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A payment service provider (or PSP) is a company facilitating different types of payment processing for other companies, usually through its own payment system. Payment service providers allow merchants they are servicing to avoid the bureaucracy of large financial institutions (acquirers, banks and processors), gain access to better technology and customer service and save on integration-related efforts.
Some people use the two terms (PSP and MSP) interchangeably. All payment service providers are, in fact, merchant services providers as well. However, in case of payment service providers, payment aggregation model is often used. When merchant accounts are issued by merchant services providers, they are issued in the name of the underlying merchant that goes through the underwriting process with the acquirer the MSP works with (the acquirer can be a merchant services provider as well).
In contrast to merchant services provider, a payment service provider is often an aggregator in relation to merchants in its portfolio. Services of payment service providers are more popular in industries, where it is more difficult for merchants to get merchant accounts directly (high-risk).
There are two things that a company needs to become a PSP: its own infrastructure and bankingacquirer relationships. Basically, the company will need its own payment gateway solution, a PCI-compliant hosting and integrations with banks and acquirers. More detailed information on how to become a payment service provider can be found in the respective article in our Paylosophy blog.
