PSPs & Gateways

PSP: Definition

Payment Service Provider that helps merchants accept payments; often bundles gateway + acquiring access + fraud tools + reporting + payouts.

Gateway: Definition

The technical layer that securely collects payment details and routes payment requests to a processor/acquirer/PSP.

PSP vs Gateway

PSP is the merchant-facing “service package”; gateway is the routing/checkout tech component (can be standalone or embedded in a PSP).

PSP vs Acquirer

Acquirer provides regulated acceptance/settlement layer; PSP may include an acquirer relationship or be an acquirer itself.

PSP vs Processor

Processor runs the transaction engine/connectivity; PSP provides merchant product layer and often uses processors underneath.

PSP vs Orchestrator

Orchestrator routes across multiple PSPs/acquirers; PSP is usually one provider’s stack.

PSP: What PSPs actually sell

Higher conversion, simple onboarding, method coverage, fraud/chargeback management, fast payouts, and good reporting.

Gateway: What gateways actually sell

Secure checkout, routing reliability, tokenisation/PCI scope reduction, and integration speed.

Merchant perspective: Why choose a PSP

Faster go-live, fewer vendors to manage, simpler compliance, consolidated reporting/support.

Merchant perspective: Why choose a gateway-only provider

More control, ability to bring your own acquirer(s), tailored routing, enterprise flexibility.

Integrated PSP: Meaning

One provider supplies gateway + acquiring + tooling (often “single contract, single integration”).

Gateway-only model: Meaning

Gateway routes payments; merchant contracts separately with an acquirer for settlement.

PayFac: Meaning

Payment Facilitator onboarding sub-merchants under a master merchant account for faster onboarding; assumes more compliance/risk duties.

Sub-merchant: Meaning

A merchant onboarded under a PayFac’s master account; quicker onboarding but additional rules/limits may apply.

Merchant of Record (MoR): Meaning

Entity legally selling to the end customer; takes responsibility for refunds, disputes, taxes/VAT, and customer billing.

PSP vs MoR

PSP provides payment services; MoR becomes the seller of record and takes broader commercial/legal responsibility.

Checkout flow: High-level steps

Customer selects method → payment details captured → auth request sent → approved/declined → capture → settlement/payout → refunds/disputes.

Checkout UI: Hosted checkout

PSP-hosted payment page; fastest launch; reduces PCI scope; less UI control.

Checkout UI: Embedded fields

Merchant-hosted UI with PSP-hosted secure fields; more control while reducing PCI exposure.

Checkout UI: Fully custom checkout

Merchant handles more of PCI/security; max control; more engineering/compliance burden.

Tokenisation: Definition

Replacing sensitive payment credentials with tokens; reduces PCI scope and improves security.

Token vault: Definition

System that stores tokens and maps them to underlying payment credentials securely.

Network tokens: Definition

Scheme-issued tokens that can improve approval rates and reduce credential fraud, especially for recurring/wallet.

3DS/3DS2: Definition

Authentication step for e-commerce; can reduce fraud and support SCA compliance; can add friction.

3DS: Frictionless vs challenge

Frictionless = no customer prompt; Challenge = customer must complete bank/app/OTP step.

SCA (Strong Customer Authentication): Meaning

Regulatory requirement in many cases; often satisfied via 3DS2 flows.

Payment intent: Meaning (generic)

A payment object representing an attempt with state changes (created, confirmed, succeeded, failed).

Idempotency: Definition

Prevents duplicate charges when requests are retried; critical for reliable checkout.

Webhooks: Definition

Asynchronous event notifications (paid, failed, refunded, disputed, payout sent); must be handled reliably.

Webhook signature verification

Validating events truly come from PSP; prevents spoofing and fraud.

Retries: Why they happen

Network issues, timeouts, issuer delays; systems retry to improve success but must avoid duplicates.

Timeouts: Definition

Request exceeds time; may look like “random declines”; impacts conversion and support load.

Stand-in / fallback (concept)

Alternative decisioning when issuer unreachable (implementation varies; often network/issuer-side more than PSP-side).

Payment methods: Card

Credit/debit acceptance via schemes; strong protections; fees typically higher than A2A.

Payment methods: Wallets

Apple Pay/Google Pay; tokenised; high mobile conversion; still card rails.

Payment methods: A2A/Open Banking

Bank-to-bank initiation; potentially lower cost; UX varies by bank/provider; dispute protections differ.

Payment methods: Bank transfer

Manual or guided; reconciliation heavy unless references are strong.

Payment methods: Direct Debit

Pull-based recurring; strong consumer protections; common in UK subscriptions/bills.

Payment methods: BNPL

Installments; can lift conversion; adds provider fees and refund/dispute complexity.

Payment methods: Local payment methods

Region-specific methods (varies); important for international conversion.

Payment method coverage: Why it matters

More relevant methods = higher conversion in target geographies and segments.

Routing: Definition

Choosing where/how to send a transaction (acquirer, region, method) to optimise approvals, cost, and resilience.

