What Is a Payment Service Provider?

A payment service provider, or PSP, is a third-party company that lets businesses securely accept credit card, debit card and digital wallet payments online and in person without having to open a dedicated merchant account. They’re a good fit for new small businesses that need to start accepting card payments quickly and want an all-in-one solution for point-of-sale systems and payment processing.

Payment service providers (also known as third-party payment processing companies or payment aggregators) facilitate a variety of electronic payment types, including credit cards, debit cards, ACH transfers and digital wallets for brick-and-mortar, mobile and online businesses. They work with numerous card and payment networks, as well as a wide range of acquiring banks, to create a seamless payments experience with a low barrier to entry.

Through a PSP, businesses get access to a shared merchant account, which removes the need to apply for a dedicated merchant account. That means businesses can begin accepting payments almost immediately, as opposed to having to go through a long application process, and can often avoid monthly subscription fees. Lots of payment service providers also sell POS systems or card readers for in-person payments and provide payment gateways for online payments. Other features commonly include reporting dashboards, built-in PCI compliance and security tools.

Payment service providers may not commonly charge monthly fees, but businesses do need to pay processing costs, often in the form of flat-rate fees. These fees typically differ depending on whether the transaction takes place in person or online.

» MORE: How much are credit card processing fees?

Payment service providers and dedicated merchant account providers both make it possible for businesses to accept payments. The biggest difference is that payment service providers pool multiple businesses under a single merchant account to provide a turnkey, one-size-fits-all solution, whereas dedicated merchant account providers designate a separate account and merchant identification number, or MID, to each business to offer a more customizable and tailored solution.

Because merchant account providers give each business its own separate account, it can take weeks to get approved to start accepting card payments. Typically, you can expect a thorough vetting process as your individual business’s risk is assessed. Once you’ve made it through the merchant account approval process, though, your account should remain stable, barring any extreme circumstances.

Payment service providers supply aggregate merchant accounts, so the approval process is simple and almost instantaneous. However, they also take on the combined risk of each of the businesses they work with, which means they’re more likely than dedicated merchant account providers to hold, freeze or terminate accounts they decide are too risky.

Here’s a summary of the main differences between payment service providers and dedicated merchant account providers:

Why we like it: Best known for its free square-shaped magstripe reader, Square has a quick, online signup process and a free mobile POS app that lets you accept card payments from your phone or tablet. It meets PCI compliance standards at no extra charge to you, and has a range of plans designed for different types of businesses. You always have the option to scale up from a free plan to a paid plan with more tools as your business grows. Read our full Square review for more details.

Why we like it: Designed specifically for restaurants and the food industry, Toast is PCI-compliant and offers a pay-as-you-go plan with a two-year contract and no monthly fee. And instead of paying for hardware upfront, you can choose to pay higher processing fees to cover the costs. The company also sells a variety of hardware options, including a portable handheld terminal and guest self-service kiosk. Read our full Toast review for more details.

Why we like it: With customers ranging from small businesses to Fortune 500 corporations, Stripe offers a customizable and frequently updated suite of tools to help companies securely accept online payments and handle invoicing, reporting, business management and more. It’s an especially good fit if you know how to use developer tools to customize your online checkout process. Read our full Stripe review for more details.

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