What do PSPs do, and how can they help your business?
The rise of e-commerce and digital payments has revolutionized interactions between businesses and customers. It's estimated that digital payments will contribute approximately $9.5 trillion in transactions in 2023. Since around 70% of customers prefer digital payment options, businesses need to accommodate them by offering various digital payment methods and ensure that their payment solutions are efficient, dependable, and secure.
One of the key players in achieving this efficiency is the Payment Service Provider (PSP). In this blog post, we'll dive into what PSPs are and explore how they can significantly benefit your business by streamlining payment processes and ensuring robust security and compliance.
What are PSPs?
PSPs are financial entities that facilitate smooth transactions between merchants and customers. They are third-party financial institutions authorized to enable companies to accept payment from their clients through various means. PSPs simplify payment processes by serving as a bridge between merchants, acquiring banks, and payment card networks involved in payment transactions. Signing up with a PSP allows merchants to receive payment from different locations without opening separate companies or merchant accounts in these locations.
They integrate with various payment methods, allowing companies to receive payments through multiple avenues, such as cards, e-wallets, direct bank transfers, etc., depending on the features of the PSP chosen by a company. This enables businesses to securely accept payments online from customers, regardless of the payment method chosen. Essentially, PSPs are the backend system guaranteeing the successful completion of online payments on various platforms.
PSPs also handle essential technical and regulatory aspects of payment processing, encompassing data security and adherence to anti-money laundering regulations, payment processing, and currency conversions. It forms a pivotal component of the digital payment ecosystem, empowering merchants and enterprises to collect payments from a global customer base seamlessly.
How do payment service providers (PSPs) work?
Establishing an e-commerce venture, or any business necessitating online payment collection for products and services, mandates incorporating a payment solution—whether on a mobile app, website, or e-commerce platform.
PSPs manage the entire payment process, allowing merchants to accept payment via various payment methods like cards, bank transfers, etc. PSPs gather all financial stakeholders to ensure seamless transactions between merchants and customers. This intricate network involves the active participation of the buyer, the merchant, card networks, banks, and other financial institutions. Each payment goes through three steps: initiation, authorization, and transfer.
For instance, a customer who shops online decides to pay with a card. Here is what the process is like;
The buyer selects card as the preferred payment method.
The merchant’s installed payment gateway software sends the payment information to the PSP.
The PSP, via an acquiring bank, identifies the card network and connects to it on the merchant’s behalf.
The card network reports the transaction to the issuing bank.
The issuing bank runs a security check and sends an approval or denial code to the card network.
The card network, via the acquiring bank, sends the approval or denial information to the PSP.
The PSP transfers the same message to the merchant and displays it to the buyer.
If the transaction has been approved, the funds are transferred to the merchant’s account based on the agreement with the PSP or the acquiring bank.
All these take place within a few seconds. PSPs can integrate with partners that offer various payment methods. For instance, Klasha Pay offers various payment methods that enable merchants to capture transactions from African customers in local African currencies and money methods.
What are some examples of payment service providers?
Some global PSPs include; Paypal, Stripe, Payoneer, 2Checkout, Skrill, and many others. Local PSPs are more popular in some regions than their globally well-known counterparts.
Businesses should consider consumer requirements, integration capabilities, coverage, and other relevant features to choose the best PSPs for their use case.
What are the differences between payment service providers and payment gateways?
Payment gateways are most often mistaken for PSPs. They’re both vital to payment processing but have different functions.
A payment gateway is a conduit through which merchants can initiate transactions using various payment methods. This gateway facilitates the transfer of data from the point of entry, which could be a website or a mobile app, to the PSP.
The payment service provider functions as a financial institution tasked with transaction processing in this process. The PSP receives the transaction initiation request transmitted through the payment gateway.
Although both PSPs and payment gateways are pivotal components in the transaction processing landscape, they play distinct roles in ensuring the smooth execution of payment transactions.