Smart routing: Goals

Max approvals, min cost, reduce fraud, improve uptime, optimise local acceptance.

Local acquiring: Meaning

Processing in-country/region; can reduce cross-border costs and raise approvals.

Multi-PSP strategy: Why

Redundancy, better pricing leverage, regional coverage, and routing optimisation.

Orchestration: Meaning

Layer that manages multiple PSPs/acquirers, routing logic, and unified reporting.

Failover: Meaning

Automatically switching traffic if a provider is down or degraded.

Merchant onboarding: KYB

Know Your Business verification (company, owners, bank account); required for compliance and risk.

Onboarding friction: Key trade-off

Faster onboarding boosts conversion, but weaker checks raise fraud/chargeback risk.

Risk tiering: Meaning

Assigning merchant risk category; affects reserves, limits, monitoring, and pricing.

Reserves/holds: Meaning

Temporarily holding funds to cover disputes/fraud risk; impacts merchant cashflow and satisfaction.

Settlement/payouts: Meaning

PSP schedules payouts to merchant bank account (daily/weekly), net of fees/holds.

Instant payouts: Meaning

Faster access to funds (if offered); can increase risk exposure and cost.

Payout failures: Common causes

Invalid bank details, compliance holds, account verification issues, or sanctions flags.

Fraud: Definition

Unauthorised or deceptive transactions causing losses; includes stolen credentials, account takeover, and merchant fraud.

Fraud tools: Common types

Rules engines, ML scores, device fingerprinting, velocity checks, blocklists, behavioural analytics.

Velocity checks: Meaning

Blocking unusual volume/frequency to prevent bot testing and rapid fraud runs.

False positives: Meaning

Legitimate customers blocked; hurts conversion; needs tuning and monitoring.

Risk scoring: Meaning

Combining signals to decide approve/reject/challenge; balance loss vs conversion.

3DS strategy: Key trade-off

More challenges reduce fraud but can reduce conversion; optimise by segment and risk.

Chargebacks: Definition

Dispute raised through issuer/scheme rules; creates fees and potential loss for merchant.

Friendly fraud: Meaning

Customer disputes legitimate purchase; driven by confusion, delivery issues, poor support, unclear descriptors.

Dispute evidence: Examples

Proof of delivery, authentication proof, customer comms, policy acceptance, service logs.

Chargeback ratio: Why it matters

High ratios can trigger monitoring, higher reserves, termination, and higher costs.

Dispute alerts (pre-dispute): Meaning

Signals before chargeback that may allow refund to prevent escalation.

Refund policy: Why it matters

Clear policies reduce disputes and support tickets; improves trust.

Descriptor: Why it matters

Statement descriptor confusion is a major driver of friendly fraud.

Recurring payments: CIT vs MIT

CIT = customer-initiated; MIT = merchant-initiated (off-session/recurring); must be flagged correctly.

Subscription churn: Payment-related causes

Expired cards, insufficient funds, issuer declines, strong auth friction, and poor dunning flows.

Dunning: Meaning

Retry + communication strategy to recover failed recurring payments.

Smart retries: Meaning

Retry timing that increases success (avoid rapid-fire retries that look suspicious).

Account updater: Meaning

Service that updates replaced/expired card details to reduce subscription failures.

Proration: Meaning

Adjusting subscription charges for plan changes; affects refunds and customer trust.

Marketplace payments: Split payments

One pay-in split across sellers/fees; requires ledgering and payout orchestration.

KYC for sellers

Marketplaces must verify sellers/contractors; impacts onboarding speed and compliance.

Payout timing for sellers

Key marketplace UX driver; reserves/holds can frustrate sellers.

Escrow/held funds

Holding funds until conditions met; reduces risk but adds complexity.

MoR in marketplaces

Who is MoR determines who owns disputes, refunds, taxes, and customer billing responsibility.

Reporting: Reconciliation definition

Matching orders → transactions → fees → payouts; critical for finance and ops.

Reconciliation: Common pain points

Mismatched IDs, delayed files, unclear fee breakdowns, FX rounding, partial refunds, chargebacks timing.

Reporting: Settlement files

Reports showing captures, fees, disputes, and net payout; used by finance for accounting.

Reporting: Real-time dashboards

Operational view of payments success/failure; supports conversion optimisation and incident response.

Data exports: Why they matter

Enterprise merchants need exports/APIs to feed data warehouses and finance systems.

Reference IDs: Why they matter

Consistent IDs across events enable reconciliation and support.

Pricing: Blended pricing

Single rate; easy to understand; less transparent.

Pricing: Interchange++

Pass-through interchange + scheme fees + markup; common for mid-market/enterprise.

Pricing: Tiered pricing

Tiers by transaction type; harder to compare; can hide costs.

Minimums & monthly fees

Some contracts include minimum processing, platform fees, or support fees.

Chargeback fees

Fees per dispute; can be significant operationally.

FX margin

Spread applied on currency conversion; affects global merchants materially.

Pricing objection: “too expensive”

Respond with total value: approvals, conversion, fraud reduction, reporting, payout speed, and support.