Payments Gateway vs PSP

A payment service provider (PSP) is the broad industry term used to describe companies that provide a turnkey solution to allow merchants to accept payments online without having to set up their own dedicated merchant account. PSPs operate a single merchant account and offer individual merchants sub accounts which makes it very quick to onboard a merchant. The companies discussed in this post are all PSPs using a variety of different channels (online, point-of-sale, mobile) and are active in different geographies.

A payment gateway is a technology that sits on top of a merchant’s own account or a PSP, that performs a number of functions on merchants behalf. They analyse, encrypt and transmit transaction data to an issuing bankIssuer Issuer (or Issuing bank) A bank that issued a card for a shopper to make cashless payments via an ecommerce website, inside a mobile app, or in a physical store. To be able to issue a card, an issuer must be a member of one or several card networks. Sometimes a shopper’s bank is referred to as an issuer even if there is no card issued. This is to distinguish between a shopper’s bank, which sends funds, and a merchant’s bank, which acquires funds. to request authorisationAuthorisation Authorisation This is the process of the card issuer (like Visa or Mastercard) verifying payment details and reserving the funds to capture it later. In ecommerce, in-app and point-of-sale payments, authorisation is implemented as an API call to the payment gateway. The gateway and payment processor then perform required validation and risk checks, and ask a corresponding card network to authorise this payment from an issuer to an acquirer. When a payment was authorised but hasn’t been captured yet, a merchant can also decide to cancel it for some reason (like a high risk of fraud). Note that authorisation is valid only for a limited amount of time. In case an authorised payment hasn’t been captured or cancelled, it expires after the predefined deadline is missed. and then authorises the transfer of funds when its authorisation is approved. PSPs generally force merchants to use their built-in payment gateways but if a merchant has their own merchant account then they can choose to connect to any gateway.