How a payment service provider works
A merchant signs with the PSP and integrates its checkout, API or terminals. The PSP runs or rents the gateway, sends card payments to an acquirer and other methods to their own networks, screens for fraud, and pays the merchant in one settlement with one report.
Some PSPs are acquirers themselves. Others work under an acquirer as a payment facilitator, and sign up merchants under their own contract with that acquirer.
What the law means by payment service provider
In the EU, PSD2 lists six categories of payment service provider in Article 1(1): credit institutions, electronic money institutions, post office giro institutions, payment institutions, central banks and public authorities, the last two when not acting as public authorities. The UK's Payment Services Regulations 2017 have their own list in regulation 2, which includes authorised and small payment institutions.
Acquiring, contracting with a payee to accept and process payments that result in a transfer of funds to the payee, is a payment service in PSD2 (Article 4(44)), so a PSP that does it is one of those bodies or acts for one. A provider of technical services that never comes into possession of the funds is outside PSD2 (Article 3(j)).
Why the difference matters
The same three letters can describe a licensed institution, a payment facilitator or a technical reseller. Becoming a PSP means choosing between those models, and each brings a different licence, scheme registration and liability for merchants' losses.
PSP, gateway, processor or acquirer?
- Payment gateway
- The technical connection that carries payment data. A PSP includes a gateway, and adds the merchant contract, the acquiring arrangement and the payout.
- Payment processor
- Carries the messages between acquirer, scheme and issuer, usually with no contract with the merchant at all.
- Acquirer
- The scheme member that settles card payments to merchants. A PSP either is an acquirer or works under one.
Where a payment service provider shows up in a platform
Modules that do the work
- Merchant onboardingBusiness sign-up, verification and underwriting, from application to first payment.
- Card acquiringCard acceptance on the phone, in store and online, through the acquirer you choose.
- CheckoutA hosted checkout for cards, wallets, bank payments and crypto, routed to the best provider.
- PayoutsMoney out to bank accounts, cards and wallets, on the rail that fits each payment.
Platforms that need it
Guides that go deeper
- How to become a PSP or a payment facilitatorGateway, acquirer, payment facilitator or payment institution: where the licence line falls, how the card schemes register payment facilitators, what merchant KYB demands, and the UK and UAE rules.
- EMI or payment institution licence in the EU, and the agent routeWhat an e-money institution and a payment institution may do in the EU, the capital each needs, safeguarding, passporting, and launching as an agent first.
- EMI or payment institution licence in the UK, or launch under a partnerE-money or payments, authorised or small: what the FCA asks for in capital, safeguarding and people, how long it takes, and when an agent or banking partner is the faster route.
Where it is written
The laws and standards this page's facts come from.
- Directive (EU) 2015/2366, PSD2, Articles 1(1), 3(j), 4(11) and 4(44) (EUR-Lex)
- The Payment Services Regulations 2017, regulation 2 (legislation.gov.uk)
General information, not legal advice: what applies to you depends on your services and your market.