Payment Service Provider (PSP/IPSP)
An online business requires a solid and secure link between its paying customers and the bank. A Payment Service Provider  is that link which offers merchants online services for accepting electronic payments by a variety of payment methods including credit and debit card, bank-based payments such as direct debit, bank transfer, and real-time bank transfer based on online banking. Some PSPs provide services to process other payment methods including cash payments, e-wallets, prepaid cards or vouchers, and even paper or e-check processing.
A merchant that provides products and services online and wants to accept payments through the Internet would need an Internet Merchant Account (IMA). This merchant account will allow merchants to process the credit card and billing information to complete an online transaction. The bank in turn, accepts the responsibility of processing the card transaction, transferring the funds from the cardholder’s account into the merchant’s account.
PSPs must follow strict industry guidelines when allowing businesses to accept credit card payments. Essentially, the PSPs act as middle-men between the business and the card associations to ensure businesses comply with those industry requirements and regulations.
There are a few types of Internet Merchant Accounts that are provided by PSPs :-
 
Aggregated Merchant Account
The Aggregated Merchant account is an account designed for a number of smaller volume merchants, clustered under a master merchant account by a PSP. Merchants in this master merchant account are generally from the same industry sharing the same Merchant Identification number (MID) and the same descriptor.
 
Direct Merchant Account
This account is specifically assigned to the merchant by a Merchant Acquiring Bank. Merchants will obtain a private MID. They are also able to provide their own customer service and their own private descriptor, which can lower their percentage of chargebacks. Merchants will have full control of online credit card transactions and fraud management. Merchants with this account are more likely to enjoy lower Merchant Discount Rate (MDR).
 
3D Merchant Account
3D Secure is a technical standard created by Visa and MasterCard to further combat online fraud. When an online transaction takes place, an online security screen will appear. The customer will be required to enter a passphrase which are only known by them. Visa or MasterCard will then return the customer to the online store after authentication. Visa branded their system as “Verified by Visa” whilst MasterCard branded theirs as “MasterCard Secure Code”. 3D Secure shifts the liability for fraud from the merchant to the cardholder under a range of conditions. The merchant’s website has to be 3D Secure enabled whilst the customer must have a credit/debit card enrolled in a 3D Secure scheme. Customers can enrol in these schemes via online banking, Visa or MasterCard websites. MO/TO transactions are not supported by 3D Secure. 
A Payment Solution Provider can connect to multiple acquiring banks, card, and payment networks. In many cases, the PSP will fully manage these technical connections, relationships with the external network, and bank accounts. This makes the merchant less dependent on financial institutions and free from the task of establishing these connections directly, especially when operating internationally.
Some may ask, “Why should I use a Payment Service Provider?” There are a number of reasons why they should, firstly being that a full-service PSP can offer Risk Management tools for card and bank based payments, transaction payment matching, reporting, fund remittance and fraud protection in addition to multi-currency functionality and services.
Equipped with these Risk Management tools, PSPs can greatly improve the merchants credit card protection against fraudulent transactions and chargebacks through 3D secure protocol that is known as a Virtual Payer Authentication (VPA). These are typically branded as J/Secure by JCB and Verified by SecureCode, MasterCard and Visa. 3D Secure is designed to strengthen merchant’s protection against fraud and other crimes of that nature. Little that they may know, these are the greatest risk in any online business and may cost the merchant severe penalties and fees imposed by the card associations and furthermore have the merchant black listed from ever running an online business.
 
MasterCard & Maestro Chargeback Guide
http://www.mastercard.com/us/merchant/pdf/TB_CB_Manual.pdf
VISA Chargeback Guide
http://usa.visa.com/download/merchants/chargeback-management-guidelines-for-visa-merchants.pdf
 
PSPs also have genuinely more competitive rates and fees which are typically levied in one of two ways: as a percentage of each transaction or a low fixed cost per transaction. However, certain fees can vary between competing PSPs. As long as the merchant is able to generate higher and consistent sales volume, then the merchant will enjoy lower rates and may also have some completely waived. For some PSPs, they can even arrange for certain upfront fees to be deducted from the merchants processing to help ease the merchant’s burden.
PSPs also ensure that businesses are PCI Compliant and present secured payment options for the customers. A trustworthy PSP also provides swift response and assistance to the merchant when a matter arises.