What is a Payment Processor?

In the simplest terms, a payment processor (also known as PSP – Payment Service Provider) is a company that handles transactions between two parties, such as a merchant and a customer or banks. It accomplishes the payment by relaying the payment information, like a credit card, from the customer to the merchant’s preferred bank account.

However, sometimes it might also offer the gateway only. In addition, the PSP is responsible for all the contracts with card acquirers and banks and for the settlement of the funds collected.

In most traditional transactions, payment processors involve the following parties:

• the customer;
• the merchant/business owner;
• the payment processor;
• the payment gateway — if not already combined with the processor;
• the bank/credit card company of the customer; and
• the bank of the business.

Pros and Cons of Using a PSP

Pros

• One integration for several payment methods: in addition to credit card, PSPs often offer a wide range of local payment methods, online banking transfer and debit cards. By integrating only one API, merchants have instant access to all payment methods provided.
• Only one contractual relationship: the merchant only needs to establish a contractual relationship with the PSP to have access to the different payment methods.
• Fraud prevention: PSPs often have their own fraud prevention solutions but are compatible with the integration of third party antifraud services.
• Reconciliation: all the transaction reports, for all payment methods, are included in the full service.
• Reporting: merchants have access to detailed reports and charts for a full understanding of the entire process.
• Anticipated payout: most payment intermediaries provide anticipated payouts for installment payments, unlike the credit card acquirers, which make the payouts monthly and charge high fees for anticipating the funds.

Cons

• Higher fees: a payment gateway only charges a fixed fee per transaction. A PSP, on the other hand, charges a variable fee in addition to the fixed fee. As PSPs must pay acquirers and banks and still have some profit margin, the fees can be higher than what can be directly negotiated with banks and acquirers. However, it is worth noting that only merchants with a significant sales volume are likely to negotiate better fees with banks and acquirers.
• Settlement frequency: even though Brazilian acquirers pay with a delay of 31 days, merchants can receive the funds on a daily basis for payments made 31 days prior. PSPs, on the other hand, usually have fixed dates for the settlement.