Everything To Know About Payment Services Providers To Choose for a Business
Accepting payments for goods or services is the essential need of any business, as without taking payments, the business becomes senseless.
Since clients can pay for the merch with their bank cards, e-money, e-wallets, cash, and vouchers, it becomes absolutely inevitable to process these means of payment at a Point Of Sale or online, should you sell anything through the Internet.
Payment services provider definition
A payment service provider a.k.a. PSP is an organization, which has software and hardware designed specifically for the processing of financial transactions initiated online and offline. PSPs handle various transactional channels, including cross-channel operations.
Two examples of the process:
A client pays with their card for the offline purchase, tapping a card in a store to the POS terminal, which is linked to an account of a merchant, which it has opened in a bank. In this case, the money is written off the card account of a payer and transferred to a bank account of a merchant.
A client buys some item online and pays from its e-money wallet; the PSP writes off this e-money and, through an internal exchange, transfers it to a Stripe account of the merchant.
In this case, cross-currency cross-channel exchange rates affect the cost of the transaction for the buyer and, probably, for the seller.
So, the main task of a PSP is to make sure a PSP payment is completed. Generally, it initiates the money withdrawal from the account of a buyer, which is opened in one of the payment channels and transfers it to the account of the merchant, which is opened in the same or another payment channel.
PSPs usually have multiple solutions that fit this or that channel of payment. The best of them, like Stripe, PayPal, or Square, have integrated solutions, which allow several channels of payments at once.
So clients have a choice of the means of payment for this or that transaction, especially online.
Online payment services provider features
Depending on your country’s banking and financial regulations, some PSPs can be present or absent. In Europe, brick-and-mortar shops offer mainly cash or bank card payments. And although the latter include debit and credit cards, they are still handled via a POS terminal, which may not even require a third-party payment service provider.
The same goes for the biggest number of countries — only a handful of them accept offline payments with money other than lying on bank accounts.
When you do some online transaction, the choice you have is huge:
- Credit and debit cards
- Direct debit
- Cash vouchers
- Prepaid cash cards bought elsewhere but banks
- Gift cards
Most of these are covered by payment gateways of modern payment processors, such as PayPal, Stripe, Visa, MasterCard, ApplePay, Google Pay, Dwolla, Square, Amazon Pay… Some large and reputable banks in your country or globally on our planet offer their own processing centers, which are able to handle multiple-channel payments.
In order to use the online processing of payments, one needs to open an account at one of the selected payment processors (or bank if it is capable of processing) and install software on the website that is to be used to accept payments.
A website must correspond to several stringent criteria for the safety of financial operations, which is typically PCI compliance.
Picking a processor is made based on several criteria:
What channels of payments do you wish to accept? It’s not a secret that in your country or for your preferred channel of payments, some payment processors are not good at all. For instance, you want WebMoney, Klarna, Sofort, Payzapp, Qiwi…
The list you’re interested in might significantly shrink the available choice and even can make you opt for more than one processor at a time to embrace all the channels necessary for your business.
The cost. Typically, a merchant pays around 2.9% of the sum of every transaction plus some flat maintenance fee (transaction-based or month-based) from bank card transactions. Other channels vary (to bigger or lesser).
The riskiest payment channels (like payment over the phone) may require a fee of around 7%-10% of the sum. That’s why merchants seek better-priced payment processors, for instance, Regpack, which takes approximately 1.5% commission although it is not as powerful as others are.
Also, one shouldn’t forget that a payer can also be charged for an operation — from no charge to 0.1%-5% depending on the popularity of a means of payment and the need for cross-channel/cross-currency exchange.
How fast do you want the transactions to be handled (the actual account balance update differs across the processors)?
How many risks ought to be cut off (good anti-fraud policy, etc.).
Availability in your country and in your financial/legal jurisdiction.
Online payment solutions vs banks
If you are going to accept only card payments, then in some countries, a third-party payment processor becomes superfluous since some banks have their in-house payment solution, which is a direct payment gateway among a card, an account of a cardholder, and an account of a merchant in this or another bank.
Such a solution will be faster, more reliable, and cheaper than some third-party software, which typically links 6-7 parties within one transaction (instead of the three named above).
But very few banks actually offer technological solutions, which are ought to process non-banking accounts, for instance, e-wallets.
An online payment solution is a piece of software that is designed to process payments via different channels. Basically, the bigger freedom a business gives to its customers to pay for the goods or services, the more turnaround of goods/services it will have. That, however, is a question of flexibility and cost of channels since some of them may be too expensive to plug in and maintain.