Payment Service Provider (PSP)
A payment service provider, or PSP, is a firm that moves payments for merchants or consumers. In UK and EU payment services law it is also a defined umbrella term covering several kinds of regulated provider, and Canada defines it separately again under the Retail Payment Activities Act.
Also called: payment services provider
Payment service provider is used in two ways, and the gap between them is expensive.
Commercially, a PSP is any firm that helps a business take money in or send money out: a gateway, an acquiring relationship, a wallet, a disbursement service, or several of these under one contract. Used that way it describes a business model rather than a permission, and tells a counterparty nothing about what the firm may hold or move.
Where the term has legal content
In the United Kingdom and the European Union, payment services law uses payment service provider as an umbrella covering several authorized statuses, including banks, electronic money institutions and payment institutions. A payment institution is therefore a PSP, while a PSP is not necessarily a payment institution. In Canada, the Retail Payment Activities Act makes payment service provider a supervised category in its own right, tied to performing retail payment activities and centred on registration with and oversight by the Bank of Canada. In the United States there is no federal PSP status; what governs a firm there is state money transmitter licensing, federal money services business registration, or an exemption that fits what it actually does.
The practical test does not change with the jurisdiction. Ask which legal entity holds the funds, which regulator authorized or registered it, and what that authorization actually permits. A firm describing itself as a PSP has answered none of those three.
In practice
PSP is not a synonym for payment institution: a payment institution is one specific authorized status, and PSP is the wider category containing it. In the United States PSP is generally a commercial description rather than a standalone federal licensing category, so the label alone tells you nothing about what a firm is permitted to do.
Example
Two firms both call themselves PSPs. One is a UK payment institution authorized by the Financial Conduct Authority, holding customer money in safeguarded accounts. The other is a US software company that routes card transactions to an acquirer and never touches the funds. Same three letters, entirely different risk to a business choosing between them.
Commonly confused with
| Term | How it differs |
|---|---|
| Payment institution | A payment institution is one authorized status under UK and EU payment services law; PSP is the wider category that contains it. |
| Payment processor | A processor performs the technical handling of transactions; a PSP holds the commercial relationship with the merchant or consumer and may also hold their money. |
See also
- Payment InstitutionA payment institution is a firm authorized in the United Kingdom or a European Union member state to provide payment services — transfers, acquiring, remittance, payment initiation — but not to issue electronic money. It may hold customer funds in payment accounts used only for payment transactions; those funds are neither deposits nor e-money.
- Payment ProcessorA payment processor carries out the technical steps of a transaction — authorization, capture, clearing and settlement instructions — for a merchant, an acquirer or an issuer. It generally handles the transaction rather than taking ownership of the money.
- Retail Payment Activities ActThe Retail Payment Activities Act is Canada’s framework requiring payment service providers to register with the Bank of Canada and meet operational risk and end-user fund requirements. RPAA registration is separate from, and additional to, FINTRAC registration as a money services business.
- Electronic Money InstitutionA firm authorized in the United Kingdom or in an EU member state to issue electronic money and to provide payment services. The e-money it issues is a claim its holders have against the institution, redeemable at par and expressly not a deposit, which is why the funds behind it must be safeguarded.
- Payment FacilitatorA payment facilitator, or PayFac, holds one master merchant account with an acquirer and onboards sub-merchants beneath it. Those sub-merchants transact under the facilitator’s account instead of each contracting with an acquirer, and the facilitator underwrites and settles them.