Merchant can choose to accept online payment methods in various ways:
- by directly integrating their online shop with a payment method scheme (if the method allows for it)
- by integrating their web shop with a Payment Service Provider
- by using a combination of direct integration and a Payment Service Provider
- by using a full service ecommerce platform wherein the online acceptance of payments has been pre-integrated
1. Via Direct Integration
Some payment methods and solutions (like PayPal, iDEAL and Klarna) allow merchants to integrate their online shop directly with the payment method or solution without the need for a third party (Payment Service Provider). Often these payment companies have developed plug-ins for the most-used shopping carts (Magento, Opencart, Woocommerce) and ecommerce platforms (Wix, MyShop) to enable merchants – even with little technical know-how – to start accepting their payment brand.
2. Via Payment Service Provider
Other payment methods – including the major credit card brands MasterCard and Visa – often do not allow for direct integration or require extensive programming knowledge from the online merchant. In case of card acceptance, it is often the acquirer – who has the merchant relationship – who does not allow individual merchants to tap into their core credit card processing platform. This has to do with security and the required resources to manage individual merchant integration. That is why so-called Payment Service Provider companies started to decrease programming complexity by acting as an intermediary between merchant and the acquirer or financial institution servicing the online payment method or solution).
Payment Service Providers often have one or more connections to payment schemes which dramatically decreases the integration complexity for merchants to accept multiple payment methods. In addition, these Payment Service Providers offer additional services like reconciliation and fraud prevention tools, which help merchants to reduce the amount of resources needed for administration or fraud prevention.
3. Via Direct Integration and a Payment Service Provider
Some online payment methods like credit cards require merchants to use the services of a Payment Service Provider as merchants are most often not allowed to directly integrate with the acquirer or card scheme. However, some payment methods or solutions (iDEAL, SOFORT, AfterPay, Klarna) allow for direct integration.
Whether or not the merchant is willing to integrate directly with a payment method scheme and to use the services of a Payment Service Provider has to do with the technical know-how of the merchant, the appetite for connecting and maintaining multiple processing routes, pricing, settlement time frames, and the capabilities of the Payment Service Provider. For example, if the Payment Service Provider does not support PayPal transactions, the merchant is able to build a direct connection to PayPal.
In general you could state that by leaving out the Payment Service Provider, the merchant saves processing costs (cut the middle man). However, on the other hand, the merchant will have to invest in setting up and maintaining the direct connection, and it is supposed to increase reconciliation complexity as they will receive separate settlements and reporting for different payment methods. For merchants targeting one or at the maximum a handful of geographies with similar payment preferences it may still be viable for the merchant to leave out the Payment Service Provider. However as soon as a merchant starts selling cross border or would like to offer a range of payment methods it makes sense to outsource the connection to and ongoing maintenance of the payment method to a Payment Service Provider so that the merchant can focus on developing their own product and on growing their business.