Payment service provider (PSP)
A payment service provider (PSP) is any firm authorised to provide payment services. Under EU law, that includes banks, e-money institutions, payment institutions and account information or payment initiation providers. In everyday use, PSP usually means the company that lets a merchant accept card and online payments.
Two meanings of PSP
The legal meaning comes from the EU's Payment Services Directive (PSD2), which lists who may provide payment services: credit institutions, e-money institutions, post office giro institutions, payment institutions, and central banks and public authorities when they aren't acting in an official capacity. If a firm moves money for others as a business, it's a PSP in this sense and needs to be authorised.The merchant meaning is narrower. When an online shop says "our PSP", it means the company that processes its card and online payments, connects it to acquirers and payment methods, and pays out the proceeds. Most of these are PSPs in the legal sense too, but the everyday word focuses on checkout, not on the licence.
Types of PSP
| Type | Authorised to | Example of what it does |
|---|---|---|
| Credit institution (bank) | Take deposits, lend, provide all payment services | Current accounts, loans, card issuing |
| E-money institution | Issue electronic money and provide payment services | Business accounts with IBANs, transfers, cards |
| Payment institution | Provide payment services, without issuing e-money | Money remittance, merchant acquiring, payment accounts |
| Account information or payment initiation provider | Read account data or start payments, with the customer's consent | Accounting tools that pull bank data, pay-by-bank checkouts |
| Acquirer | Process card payments for merchants (a payment service) | Settling a shop's card takings into its account |
How PSPs are regulated in the EU
Under PSD2, a firm needs authorisation from its national supervisor before providing payment services, or a lighter registration for some limited activities. Authorised PSPs have to safeguard client funds, apply strong customer authentication and follow conduct rules. Once authorised, they can passport their licence across the EEA.PSD2 is due to be replaced by two new laws: PSD3, a directive on licensing and supervision, and the Payment Services Regulation (PSR), which will apply directly in every EU country. PSD3 also brings e-money institutions into the same framework as payment institutions. The texts were agreed in late 2025, but as of October 2026 they still await formal adoption and publication in the Official Journal. Most of the new rules will apply around 21 months after they enter into force, so not before 2028.PSP vs payment gateway vs acquirer
| PSP (merchant sense) | Payment gateway | Acquirer | |
|---|---|---|---|
| What it is | The company a merchant signs with to accept payments | The technology that captures and sends payment data | The institution that processes card payments for the merchant |
| Holds or moves funds | Usually, through its own licence or a partner's | No | Yes |
| Needs a payment licence | Usually | No | Yes |
What a PSP needs from its own accounts
A PSP that handles client money needs more than one account. It has to keep client funds in a safeguarding account, separate from its operational money. It needs settlement accounts to receive card scheme or acquirer payouts, and payout rails to send funds to merchants in many countries and currencies. For the details, see what a PSP needs from its accounts and payout rails and how safeguarding works.Platforms that want to offer accounts to their own users can also build on a provider's licence through banking as a service.FAQ
Yes. PayPal is a PSP in both senses: it processes payments for merchants, and in Europe it operates under a Luxembourg banking licence.
Yes. Banks are the first category of payment service provider listed in PSD2. In the merchant sense, though, people usually mean a checkout or processing company rather than a bank.
Yes, in the EU. Providing payment services requires authorisation as a credit institution, e-money institution or payment institution, or registration for some limited services.
Last reviewed October 22, 2026Disclaimer
This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Narvi Payments Oy Ab or its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Narvi Payments Oy Ab or its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
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