Payment Service Provider: Definition and Features

By Rob Binns | Writer

What is a payment service provider, and how can it benefit your small business? Let’s find out


Payments are confusing. Between card networks, issuers, acquiring banks, and payment gateways, there’s a lot of terminology to understand. And, if you want to start accepting debit and credit card transactions at your business, you’ll need to get to grips with the terminology first.

Payment service providers (PSPs) are a key part of the payments industry infrastructure. More importantly, they can help you boost sales, launch your business online, and reduce your reliance on antiquated methods of processing payments.

But what is a payment service provider? What does it do, and how can processing payments through one benefit your business? Read on to learn more about payment service providers, and browse the top PSPs driving the growth of UK SMEs.

Alternatively, head straight to the good stuff with our free quote-finding form. Simply take 30 seconds to enter a few brief details about your business, and you’ll receive quotes from leading payment service providers.

What is a Payment Service Provider?

A payment service provider (PSP) is an alternative to your traditional merchant account. While a normal merchant account allows you to open into a direct agreement with the provider, PSPs are more flexible. Instead of holding your own account a typical PSP, like Stripe, will process your payments alongside hundreds of other merchants.

PSP accounts are therefore better for smaller merchants processing less than £5,000 of monthly revenue, since PSP accounts are less robust than a normal merchant account. However, the fees associated with a PSP are generally lower than with other merchant accounts, because PSPs tend not to charge monthly recurring fees.

payment service provider definition

UK Payment service providers are regulated by the Financial Conduct Authority (FCA) and they are required to submit information about their regulation status to customers.

Because regulation ensures that all payment service providers operate in a level-playing field, there is a guarantee that suppliers will have good standards of service provision. On one hand, this makes comparing payment service providers easier to do, as service features will be consistent across the board. On the other hand, however, it means that no one provider will stand out from the crowd.

If you’re looking to choose a payment service provider, the main consideration will go to price and features that are included as standard in the terms of service.


Payment Service Provider Features

More established payment service providers will be more expensive than newer, up-and-coming companies. New providers may be competing on price and often have attractive introductory offers for new customers – so they can be a great option if you’re looking to keep costs down.

Talking of price, some services will be cheaper when doing a price comparison – but you’ll need to check that the features you need are included, or if they stand to cost you extra. Some providers may be cheaper simply because they have more basic features.

A payment service provider should be able to offer all these standard features:

  • Security, to prevent card fraud
  • Accept payments from different types of cards, as some providers will only offer a basic service limiting the type of cards accepted
  • Transaction reporting
  • Technical support

Security

The Payment Card Industry Security Standards Council is responsible for issuing the standards that payment card industry providers must comply with. During a transaction, all data between a customer and the merchant is encrypted using SSL (Secure Socket Layer) encryption. Another encrypted communication transfers the data from the merchant to the processing bank. The security of payments is regulated by the European Central Bank through its Recommendations for the Security of Internet Payments.

Accepting Different Types of Cards

Most merchants accept credit and debit card payments and the payment service provider will charge a percentage of the transaction when a customer pays by credit card and a fee per transaction for debit cards. A payment service provider specialising in non-profit may offer a reduced service, for example only accepting debit card payments.

Transaction Reporting

Reporting features are essential to reconcile transactions. Most providers will offer monthly reports. More expensive contracts with payment service providers may include real-time reporting.

Technical Support

Technical support should always be featured as standard; if the terms and conditions list technical support as an added extra it might be advisable to look at other providers. 24X7 technical support via different channels (phone, online) is ideal.


Leading Payment Service Providers

Expert Market has chosen the following payment service providers as the best in the industry and that offer a number of flexible options for businesses of all sizes.

ProviderFeaturesExtra Costs
IngenicoProvider of multi-channel and all-in-one payment servicesTransactions outside of those included in the contract (100-300)
PaymentSenseOne of the cheapest payment service providersEarly contract termination fees
WebMerchantOffers all-in-one payment solutions and is specialised in mobile solutionsExtra monthly costs for non-low-risk businesses

Ingenico

Ingenico is a provider of multi-channel payment services. From online payments to mobile payments, Ingenico provides a transaction management platform for retailers.

Main features include:

  • Simple security certification process
  • Sales management and reporting
  • Software integration

Pricing: depends on volume of transactions, risk profile and type of cards. Generally speaking, monthly service charges start from £25. Add-on charges include a monthly £20 non-compliance fee if you are not PCI DSS certified.

PaymentSense

PaymentSense leverages the buying power of UK businesses to provide affordable online payment solutions.

Main features include:

Pricing: Starting from as low as £12 per month depending on volume of transactions, with long term contracts. Cancellation fees will be applied if contract is terminated early.

Web Merchant Services

Web-Merchant is a provider of bundled online payment solutions including mobile payments.

Main features include:

  • Virtual terminal
  • Online reporting tool
  • Recurring payments
  • Multiple currencies supported

Pricing: £10 per month, with a transaction fee of 1.6% + 20p.


Benefits of Using a Payment Service Provider

In summary, the key benefits of using a reputable payment service provider include:

  • Ability to focus on your core business, safe in the knowledge that customer data is handled securely
  • Ability to accept payments from multiple channels
  • Boosting sales

Payment service providers may have different types of contracts with standard and extra features, therefore when evaluating either whether to switch providers or choose a provider you should consider that service is essential for the smooth running of your business.


Next Steps

If you would like more information about payment service providers, simply fill out the form above and Expert Market will match you to the best suppliers near you.

Rob Binns Writer

Rob writes mainly about the payments industry, but also brings industry-specific knowledge of CRM software, social media monitoring, and invoice finance. When not exasperating his editor with bad puns, he can be found relaxing in a sunny corner, with a beer and a battered copy of Dostoevsky.

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