Digital payments have become so commonplace today that consumers involuntarily reach out to their smartphones for making purchases for virtually anything and everything under the sun. It is no shocker that over 40 billion digital transactions amounting to a value of more than quadrillion Indian rupees were recorded in the financial year 2021 alone!
In fact, digital payment apps have become so user-friendly and convenient in terms of reporting and reconciliation, that every business needs to jump onto the bandwagon of having a payment service provider as part of its service offering.
What exactly are payment service providers?
A payment service provider is a third-party company that acts as a payment link between merchants and customers, which helps businesses accept online payments through different methods such as debit cards, credit cards, e-wallets, online banking, etc. Payment service providers (PSPs) ensure that all online transactions are completed seamlessly and securely from point A to point B.
A critical part of the digital payment ecosystem, payment service providers work behind the scenes to enable businesses to manage their payments without any hiccups.
Let’s dive into the details of how PSPs actually work and the various benefits associated with them.
How do Payment Service Providers Work?
PSPs manage ’em all, from authorization of funds from the customer’s account to the settlement of funds into the merchant’s account. Here is an example of a typical online transaction and the role played by PSPs:
- A customer enters their credit card details to make an online payment. As soon as they click on ‘Pay’, a transaction request is sent to the payment gateway.
- The next step involves verifying the customer’s card details and checking whether the customer has enough balance in his account to complete the transaction. A PSP does this with the help of a payment processor.
- A confirmation, say, in the form of an OTP is done, in order to eliminate any possibility of fraud.
- Once the above is done, i.e., the customer’s details are verified and found to be true and they have sufficient balance to fund the transaction, the PSP initiates the process of transferring funds from the customer’s account to the merchant’s account.
- Upon completion of the transaction, a confirmation message is sent both to the merchant as well as the customer about the completed transaction.
Benefits of Payment Service Providers (PSPs):
Businesses that are keen on accepting online payments must enlist the services of PSPs. However, PSPs come with a host of other useful benefits for both merchants and customers that do nothing but add to their importance.
1. Seamless Payment Experience:
With a multi-payment system available via a PSP, businesses can enjoy the leverage of providing a wide range of payment options to their customers. This not only lends a sense of convenience but also provides the much-needed accessibility that most consumers are on the lookout for. Besides, integrating different types of payment methods like debit cards, credit cards, e-wallets, net banking, etc., individually can lead to an increase in costs for a business.
A PSP helps save much of these costs by bundling them into two types of fees: a one-time setup fee and a minimal monthly subscription fee.
2. Provide a Secure Payment Ecosystem:
In the age of increasing cyber crimes, businesses need a secure channel for managing their payments. PSPs provide just that. All the information received via a transaction is heavily encrypted using SSL (Secure Socket Layer), which allows only the customers to view their confidential information. Customers feel assured of going ahead with the online transactions without the fear of losing out on their money to some scam. The RBI has recently put in place a comprehensive policy that governs data protection practices followed by PSPs as well as any vendors they outsource to.
Owing to these regulations, PSPs can ensure that businesses too are safeguarded against any hoax customers. The process of fund transfer is initiated only once the customer’s card details have been verified and a sufficient account balance is located.
3. Allow Multi-currency Processing:
Businesses looking to expand their operations on a global level and accept payments in different currencies can also benefit from PSPs. Most PSPs provide the required support to accept fast and secure payments from customers around the world. For businesses that want to cater to the overseas market and enjoy a seamless payment experience, nothing works better than a PSP that is capable of processing payments in multiple currencies.
4. Provide Real-time Transaction Reporting:
Most PSPs also offer transaction reporting features that provide real-time transaction reports to the businesses, thus enabling them to easily reconcile the multitude of payments accepted from different customers. This eliminates any room for human errors creeping in, in reconciling payments. Some PSPs also offer real-time transaction reports to the businesses, making life easy when it comes to looking back into a transaction that may have taken place a few minutes or hours ago.
5. Boosted Sales:
As seen above, PSPs have far-reaching benefits to all parties involved. However, one of the most important benefits associated with PSPs is the boost in sales that a business can experience. Businesses can rest assured that they are not turning away any potential customers, due to differences in time zone or geographical boundaries. Not only this, PSPs keep themselves updated with any new payment method that may arrive in the market, thus ensuring uninterrupted services.
Also, it is more like outsourcing the entire headache involved with processing payments and passing it on to the PSPs, who specialize in crafting a super convenient way to complete online transactions easily.
To Sum Up
Payment Service Providers have proved to be an indispensable part of the global financial chain, enabling a smooth flow of high-volume transactions across the world. They provide an improved customer experience and help businesses flourish.
Finezza offers a range of services including integrations with payment service providers to help your business scale in an effective manner.