What is a payment service provider and why you should work with one

As McKinsey & Company reported, 73% of customers surveyed made a digital payment online in 2023 — up from just 46% in 2019¹. A growing number of shoppers are also making in-app and in-store digital payments¹. Meanwhile, Forbes found that more than half of U.S. shoppers surveyed used digital wallets more than traditional payment methods².This may be due to their convenience, rewards programs, and security features.

But some business owners may wonder how to begin offering these new payment options – and how to stay up to date as new payment methods continue to emerge .

That’s where payment service providers (PSPs) can help. To accommodate these changing customer behaviors, businesses can use PSPs to easily accept a range of digital payment methods. Many PSPs can also sync with integrated payment gateways to help keep customer information secure and improve compliance.

Learn how payment service providers work and how businesses can use them to improve customer experiences and streamline integrated payment processing.

What is a payment service provider (PSP)?

Payment service providers are third-party companies that help businesses accept a wide range of online payment methods, including credit cards, debit cards, digital wallets, cash cards, and more. Along with supporting these payment methods, many PSPs also offer additional capabilities, such as fraud protection, payment gateway integration, and their own point of sale (POS) systems. All these solutions can be used to help businesses deliver frictionless checkout experiences and increase revenue.

How does a payment service provider work?

Payment service providers connect with banks and card networks to handle every stage of the payment process for you — from the moment a customer submits their payment information to the moment the funds are deposited into your account.

Traditionally, businesses have had to set up their own merchant accounts with a certain bank — an often complex, time-consuming, and costly process. PSPs, on the other hand, are often easier to set up and most cost-effective, making them a particularly beneficial solution for small businesses.

Business owners are chiming in with their experience of using PayPal as their service provider.

“Today PayPal allows me to offer my customers payment by PayPal, by credit card, PayPal Pay Later offering as well as solutions adapted for my customers abroad. The advantage for me lies in the centralization of receiving payments rather than several accounts, “said French business owner, Cherie Sheriff.

Here are the basic steps PSPs use to help businesses process online payments:

• An online shopper enters their payment information at checkout, either on your website or app.
• The PSP verifies the customer’s payment information with the issuing bank.
• The issuing bank approves the transaction and notifies the PSP.
• The PSP transfers money from the customer’s account to your business’ account.

This all happens instantaneously, creating a streamlined and secure payment experience for both the shopper and the business.

Who might need a PSP?

Any business that wants to seamlessly accept multiple payment methods — including credit and debit cards, as well as digital and alternative payment methods — could benefit from a PSP. This includes small businesses, large enterprises, online retailers, and in-person shops that want to accept contactless payments, such as tap to pay and digital wallets. PSPs are also helpful for any business concerned with improving payment security and meeting changing compliance regulations.

In fact, payment service providers aren’t just a helpful add-on – they may be a necessity for survival in an evolving payments landscape. As Forbes found, 72% of customers surveyed said they would consider making digital wallets their primary payment method and 51% would stop shopping from a business that doesn’t accept digital wallet payments.²

The benefits of using a payment service provider

There are many benefits of partnering with a comprehensive payment service provider. By trusting a PSP to process payments, businesses can help enhance security, streamline transactions, and meet changing compliance standards.

Learn more about the biggest benefits of working with payment service providers:

Accept wider range of payment options

PSPs enable businesses to accept various payment methods — including credit cards, debit cards, and digital wallets — through a single platform. This can help businesses deliver more personalized experiences for their shoppers at checkout. PSPs can also help businesses expand their reach across the globe by supporting multiple currencies.

Simplify compliance

PSPs help businesses navigate the ever-changing regulatory landscape of online payments. Instead of having to manually update their tools and processes to meet these regulations, businesses can rely on their PSPs to comply with the necessary standards. Choose a PSP that adheres to the Payment Card Industry Data Security Standard (PCI DSS), which means they will implement best practices for customer data security and fraud prevention.

