What is a Full-Service PSP?
A payment service provider (PSP) is a necessary partner in the payments ecosystem, bridging the divide between the merchant, the card networks, and the buyer’s and seller’s banks. A full-service PSP, also known as an aggregator, accelerates time-to-market by allowing the merchant to use their merchant account to do business. These PSPs provide everything from embeddable forms to collect cardholder data, to easy access to an often impressive array of payment methods, to an easily digested and consistent fee structure. They may be freestanding (such as Stripe or PayPal), or embedded within another platform (Shopify Payments), but their purpose is to simplify the process of transacting business digitally for their customers.
What Benefits Does a Full-Service PSP Deliver?
The first and most important benefit delivered by any full-service PSP is speed: without the need to complete the often-onerous task of acquiring a merchant account, then building relationships with payment gateways, a business can rapidly set up an account and start accepting payments. This acceleration is extremely valuable given the complexity of building a bespoke payments system.
At the same time full-service PSPs will offer additional value-added services, such as:
- A wider range of accepted payment methods (card, digital wallets, etc.) than most freestanding gateways can;
- Automatic currency conversion, so that customers aren’t put off by having to convert costs in their head
- Reduced security compliance costs and burdens, as the full-service PSP will tend to collect and store the cardholder data, and provide a token to their customer
- Extensive APIs and SDKs, making it easier to embed their services across device types and platforms
The Downsides of Using a Full-Service Payment Provider
You don’t get all those wonderful benefits for free! While a clearly articulated and forecastable fee structure is appealing for business planning, it doesn’t necessarily result in an inexpensive (or even ultimately affordable) offer. The reality is that the cost of payment processing varies wildly from country to country, from payment method to payment method, and, unsurprisingly, from PSP to PSP.
Underneath the very predictable fee structure are some costs that your full-service payment processor is cleaning up on. For instance, in the United States, card networks are required by law to cap the cost of a debit card charge at 0.05% plus $0.21; on a $100 charge, that would be $0.26, while a pretty standard 2.9% plus $0.30 full-service PSP cost would result in a fee of $3.20, or more than 12 times more.
You may even pay an additional fee if your customer is in a foreign country, even when that country actually offers lower processing fees.
| Fee Structure | Total Fee on $100 Charge | |
|---|---|---|
| Card Network Standard | 0.05% + $0.21 (capped) | $0.26 |
| Full-Service PSP Standard | 2.9% + $0.30 | $3.20 |
Single-Point-of-Failure Risks
Beyond the question of cost, merchants also add risk to their business when committing to a single full-service PSP. Although that processor reduces the burden of regulatory compliance, they also impose rules and requirements of their own - as they must, to protect the shared payments environment they provide to all their customers. However, falling afoul of those rules can cause the full-service PSP to suspend or sever service with limited recourse, leaving you abruptly unable to do business with your customer. It takes no time to find examples of businesses left high and dry because their full-service processor found them too high-risk or, indeed, just not a customer the PSP wanted.
In addition, while full-service PSPs reduce merchant compliance requirements by collecting and storing cardholder data on their own secure servers, this does mean that the merchant does not have direct access to that information. If the merchant opts to switch out PSPs, it can be anywhere from expensive to impossible to get the full-service provider to share that information, meaning that even the best customers will have to re-enter what they have been using as stored accounts.
How to Get the Most out of a Full-Service PSP
There is no doubt that using full-service PSPs significantly accelerates the speed at which a business can start accepting credit card payments, delivering a measurable time-to-market benefit. That benefit is balanced by the additional risk of not owning customer data, the potential to be cut off, and the reality of higher fees.
The quickest way to mitigate the risk and maximize the benefits of full-service PSPs is to sign up with more than one. While this doesn’t give you control over your customers’ cardholder data or cut your costs, it does eliminate the existential risk of being unable to transact payments.
The best practice is to use more than one full-service PSP and the services of a tokenization service provider. In this instance, you have the cardholder data collected and stored in the secure vault of the tokenization partner, allowing you to deliver it to whichever PSP partner you choose. This protects your ability to transact business if a PSP severs your relationship, and gives you control over customer cardholder data for the future. While it doesn’t explicitly arbitrage PSP pricing to optimize your costs, it does set up the environment you will need for the future as you expand your payment system, adding a merchant account and connections with a range of payment gateways.
