What is a Payment Service Provider?

What is a Payment Service Provider?

 

Payment Service Providers offer ecommerce merchants one single technical interface to one or more online payment methods. They help ecommerce merchants and businesses to accept credit cards, alternative payment methods (bank transfers, direct debits), solutions (Klarna, AfterPay) and digital wallets (MasterPass, Visa Checkout).

 

What kind of Payment Service Providers are there?

 

The Payment Service Providers can be divided into three main categories:

  • Distributing Payment Service Provider
  • Collecting Payment Service Provider
  • Aggregating Payment Service Provider

They all help online merchants and businesses to accept payments online, but differ when it comes to payouts, fees and contracting.

Important to recognize:

  1. Payment Service Providers can take one or more roles, depending on whether the payment method scheme allows for collection or aggregation and the merchant's preference. Please note that MasterCard and Visa have very strict rules and have prevented Payment Service Providers to collect credit card funds for quite some time. Nowadays MasterCard and Visa both support a so-called Payment Facilitator Model which allows Payment Service Provider – under strict conditions – to aggregate credit card payments and collect funds resulting from card payments.
  2. More and more Payment Service Providers shift to the collection or aggregation provider models as this enriches their (one-stop shop) proposition towards online sellers, generates new revenue streams and creates merchant stickiness.

Distributing Payment Service Provider

 

A Distributing Payment Service Provider – or Distributor – acts purely as a technical intermediary between the seller's website and one or more payment schemes. They take away the programming complexity for the online seller by only having to integrate with the Distributors payment platform. The Distributor takes care of the data processing to the applicable payment method scheme.

Merchants using the services of a Distributor do have to contract the payment method scheme separately and negotiate pricing themselves. The settlement of funds resulting from a transaction for a particular payment method is done directly between the payment method company and the merchant.

 

Collecting Payment Service Provider

 

A Collecting Payment Service Provider – or Collector – acts as a technical intermediary between the seller's website and one or more payment schemes, and collects the funds for one or more payment methods. They take away the programming complexity for the online seller by only having to integrate with the Collectors payment platform. The Collector takes care of the data processing to the applicable payment method scheme. In addition the Collector collects the transaction funds for one or more payment methods, and settles the amounts – often accumulated – into the merchant's bank account.

Merchants using a Collector's services still contract the payment method scheme separately and negotiate pricing themselves. However, the settlement of funds resulting from a transaction flows through the Payment Service Provider's bank account to the merchant's bank account. As settlement frequency can differ between payment methods, the collecting of funds allows merchants to streamline their payouts – with clear reporting (reconciliation reports) for multiple payment methods.

 

Aggregating Payment Service Provider

 

A Aggregating Payment Service Provider – or Aggregator – acts as a technical intermediary between the seller's website and one or more payment method companies, contracts the payment method company on behalf of the merchant, and does collect the funds for one or more payment methods. They take away the programming complexity for the online seller by only having to integrate with the Aggregator's payment platform. The Aggregator takes care of the data processing to the applicable payment method scheme. In addition the Aggregator collects the transaction funds for one or more payment methods, and settles the amounts – often accumulated – into the merchant's bank account.

Continue reading?

Share this article

asds