Integrate with payment gateways

PSPs may provide integrated payment gateways to help facilitate secure transactions. Payment gateways encrypt customer payment information to help safely process payments and transfer funds after purchase. How does this work? The payment gateway delivers an authorization request to the customer’s payment network for verification and approval. During this process, the customer’s sensitive information is encrypted, making it less vulnerable to data breaches and fraud.

Streamline payment processing

PSPs manage the complexities of online payments — including authorizations and currency conversions — allowing businesses to focus on core operations, like sales and marketing. These integrated payment processing solutions can help businesses save time and resources. PSPs may also provide tools to help automate processes such as invoicing, reporting, and accounting.

Customize checkout experiences

PSPs may offer tools to help personalize the checkout experience and drive sales. PayPal, for instance, allows businesses to customize data fields, payment buttons, and colors to fit their brand look. PayPal also helps businesses create mobile-friendly checkout pages so shoppers can make a purchase from any device.

Access customer analytics

Businesses can use their PSPs to access detailed, real-time reports and data analytics. They can leverage this data to better understand their customer behaviors and preferences, and then optimize payment experiences to meet shoppers’ needs.

Improve customer support

PSPs can help automate customer support by managing disputes and chargebacks, potentially saving retailers time and money. Businesses may also be able to use PSPs to make payouts on an individual basis or at scale, helping to improve customer satisfaction.

How your business can prepare for integration

Many PSPs are easy to integrate compared to traditional business accounts due to their streamlined nature. Still, depending on which platform you choose, integrating with a payment service provider can be time-consuming. It’s important to prepare for this process in advance so you can gather the resources you need to make the process as smooth as possible.

To start, take these steps to prepare for PSP integration:

Have all documents ready

The first step to integrating with your PSP is making sure you have access to any necessary documents and accounts. For instance, you might need to provide information about your business bank account, business license, financial statements, and customer relationship management (CRM) platform.

Set aside time for planning

Budget time for each phase of the integration process. You can use this general integration timeline as a guide:

• Customize your PSP setup. Take roughly one week to design your PSP integration, ensuring that it supports your customers’ preferred payment methods and checkout flows.
• Set up your account. Use one or two days to create a business account with your PSP, adding any necessary bank account details or financial information.
• Build your PSP integration. Over the course of two-to-four weeks, work with a developer to code your PSP integration into your e-commerce website and/or app. Again, if you choose no-code options, this process can be much quicker.
• Test your PSP integration. Launch your new solution with a select group of shoppers for roughly two weeks. Gather data about their experiences and implement optimizations as needed.
• Go live. Launch your PSP integration for all shoppers, continuously using analytics and insights to improve processes.

Consider hiring a developer

Businesses can hire a developer to manually execute and oversee the PSP integration process. However, you might not need to invest in this resource if your PSP offers existing integration solutions. PayPal, for example, partners with the leading c-commerce platforms so businesses can get their online store up and running quickly.

Take compliance into account

Payment regulations and standards are always changing. So, even after integration, be sure your PSP can help your business maintain compliance and adapt to these regulatory changes. This will allow you to improve data protection processes, build trust with customers, and avoid potential penalties.

For example, you’ll want to work with your PSP to adhere to regulations such as the:

• Payment Card Industry Data Security Standard (PCI DSS): Stay on top of PCI DSS compliance requirements for securely handling cardholder data.
• General Data Protection Regulation (GDPR): For businesses processing transactions in the EU, GDPR compliance standards are designed to help safeguard customer information.

If you’re looking for a simple integration solution with no developer time, check out no-code options.

Simplifying the checkout experience

PayPal Complete Payments solution provides the tools to start, grow, and manage your business with one single integration. Small businesses can use this comprehensive solution to accept a range of payment methods — including PayPal, Pay Later, Venmo, digital wallets, credit and debit cards, and local payment methods. Shoppers can also securely save their preferred payment methods and information, allowing for fast and frictionless future checkouts.

As the payments landscape evolves, PayPal Complete Payments can help businesses adapt and meet their customers’ needs. With PayPal powering your payments, you can continue to streamline processes, meet compliance standards, and drive sales.

Learn more about PayPal Complete Payments.