Going Multi-PSP in the EU

The EU has special characteristics that make a multi-payment processor strategy truly fundamental to building a business. 

Let’s explain. 

According to the Banking Circle report The Perfect Payment Partner over 60% of merchants in the EU use more than one payment services provider (PSP), even though 85% agree that they have access to payment services through the marketplaces where they list their wares. This squares with international trends, where ACI Worldwide finds 57% of merchants have multiple PSP partners, and that 40% of the remainder expect to do so in the next 12 months. 

What is a multi-PSP strategy? 

When a merchant attempts to close a transaction with a consumer, they must contract with a PSP to execute the deal, as payment gateways and processors operate as the gatekeepers to the broader financial ecosystem. While there are many merchants who contract with a single, normally full-service PSP to take advantage of the speed of implementation and standardized processing fee schedule, many merchants quickly discover that having a single point of failure is an undesirable business risk. Instead, they create agreements with two or more PSPs, then use either a third-party platform, or an internally-managed decisioning engine to select the best PSP for each transaction. 

By doing so, they offset the substantial risks of limiting their business to a single provider—which include:

• Business Continuity: If the single PSP should experience an outage, the merchant cannot transact business until service is restored.
• Unoptimized Close Rates: A single PSP cannot be optimized for all kinds of transactions, and therefore can elevate the risk of transaction failures. For instance, they might have lower successful transaction rates in particular countries or for particular product types.
• Higher Processing Fees: Although full-service PSPs tend to have flat, predictable fee schedules, merchants can often achieve lower rates for specific transaction types elsewhere. Avoiding cross-border fees, for instance, can be achieved by contracting with a geographically dispersed group of PSP partners.
• Arbitrary Rules, Fees, and Account Closures: Full-service PSPs essentially share their own merchant account with their customers. As such, they have their own rules and risk thresholds for customers, often far more stringent than downstream banks and card networks because they must protect the master account. Running afoul of these (frequently only hazily understood) rules can result in fines, revenue retention, and even account closures that leave the merchant in the lurch.

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Why is the EU uniquely suited to a multi-processor approach? 

Unlike the United States, where bank transfers can still take days to effect, banks in the EU are required by the EU Instant Payments Regulation to be able to move money to other EU banks in 10 seconds, at all times of the day and night (though some elements of the regulation don’t take final effect until 2027). They are also not permitted to charge any additional fee for this instant delivery than they would for the more long-winded processes often experienced by consumers in other countries.

This back-end capability will likely spur the creation of new payment providers, who downplay the credit card networks in favor of direct payment mechanisms, which will bring cheaper and faster options to consumers and merchants alike. Indeed, the EU has historically been favorable to non-credit card payment methods, with examples like Sofort, iDeal, and GiroPay (now Girocard) often dominating the early days of e-commerce in their countries of origin.

The existing landscape of payment methods outside of credit cards, and the likely arrival of a slew more as the Instant Payments Regulation is fully realized by EU banks, has created—and will continue to foster—a need for merchants to have relationships with multiple PSPs. If for nothing else, only offer consumers the preferred payment methods.

Importantly, there’s significant variance in the cost to process through these different avenues. This means that EU merchants have always been more aware of the opportunities to improve their reach by contracting with PSPs offering access to other countries, and improve their margins by arbitraging PSP fee schedules.

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Why would an EU merchant not go multi-PSP? 

What is good for one merchant does not necessarily mean it’s good for another. This is true with having a multi-PSP approach. 

As in all markets, the reality is that a full-service PSP represents the fastest path to market, and offers (at least theoretically) a flat and predictable fee schedule that enables accurate forecasting. This has become even more true as time has passed and European consumers, initially wary of using credit cards for e-commerce, have become more comfortable with the security of online shopping. 

When time to market counts, simply connecting to a large, single PSP like Adyen can be the shortest and quickest path to going live. Not having to build, or acquire an engine to weigh the benefits of one PSP over another for each transaction eliminates a meaningful amount of development time. And by having customer cardholder data held by the PSP, merchants can avoid the resource drag of many PCI-DSS requirements.

That said, the EU is a dynamic, multi-national market, with cross-border transactions substantially more likely than in a larger single market like the US. But, using a single currency, the Euro. Paying additional fees, and struggling to deliver full access to other national markets, are likely behind the 62% of merchants who use two or three PSPs, and the two-thirds who look to add or remove one every two years or so.

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Making a Multi-Processor Approach Work in the EU 

The key elements of making a multi-processor strategy work, regardless of location, are:

• Acquiring and securing customer payment details.
• Defining a decisioning engine to distribute transactions to the best PSP partner.

The resource intensity of building and maintaining PCI-DSS compliance within a payment system can be daunting for many merchants, whose expertise is more in merchandising and selling than in computer security. As such, many merchants find that the most effective way to collect, store, and re-use customer payment data securely is to align with a third-party programmable payments vault like Basis Theory. 

In this scenario, the merchant uses embedded forms on their own pages to have customer data delivered to the vault, and receive tokens that they can use to instruct the vault to transmit that data to their preferred PSP. The tokens cannot be reverse-engineered to unlock the original data (as can be done when using simple encryption), and the vault provides PCI-compliant security for the customer data, both in motion and at rest. 

With secure access to direct the vault to transmit details to a preferred PSP taken care of, merchants can then set up logic to decide on the preferred payment partner—from something as simple as deciding based on geolocation to complex algorithms that take into account elements such as transaction volume, current chargeback ratios, processing fee arbitrage, and more.

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