What is a Payment Service Provider?
PSP is a company operating under an EMI license and providing payment aggregation or cross-border payment services. PSPs operate via nostro accounts and rely on wholesale payment networks similar to those of traditional banks.
What Should I Check When Choosing A Payment Service Provider?
If you’ve ever been wondering how to choose the best payments service provider, then please keep reading. Here is a full guide that will help you select, analyse, and choose the best provider of all.
There are plenty of payment service providers nowadays across various jurisdictions. They are all offering the same thing: multi-currency accounts.
But not all are equally good, and it is important to choose wisely as they are going to handle your money. In order to help, we have put together a list of tips for you:
Money safeguarding. Ask where the payments provider is safeguarding client funds (bank name, country, currencies). If it is a good payments provider, they will have bank accounts for safeguarding funds at top-tier banks such as Barclays, Citi, Deutsche, UBS, etc.
If it is an unknown bank or high-risk country, avoid such a provider. Also check if client funds are segregated on your provider’s balance sheet.
Regulation. It is important to check where the provider is licensed. If it is a small, less developed country, it implies risk. Also check if the provider has ever had a problem with the regulator.
For example, if a particular PSP was fined by the regulator for money laundering practices, you should avoid it.
Security. Review the overall platform security, authorisation tools, and encryption. There is an increasing number of fraud cases, even with banks. Modern hackers are using the security loopholes to wire out client funds.
Here is an example of the OTP authentication process popular in the payments industry:
Exchange rates. Foreign exchange rates and payment fees are very important. The reason for anyone to choose a payment service provider over the traditional bank is to save money.
Transaction fees should be transparent and sensible. In order to have better grounds for negotiation, provide your current pricing with the bank and ask for a reduction. It is the easiest and most constructive way of negotiation.
For FX fees, it is important to check with current spot rate in the market in order to have an understanding of the spread being provided to your business. Do not forget to check with other providers as well, and again compare for the spot rate to see which one is more competitive.
Payments technology. You should investigate the technological capabilities of the payments platform.
Pay attention to login security, reporting functionality, and available audit trails. In addition, the ability to store beneficiary details is key so you don’t need to do repeated entries. Beneficiary email notifications is another good functionality allowing your payees to know that you have made a payment to them.
A live feed FX rates and hedges will help you to determine when is the right time to enter a foreign exchange transaction. In case you are dealing with dozens of payments or exchanges per month, you may also check possibility to make mass-payments.
Mass-payments solution will reduce the need for manual payments entry and reduce errors. In addition, ask about API for possible integration with your existing business infrastructure.
FX portfolio. Check their full FX offering. Ask for a list of currencies they are able to execute payments and exchanges in, and hedge. A good provider should have more than 50 currencies available.
Payments capability. It is important to know their full list of countries they can send payments to and list of currencies the platform is able to accept payments in.
Not all providers can send funds to all destinations and in all currencies. Only a good provider will have a wide list of cross-border payment routes.
Testimonials. Ask for clients testimonials and especially form a relevant industry. Any well-established payment service provider will have happy clients that can say a good word for them.
How To Finding A Good Payment Service Provider?
As mentioned earlier, there a plenty of providers. We suggest to look for one in the most banked countries, such as UK, Germany or The Netherlands.
To save your time, we can recommend you payment providers that can fit your business. Do not hesitate to reach out to us for a free consultation.
We have helped hundreds of companies worldwide to find the best payment and FX options based on their business operations specifics and payment destinations.
Usual payments partner that we work with is able to:
-Provide single multi-currency IBAN for all payments and foreign exchange
-Ability to receive payments in 30+ different currencies
-Ability to send payments in 50+ currencies to 120+ countries
-Ability to make mass-payments by integrating via API or uploading an excel spreadsheet
-Access to effective currency hedges
-Exchange of currencies using reasonable and competitive pricing
-Process automation via API integration
-Cost-effective solution for low value international payments
-Payment control and audit trails
-Streamlined beneficiary management and compliance processes
-Relationship manager ready to help finding best solution and answer questions
Should You Keep Your Money With Payment Service Provider?
Unlike with the bank, your money with PSP are not insured. Even though, payment service providers are required to safeguard client funds with a licensed bank overnight, this is not fully equal to insurance that banks have.
Yes, a highly reputable PSP will be keeping client funds with Top Tier Bank. However, it is important to ask before account opening. Our payment partners safeguard client funds with banks such as JP Morgan, Goldman Sachs, Barclays, Citi, Lloyds and similar.
We would recommend to use payment service provider only for the intended services, such as foreign exchange or cross-border payments. This would mean that we recommend to pre-fund the account with payments provider to exchange currency or make an international payment. Keeping money for a long time with PSP, unless it has excellent reputation, is not recommended.
Conclusion
All in all, we have covered the main things to consider before choosing a payment service provider. Hope this guide will help you in your selection process!