As an e-commerce retailer, you can benefit from receiving payments through a payment service provider (PSP). You’ll save time and money because you no longer have to process every transaction yourself. But what exactly do PSPs do, and which PSP is the best match for your online shop? In this article, we’ll tell you everything you need to know about working with PSPs.
What is a PSP?
PSPs are service providers that allow e-commerce retailers to easily integrate multiple payment methods into their shops. PSPs have contractual relationships with various payment providers. When you partner with a PSP, you can offer your customers a broad selection of payment methods without having to sign your own contract with each payment provider. Your PSP also takes care of the entire electronic payment transfer process. For example, they make sure that:
- customers pay their invoices on time
- payment providers have all the necessary security certificates
- incoming payments are authenticated upon arrival with the retailer
You can think of a PSP as the go-between that connects your online shop, your payment providers and your customers.
What do PSPs do?
PSPs form contractual partnerships with providers of payment methods. As a result, online retailers who work with PSPs can offer multiple payment methods in their shop with just a single integration. PSPs also handle the entire transfer of payment between your customers and your shop. PSPs handle tasks like:
- Confirming your customers’ creditworthiness (performing credit checks)
- Receiving payments from customers
- Holding funds in trust in a secured account system
- Transferring payments to your online shop
- Issuing refunds
- Initiating legal proceedings in case of default of payment
Offering multiple payment options with your PSP
Payment providers who work with a PSP usually offer plugins for the most common payment methods. The following tables show popular payment methods and examples of some of the providers who offer them. As an e-commerce retailer, you have the option of signing a contract directly with the provider so you can offer their payment method in your shop. Alternatively, if you partner with a PSP, you can integrate multiple payment options at once.
|Payment on invoice (buy now, pay later)||Klarna|
|Payment on invoice (buy now, pay later)||Ratepay|
|Payment on invoice (buy now, pay later)||AfterPay|
|Payment on invoice (buy now, pay later)||BillPay|
|Payment on invoice (buy now, pay later)||Unzer|
|Payment on invoice (buy now, pay later)||Paysafe Pay Later|
|Online bank transfer||PayPal|
|Online bank transfer||giropay|
|Online bank transfer||Klarna SOFORT Banking|
|Online bank transfer||Apple Pay|
|Online bank transfer||Direct debit bank transfer|
|Credit card||American Express|
When you team up with a PSP, you can select the payment providers that best fit your target group and industry. Then you can incorporate all their payment methods into your shop with just a single integration. After that, the PSP takes care of all your payment transactions for you.
How do PSP payments work?
In general, PSPs perform their services on two sides:
- Retailer side: As soon as your customer initiates a payment, the PSP assumes the risk (for example, for authorisation of payment) and manages the transaction. This part of the PSP’s job is known as ‘acquiring’.
- Customer side: To authorise the payment, the PSP contacts the cardholder’s bank (the ‘issuing’ bank), which supplies the cardholder’s information to the PSP. This is known as ‘issuing’.
So, in total, there are four parties involved in any transaction involving a PSP:
- The customer, who chooses the payment method they want to use and is then transferred to their chosen payment provider. They authorise the payment by entering their details, and then they return to your online shop.
- The PSP issuer, who contacts the customer’s bank, based on the chosen payment method. They verify the customer's details and debit the amount required to pay for the order.
- The PSP acquirer, who contacts the retailer’s bank. They transfer the sale amount and charge for the payment service.
- The retailer, who receives a notification from the PSP that the transaction has been successful, and that the order can now be processed for shipping.
PSPs also have partnerships with credit rating agencies. When a customer asks to ‘buy now, pay later’, the PSP can quickly run a low-cost credit check, if necessary.
What are the advantages of PSPs for retailers?
To maximise your shop’s checkout conversion rate, it’s important to offer a wide selection of payment methods. Many customers have a strong preference for one payment method or another, and often they will abandon the checkout process if their preferred option is not available. That will increase your cart abandonment rate and decrease your conversion rate.
By offering multiple user-friendly payment methods, you increase the likelihood that your customer will complete the transaction. And remember that it takes a lot of time and effort to set up contractual relationships with all the individual payment providers. You also have to pay different fees for each payment method, which can add up to a major expense, especially for smaller businesses. A PSP is a more affordable option for offering multiple payment methods that are relevant to your target groups. For retailers, there are many advantages to using a PSP:
- You can offer multiple payment methods during your checkout process with one single integration.
- You save time because you no longer have to handle the payment process yourself. The PSP takes care of all the necessary data processing.
