How to Choose a Payment Service Provider

Cashless commerce is on the rise, as the number of debit and credit card transactions for goods and services rises. As a result, an increasing number of businesses are outsourcing their payment processing.

Some retailers continue to use the services of their account issuing bank. Others use global providers' third-party payment services to handle their eCommerce transactions. Despite their convenience and accessibility, merchant banks do not always provide the most cost-effective and appropriate option.

As a result, in this article, we'll provide some helpful suggestions and things to consider when selecting an online payment gateway service provider (PSP) for your business.

What is a payment service provider?

Payment service provider definition

Payment service providers, also known as merchant service providers, are third-party companies that provide merchants with the ability to accept electronic payments via a variety of payment methods, such as:

• Real-time bank transfer via online banking

• Bank-based payments (bank transfer and direct debit)

• Credit card

How does payment processing work?

Payment service providers collaborate with payment processors via acquiring banks to manage the entire transaction from start to finish, in which the provider:

• Connects all financial parties (merchants, customers, financial institutions, and card brand networks) to efficiently and quickly process payments.

• Ensures that their customers and merchants have a smooth payment experience.

Differences between payment service provider and payment gateway

Payment gateways

• Work as a direct customer interface

• Connect various systems, such as card processing platforms and POS systems.

• Make it possible for retailers to connect to their payment processors.

• Allow for the configuration of appropriate gateways in a variety of ways for both in-store and online businesses.

Payment services

• Work in the background to make payment gateway interaction easier.

• Transfer financial information between merchant accounts and payment gateways.

• Ensure that all transactions are completed correctly, efficiently, and quickly.

Payment service provider vs. merchant acquirer

The primary distinction between the best online payment gateway service provider and a merchant acquirer is based on two factors:

How they use the merchant account

• All clients are grouped and managed by the payment service provider in a single large merchant account.

• Each client is assigned a unique merchant account by merchant acquirers.

Pricing

• Payment service providers frequently charge the same rate and fee to all customers.

• Pricing is determined by merchant acquirers based on the client's transaction volume, industry, business size, and a variety of other factors.

What services does a payment service provider offer?

Currency processing

To facilitate cross-border payments, PSPs can process multiple currencies. It is a necessary service for companies that are expanding internationally or doing business in the global market.

Security

To provide high-security standards, PSPs must adhere to PCI DSS compliance. As a result, retailers can rest assured that their customers and their own financial data is secure.

Transaction reporting

PSP makes it easier for merchants to record and reconcile their transactions. Reports are typically divided into two types: real-time and monthly.

How to choose a payment service provider

We recommend five criteria for selecting a payment service provider based on our experience working with many PSPs.

1. The popularity of payment service providers

You must ensure that your chosen PSP is accessible to all stakeholders who require system access. Direct debit, bank transfer, Mastercard, VISA credit card, and Paypal payments are all available in Europe, particularly in Germany. Debit cards, e-wallets such as Skrill, prepaid cards such as paysafecard, and mobile payments via platforms such as mpass are also occasionally available.

1.1. International payments

Global retailers will need to segment and research different payment processor PSPs in various countries.

The majority of international transactions are unable to be completed by eCommerce retailers because payment methods are not available in some countries. As a result, selecting the right payment service providers will assist your website in going global.

1.2. Mobile payment offers

Customer behavior tends to change in tandem with the growing number of mobile device users. Customers expect simple and efficient online shopping platforms that they can access while on the go. By improving the mobile user experience, online businesses can increase conversion rates.

Some PSPs provide checkout features that allow you to customize the checkout process for each type of mobile device. This optimises the retailer's website for mobile users and increases brand recognition.

PSP mobile payment behaviors such as QR code or SMS payments are also reasonable and useful for an omnichannel strategy for integrated shopping and targeting specific customer groups.

2. Technical requirements of payment service providers

Choose a third-party service provider that provides modules that can be integrated with your existing software and business processes. When looking beyond the ERP interface, integrating in-house development with the existing store system can be difficult in some cases. As a result, your chosen PSP should provide modern and popular integration options such as:

API connections for further integration

After the checkout process is complete, redirects (or forwards) customers from the retailer's website to the secure website of the PSP.

iFrame and iFrame connections are used to adapt a new layout and page for a secure checkout formula from PSP and transfer payment data with greater security.

3. Payment development security

Because PSPs are not affiliated with a bank, they will require a certificate. Major financial supervisory authorities issue and certify this certificate to:

• Allow PSPs to open escrow accounts in order to accept payments at banks.

• Protect PSP transactions in countries where an escrow account has been established.

Furthermore, in order to accept credit card payments, PSP must comply with global data security standards such as the Payment Card Industry Data Security Standard (PCI DSS). With that, PSP can: 

• Ensure that customer credit card data is safe from theft or fraud

• Save eCommerce retailers a lot of time by not attempting to obtain this certification on their own (since your chosen PSPs are already certified)

4. Services provided by PSPs

PSPs provide a variety of services to various providers. As a result, retailers should have a clear understanding of what services are required and important for the growth of their online stores. The following are some popular services to which retailers can refer:

4.1. Subscriptions and recurring payments

Some online payment gateway India service providers (PSPs) provide recurring payment processing services. This feature is critical for businesses in industries such as media and food, where customers can:

• Get a real-time overview of their payment status.

• When they want to make repeat purchases, they can save and retrieve payment information.

• Subscription models should accept payment methods other than credit cards, such as direct debit or PayPal. Customers will have a quick and enjoyable reordering experience as a result of this.

4.2. Support services

The level of support can vary greatly depending on cost, language, and scope. For in-store incidents, most retailers expect not only guidelines but also a direct support line. Certain customers and industries place a high value on customer service. This should be factored into your overall service contract with payment service providers.

4.3. Risk protection from missing payments

Online merchants are frequently at a higher risk of not receiving or losing customer payments. High payment rejection rates can result in lower profits. Collections and warnings will incur additional costs of 3–4.5% of direct debit payments. Most PSPs can offer risk protection services to save you money on these extra fees.

Additional fraud prevention modules provided by PSPs can be added to your eCommerce websites. PSP then monitors payment issues in the store, such as chargebacks or declined payments, from there. The PSP can then suggest changes to their program to better protect the business.

PSP also provides a customer blacklist check service for stores, including credit and address checks.

4.4. Further service offers

In addition to the main services mentioned above, some payment solution providers may provide a variety of additional services based on:

• The store's transaction volume

• The information is shared by the receivables management department with suppliers.

• The target group's payment habits

PSP will then receive notices to monitor payments, debt collection, and, if necessary, invoice or refer to a collection agency. Factoring and financial services, currency conversion management, and business accounts are also provided by some service providers.

5. Contracts and pricing for payment service providers

Pricing and collaborative agreements between your online store and PSP are critical components of the selection process.

• Variable and fixed fees are typical cost models. A one-time setup fee and a set monthly cost can be reasonable.

• The variable cost is determined by the number of transactions and the expected sales revenue in the online store.

• Currency conversion rates and transaction cancellation fees are two other fees.

Some PSPs charge a flat fee for each transaction for low transaction volumes.

Essentially, the lower the cost, the longer the contract and the larger the sales.