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.
How a payment service provider works
In a card payment, the PSP connects every party in the chain so the merchant only has to integrate once. A typical online transaction runs like this:- The customer enters their payment details at checkout. The payment gateway encrypts the card data and passes it to the PSP.
- The PSP's payment processor routes the transaction to the acquiring bank, which sends it through the card networks, such as Visa or Mastercard.
- The customer's issuing bank checks the card, verifies that there are enough funds or credit, and approves or declines the payment.
- The approval travels back through the same chain to the checkout, usually within seconds.
- The acquirer settles funds to the PSP, and the PSP pays the merchant, minus its transaction fees, into the merchant's bank account.
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 |
Aggregated vs dedicated merchant accounts
Most PSPs for small and mid-sized online businesses use an aggregated model: the merchant processes payments under the PSP's merchant account, alongside many other sellers. Setup is fast, often the same day, but the PSP carries the risk and may hold or freeze funds if it sees unusual activity.Larger merchants often get dedicated merchant accounts from an acquirer or merchant account provider. Onboarding takes longer and needs more underwriting, but the merchant gets its own account, its own risk profile and more control over pricing and settlement. Many PSPs offer both and move a merchant to a dedicated setup as volumes grow.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 PSPs charge
PSP pricing varies more than most merchants expect. When you compare providers, ask for the full fee list, not just the headline rate:- Transaction fees: a percentage of the transaction value, a flat fee per transaction, or both. Rates often differ for domestic and international cards, and for consumer and business cards.
- Setup and monthly fees: some PSPs charge for onboarding, a monthly platform fee or a minimum monthly volume.
- Currency conversion fees: charged when you accept payments in multiple currencies and settle in one.
- Chargeback and refund fees: a fixed charge for each dispute, whether you win it or not.
- Payout fees: charges for settling funds to your account, especially in other countries or currencies.
How to choose a payment service provider
The right PSP depends on where your customers are and how they like to pay. Check:- Licence: whether the PSP is authorised itself or works through a partner's licence, and which regulator supervises it.
- Payment options: cards, digital wallets and the local payment methods your international customers expect.
- Security and compliance: PCI DSS compliance for card data, fraud prevention tools, and strong customer authentication for EU payments.
- Integration: plugins for your ecommerce platform, an API, and in-store payments if you sell offline too.
- Settlement: how fast the PSP settles funds, in which currencies, and to which account.
- Risk appetite: whether the PSP accepts your business model and industry before you build your checkout around it.
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.
A merchant account is the account that receives card payments before they're settled to the business. A PSP can give a merchant access to its own aggregated merchant account, so the business doesn't need to open one with an acquirer itself.
Narvi Payments Oy Ab is an e-money institution, which makes it a PSP in the legal sense. It provides business accounts with dedicated IBANs and SEPA and Swift payments, including for PSPs that need accounts for client funds and payouts.
Last reviewed October 29, 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.
What We Offer
IBAN Accounts For Your Business
Support & Compliance
Narvi Knowledge Center
Alternative Investment Funds [whitepaper]Family Offices [whitepaper]Shipping Industry [whitepaper]How to Open a Business Account in FinlandNarvi vs. Wise, Revolut, N26, and other alternativesNarvi vs. Stable.comNarvi vs. payabl.Narvi vs. ConnectPayNarvi vs. IBAN4UNarvi vs. GenomeNarvi vs. PaxumNarvi vs. BilderlingsNarvi vs. NetellerNarvi vs. KontistPayments BlogPayments Glossary
Narvi Payments Oy Ab is an Authorized Electronic Money Institution (EMI). Narvi’s EMI license is granted by the Finnish Financial Supervisory Authority (FIN FSA) with the registration number 3190214-6. Narvi’s license is passportised to all European Union countries.
Built and regulated in Finland© 2026 Narvi. All Rights Reserved.
v1.331.0