PSP vs Payment Gateway: What You Need to Know

Choosing an effective and reliable electronic payment system is crucial for businesses of all sizes if they want to attract and retain customers. 

Its importance was highlighted by a World Bank study that revealed two thirds of adults across the globe make or receive digital payments.

And these individuals are more likely to buy from a company that offers access to payment technology that is safe and easy to use.

However, it’s often difficult for firms, especially start-ups that are putting together their own payment processing infrastructures, to understand all the terminology.

A prime example is when they’re debating payment gateway vs PSP. What do these two mean and why is it important for businesses to understand how they operate?

Here we take a look at alternative payment methods, explain how each of them work, and highlight the differences between them.

What are payment gateways

Let’s start off by defining two main payment solution terms that are often confused: payment gateways and payment service providers.

A payment gateway is a technical solution that allows the transfer of a merchant’s payment information to the bank.

While they have been around for many years, they have grown in sophistication from basic card-reading devices to hi-tech systems with authentication elements.

A gateway works by passing credit card transaction information from the seller to the bank via the appropriate credit card network.

This will happen in one of two principal ways. The first is via a more traditional credit card terminal that you see on physical premises. The second is a virtual route used by websites.

Payment gateways will usually charge in several ways, including initial set-up costs, a flat monthly charge, and a small fee per transaction.

Key benefits of a payment gateway

• Plenty of available payment gateway options.
• Convenience as payments can be made at any time.
• Payments are also made quickly – improving the chances a customer will buy.
• Security is key. Online payment gateways have a degree of in-built security.

Example of a payment gateway

Here we look at key payment gateway features and how the steps work in reality.

• One: Buyer opts to make a credit card payment via a reader or e-commerce site and types his information onto the payment page. It’s then transferred to the payment gateway.
• Two: The payment gateway encrypts the card details that have been supplied and sends the relevant data to the payment processor, such as the acquiring bank.
• Three: The final element is the (possible) authorisation. The information collected will be sent to your customer’s issuing bank via the card network. Fraud checks are carried out and the customer will be informed whether the transaction has been improved.

What are Payment Service Providers (PSPs)

The next stage is looking at what is a PSP payment provider – or PSP.

A payment service provider is a third-party company that enables businesses to accept electronic payments by acting as an intermediary between them and their customers. 

These organisations, which are often referred to by the abbreviation PSPs, include banks, payment institutions and payment initiation service providers.

They can support various popular purchasing methods to complete online transactions, including credit and debit cards, Apply Pay and a number of payment apps.

A reliable and effective PSP payment system provider can make all the difference to an online trader who is selling to customers around the world.

It will establish technical connections with banks and card networks to enable payments to be made and transactions completed swiftly and securely.

Key benefits of a payment service provider

• Can accept multiple payment methods like cards, wallets, open banking payments, vouchers and more.
• Secure transactions are made easier.
• Access to monthly reports on payments made.
• Easy to reconcile transactions that have been made.
• Expand internationally with ease, as many PSPs provide a range of additional services such as a merchant account, local payment methods, cross-border transactions, multiple currencies and more.

Example of a PSP

So, how does a PSP payment work?

Well, let’s take the example of a web-based business that has an e-commerce payment system in place to illustrate how a PSP’s payments are authorised.

Here are the five main PSP payment processor steps:

• One: The customer chooses the items they wish to purchase from the site’s online shop and place them in the virtual basket.
• Two: At the site’s checkout process they select their chosen payment method and input their card details.
• Three: The PSP will then capture the transaction information required, including the card details, and forward it to the associated card network.
• Four: The card network will then pass the information to the issuing bank, which will decide whether or not to approve the payment.
• Five: If the proposed payment is authorised, the funds will be deposited into the seller’s merchant account via the PSP. The transaction will then be complete.

PSP vs payment gateway: Are they the same?

So, what is the difference between PSP and payment gateway solutions? At first glance, these alternative payment methods can seem very similar.

For example, they both appear to carry out the same job: helping businesses to take payments from customers. However, there are very clear differences when it comes to PSP vs payment gateway.

Basically, when a transaction happens between two parties, a payment gateway will handle all the elements of that transaction.

However, a PSP will take care of the entire payment service on your behalf, rather than having to look after your payment gateway and merchant account separately.

This means they will often provide both a merchant account and a payment gateway to a business, which makes them more of a comprehensive solution.

A simple way to look at it is that a payment gateway simply acts as a conduit for information between customers and the business. Meanwhile, a PSP helps support the entire transaction process.

This makes the role of a PSP in payments very significant. It enables a business to embrace all the major payment methods and make them available to would-be customers.

Choosing your payment system

So, what makes a good PSP payments provider and what qualities should you look for in a gateway provider?

When it comes to choosing your PSP payment provider, it’s important to make your decision based on a number of very important factors.

Be clear on your requirements.

What payment methods do you want to offer and how easy is it to add new ones?

Are you wanting to go global?

If your business needs to accept international payments, see those with global solutions.

How secure is the PSP?

It’s vital that the PSP complies with industry standards so look for evidence.

Is customer support readily available?

The big question here is: how easy is it to find support if you hit a problem?

Can you access analytics?

There are plenty of benefits when it comes to analysing payments and comparing data. 

Is the solution futureproof?

The world of payments is moving at a rapid rate. How confident is the PSP in being able to adapt over the coming years?

Introducing Noda: A Next-Generation PSP

Noda is here to make payments easier, faster, and smarter for your business. We offer more than just card payments and merchant accounts – our open banking solution brings cutting-edge technology to help you stay ahead in today’s fast-moving world.

Extensive Bank Coverage

With access to over 95% of consumer bank accounts in the UK and strong coverage across the EU, Brazil and Canada, Noda connects your business to a wide audience. Your customers can enjoy quick, secure, and much more cost-efficient payments via their local bank apps, no matter where they are.

Seamless Integration Options

We make integration effortless with ready-made plugins for popular e-commerce platforms like WooCommerce, Magento, OpenCart and PrestaShop or a fully customisable API. This flexibility ensures that our solution aligns perfectly with your technical needs.

Dedicated Support and Advanced Features

Our dedicated support team is always available to assist you, no matter if you’re a startup or an established company. In addition, Noda provides a suite of advanced features, including:

• Payment links: Collect payments by sharing secure links with customers – no website or extra setup required.
• Payouts: Simplify and automate your returns & rewards processes.
• Data solutions: Gain actionable insights on your user bank payment history to refine your business strategy.
• Real-time analytics: Monitor and optimise your payment flows effortlessly.

Futureproof Your Payments

Payments are changing fast, and with Noda, you’ll always stay ahead. Our innovative solutions are designed to reduce costs, boost conversions, and provide your customers with a seamless payment experience.

Start your journey with Noda today – schedule a free consultation and discover how open banking can transform your business.