- All your payments are managed in one place, with a clear overview of all your transactions.
- You pay far less in transaction fees than you would if you had entered into contractual relationships with each payment provider separately.
- PSPs guarantee high payment security and minimise the risk of default of payment. Some PSPs’ services even extend to initiating legal proceedings in cases of delayed/defaulted payments.
- Using a PSP enables you to expand your international business more easily. PSPs offer international payment methods that can handle transactions in various currencies.
How much do PSPs charge?
PSPs provide online retailers with modular components to integrate various payment methods into their shop system. Some PSPs charge a one-time set-up fee for that. In addition, you will usually have to pay a fee for each transaction. That fee generally includes a fixed amount as well as a percentage of the payment amount. If the transaction is cancelled, either by the customer or by you, you also have to pay a cancellation fee. The table below shows how much it might cost you to use a PSP for transactions in your online shop.
|One-time set-up fee||Up to £500 (depending on the shop system and PSP)|
|Fixed fee for using a payment method||Usually between £0.20 and £1|
|Variable fee for using a payment method||Usually between 0.5 and 3 percent of the transaction amount|
Each PSP has its own pricing model. Some PSPs charge a high fixed transaction fee but a lower variable fee for each payment method, and others do the opposite. It’s always smart to compare PSPs before deciding which one is best for your shop. With Mollie, for example, you never pay a minimum fee and there are no hidden costs. You only pay for successful transactions. Here you can see a full overview of prices with Mollie.
Choosing the right PSP: What to look for
To help you find the ideal PSP for your online shop, start by asking yourself the following questions:
- Which payment methods are important for my online shop?
- Does the PSP offer secure payments?
- How much will the PSP charge me?
- Which services does the PSP offer?
Below, we’ll discuss what you should keep in mind when answering these questions.
1. Which payment methods are important for my online shop?
It’s important to first find out which payment method(s) your target group prefers. This makes it easier for you to compare prices among PSPs. Remember to consider which payment methods your international customers prefer. If you’re planning to sell your products internationally, you may need to offer different payment options, depending on which countries you are selling to. Offering familiar payment methods immediately builds trust with your customers, which makes them more likely to complete the transaction. Here are the most popular online payment methods used in various European countries:
|Country||Top payment method|
2. Does the PSP offer secure payments?
Retailers have an obligation to protect their customers’ data, and that means more than just implementing web security. If you sell in the EU, you also have to ensure that all data is processed by third parties in accordance with the GDPR. That’s why it’s important to only do business with a reputable PSP. Here’s how you can tell if you are dealing with a trustworthy PSP:
- A serious PSP ensures that transactions are handled transparently and in an orderly manner.
- They are monitored by the national oversight authorities for financial service providers.
- They comply with all data security legislation and have the necessary certifications to ensure secure payments, such as PCI-DSS.
3. How much will the PSP charge me?
It’s important to watch out for hidden fees. That’s why you need to know the following:
- How much is the one-time set-up fee?
- Are there fixed monthly fees?
- What is the fee per transaction for each payment method?
- Are there cancellation fees when a transaction is cancelled?
You also need to consider the holding period that the PSP enforces. Some PSPs don’t immediately transfer the payment to the retailer, but hold it for several days or even weeks before paying out.
4. Which services does the PSP offer?
When choosing a PSP, it’s important to look beyond their pricing model and also consider the services they offer. For example, keep the following aspects in mind:
- Transparency and scope of service: Does the PSP offer a transparent platform with a detailed overview of all your transactions? Do they enable you to easily set up subscriptions and receive micropayments (in other words, can they set up recurring payments?)
- Simplicity and flexibility: Does the PSP make it easy for you to integrate payment methods in your shop? Are they compatible with the shop system and other applications you’re using? Is it easy to add more payment methods in the future?
- Security and support: Does the PSP offer real-time payment authentication (including for credit checks)? Will they initiate legal proceedings if a customer defaults on payment? Do they offer support to resolve questions or problems?
Carefully compare all the services each PSP offers before deciding which one to use.
Summary: Receiving PSP payments
Using a PSP to process your payments offers you many advantages as an online retailer. PSPs are a cost-effective way to offer your customers a wide range of payment methods. Plus, they save you time because you no longer have to process each transaction yourself. Still, it’s important to do your research when deciding which PSP to use. Above all, be sure to watch out for hidden fees and long holding periods. In addition to looking for a fair price, also look for a PSP that is user-friendly and offers extensive data protection features.