Benefits of payment service providers
Leveraging a PSP provides numerous advantages for businesses, especially those operating online. Let's look at some of these benefits;
Security and compliance are easier
PSPs are vital in ensuring that their systems and operations align with industry standards and regulations, including PCI DSS. By adhering to these standards, PSPs establish a secure framework for processing transactions, subsequently alleviating the compliance responsibilities placed on businesses.
Without the support of a compliant PSP, businesses would need to manage all aspects of payment processing compliance independently. In this scenario, the burden of ensuring regulatory adherence would rest squarely on the shoulders of the business itself. In contrast, when partnering with PSPs, the provider effectively shoulders this stress.
They’re easy to set up and integrate
PSPs offer user-friendly APIs and integration tools that enable businesses to start accepting payments through their websites or mobile apps with minimal setup. This efficient approach saves time and effort by avoiding the necessities needed to create a dedicated merchant account and integrate a standalone payment gateway.
They offer a wide range of payment methods
Through a single platform, PSPs enable businesses to accept various payment methods, such as cards, digital wallets, and bank transfers. This simplifies payment processing, creates a convenient and effortless customer experience, increases conversion rates, and reduces abandoned carts.
They provide in-depth reporting and analytics
PSPs commonly provide:
Comprehensive reporting and analytics tools.
Furnishing businesses with valuable insights into their transaction activities.
Overall business performance.
This invaluable information empowers businesses to make well-informed decisions and optimize payment processes.
In addition to PSPs' inherent reporting and analytics functionalities, they integrate seamlessly with third-party analytics and reporting tools. This collaboration enhances the depth and scope of available data, providing businesses with even more thorough and actionable insights into payment operations.
Simplified pricing and billing
PSPs commonly adopt transparent and easy pricing frameworks, making it easier for businesses to understand and manage payment processing costs. Moreover, some PSPs provide consolidated billing, streamlining business financial management.
How to choose a Payment service provider
Choosing the right PSP can significantly enhance a business's ability to deliver customers a seamless and secure payment experience while streamlining operational effectiveness and generating revenue.
Here are some factors to consider when choosing;
Security and compliance
Choose a PSP that upholds industry-standard security protocols and diligently follows regulations like that of PCI DSS. This commitment guarantees the secure storage, processing, and transmission of sensitive payment information, thereby mitigating the vulnerabilities of data breaches and fraudulent activities.
Supported payment methods
Confirm that the PSP supports payment methods popular among your target customers, including options like cards, digital wallets, and bank transfers. Having diverse payment methods enhances customer contentment and bolsters the probability of completing successful transactions.
If your business operates globally or plans to expand to international markets, choose a PSP that supports multiple currencies and provides currency conversion services. For example, Klasha Pay supports payment in local African currencies, making it a suitable choice for businesses looking to expand into the African markets.
Integration and compatibility
Consider how easy it is to integrate the PSP with your existing website, e-commerce platform, or mobile app. For instance, Klasha Pay provides easy-to-use APIs, plugins, and SDKs that simplify integration with your existing website, e-commerce platform, or app. Its compatibility with various technology stacks allows businesses to start accepting payments quickly.
Evaluate the customer support services offered by the PSP. Opt for a provider with a responsive and knowledgeable customer support team capable of effectively addressing issues and guaranteeing a seamless payment experience for customers.
How global PSPs can expand into Africa with Klasha
Klasha is a licensed PSP in multiple African countries. Established in 2021, Klasha has become a leading player in the African market, serving over 2,500 merchants in six different African countries.
Klasha provides financial services to businesses that want to accept payments from or send payments into Africa in addition to foreign exchange transactions and payment processing. With various product offerings, Klasha bridges the payment gap between Africa and the world by providing cross-border payment solutions.
Payment service providers can partner with Klasha to offer even more payment methods to their clients, especially those in Africa. Klasha has a well-developed infrastructure that allows global merchants to expand their business into Africa and capture transactions in local African currencies. At the same time, they get payouts in the hard currencies of their choice.