We explain payment gateways and payment providers (PSPs) to help you choose the best e-commerce option.
Payment gateways and payment service providers (PSPs) are solutions that integrate merchants, customers, credit card issuing banks and acquirers. They are both part of the payments market evolution.
New agents and technologies require services that meet their needs. Examples include innovations in digital collection systems, driven by e-commerce and SaaS companies.
Basically, online payment gateways and online payment providers provide much the same functions, but each solution has its own special characteristics. Before we address the benefits they each offer, we first need to understand what they are.
Gateways are APIs (Application Programming Interface), a modular piece of software that allows different payment methods to speak to one another. Basically, supplementary APIs can be coded to add or remove gateway functions. Although payment gateways can be highly customized, even the best require additional software to prevent fraud, reconcile transactions and add other payment methods.
As it is simply an API, choosing a payment gateway could mean having to sign a contract with your or other banks. In this case, the merchant is responsible for and controls payments. An easier way of looking at it would be to imagine a gateway as the online equivalent of a Point-of-Sale (PoS) machine.
PSPs offer both technical processing (like gateways) as well as financial processing (actual cash transfers). These dual functions mean a PSP can be used just for its gateway services, which is why some people confuse them with gateways.
However, the payment service provider is responsible for any agreements with issuing banks and acquirers. This means a merchant’s contract with the PSP will encompass various credit card issuers and other forms of payment, such as debit, boleto and Pix. A PSP can also interact with other payment methods, such as virtual wallets or e-wallets.
When using the gateway-only service, the banks themselves settle the transaction, but the merchant has to have an agreement with each issuing bank and acquirer.
If a merchant chooses to partner with a PSP, they are centralizing their transactions. In this case, the payment provider is responsible for the transaction. The merchant obtains a gateway system, its supplementary APIs and the various forms of payment as a bundle and only has to sign one contract.
This provides greater ease-of-use, but the PSP charges more per transaction in exchange. Gateways charge fixed fees per transaction, whereas payment service providers charge both fixed and variable rates. The PSP is responsible for settlement, which takes place on a date specified in the agreement. However, merchants can also obtain advances on receivables on attractive terms.
The key to understanding the benefits and drawbacks of each option is to remember there is a clear difference between a payment mechanism and a service provider. Gateways are technical solutions that transfer the merchant’s payment information to the bank. PSPs are digital payment intermediaries that act as a bridge between merchants and banks.
What’s the best solution for your company? Investing in a comprehensive PSP package or contracting just the gateway service? The choice depends on your company’s legal and technological capabilities, sales volume and whether or not you have an in-house payments team.
Major players often use third-party gateways or build their own as this can help reduce costs in direct negotiations, nevertheless, PSPs are offering increasingly robust payment gateway solutions and represent a Full-Service alternative that is particularly interesting for merchants who trade globally.
Global companies such as these are able to expand their businesses without having to maintain legal teams in every country they operate in and the PSP is responsible for connecting to local acquirers and acting as the MoR – Merchant of Record. The Merchant of Record is the party authorized by and liable to a financial institution for processing consumer debits and credits, transactions. The MoR is also the name that appears on a customer’s credit card bill.
The growing number of payment alternatives e-commerce businesses use in various global markets has also helped PSPs gain traction among major players by offering not just cards payments, but also interbank fund transfer systems (for instance, PIX, SPEI, SEPA, ACH, etc) and connections to a wide variety of local wallets.
PSPs are also gaining significance in emerging markets that have more means of payment issues, such as Brazil, where 25% of the population is still unbanked or under banked and paying by cash or boleto. Global merchants need the support and features a Brazilian Payment Service Provider can provide to guarantee access to and acceptance of cross-border payments across this customer base.
Bexs develops APIs using local, tailor-made foreign-exchange solutions and payment methods that help international digital businesses do business in Brazil. Contact us!
Updated on 01/31/22