccups for your business.

Unlock business growth with a payment service provider that does more

Choosing the right payment service provider (PSP) can be a game-changer for your business. PSPs help boost checkout rates and ensure a seamless payment experience for your customers by enabling you to accept a wide range of payment methods and currencies.

Whether you’re a small business seeking cost-effective solutions or a global company aiming for streamlined operations, the right PSP equips you with the tools to manage payments efficiently and fuel long-term growth.

With Airwallex, your business can accept payments from major card schemes and 160+ payment methods from more than 180 countries. Businesses can also take advantage of no-code and low-code integration options and like-for-like settlement with multi-currency Business Accounts.

We're regulated in all markets we operate in, with 60+ licenses and permits globally. Join the 150,000+ businesses that trust us to process over $100 billion in global payments volume.

Disclaimer text: We wrote this article in January 2025. We based the information on our own online research and were not able to manually test each tool or provider. The information is provided for educational purposes only, and a reader should consider the specific requirements of their business when evaluating providers. This research is reviewed every six months. If you would like to request an update, feel free to contact us at [email protected].

Sources:

1. https://business.bankofamerica.com/resources/benefits-of-digital-payments.html 

2. https://developer.paypal.com/braintree/articles/get-started/currencies 

3. https://stripe.com/pricing