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Financial Solutions
02 Jul 2018

Payment service provider as a necessary partner – but which one is the right one?

Complex licensing: PCI standard practically forces online retailers to work with a PSP

Choosing the right payment service provider is a matter I can discuss with my colleagues and our clients for hours on end. In the last few week, I have already shown in my blog article why depending on the industry it can make sense to use a payment service provider who processes a certain payment method at favourable conditions, and now I would like to explain to you why almost all online retailers cannot do without a PSP at all. The reason: regardless of the country and the industry, more and more customers are paying by credit card, which sets every company a few challenges.

This comes as a result of the Payment Card Industry (PCI) Security Standard, which was introduced by the major credit card organisations in order to guarantee the data security of credit card data. In order to receive this certification, retailers have to meet complex requirements, which entail significant technical know-how. The fact that many online giants do not have their own PCI certification and use a PSP for payment processing is in itself an indication of the complexity.

Despite working with a payment service provider, retailers may not save, process or transmit card data. The credit card organisations, however, still require them to provide evidence of conformity with the PCI standard. The PSP will also take this task from the company, as well as communication with an acquirer, with whom retailers have to contract if they want to offer credit payments on their online store. The context: online retailers are obliged to settle payments through a merchant bank for credit cards.

You may ask how the acquirer got its name, and the explanation is quite simple: this merchant bank not only undertakes the settlement of transactions between retailers and banks, but also the acquisition of new contract partners who are willing to accept the above credit card contracts according to the PCI standard. That is in the interest of the customer on the one hand, and therefore also to the benefit of the retailers on the other hand, who profit from the strong network.

It is precisely for this reason that it also makes sense for retailers to use a PSP who has significant expertise on the markets, on which the product is mainly sold. Anyone choosing an international service provider to process card transactions must in the worst case live with low acceptance rates on the core market. The question of the right PSP can also be accompanied by the question of what sales strategy a company wants to follow: Is the product mainly sold on the home market or will it be sold internationally in the medium or long term?

These questions are always exciting for me when meeting clients, because they will often decide on the success or failure of the entire company for my counterpart. How can a PSP with significant expertise in the core market, but who cannot process recurring payments which may be essential for the company, benefit an online retailer? How great will the desperation of a retailer be if they have the best omni-channel solution, but concluded a contract with a PSP who cannot record, execute and monitor the standard means of payment in the stationary outlet and in the online store with the same payment software?

I could write a whole thesis on the subject of payment service providers, but I always send our clients on their way with the following in summary: As an online retailer who has all the standard payment methods at the checkout, you must work with a PSP but you have to be foresighted when choosing the partner. What is the preferred payment method of your customers? What requirements does your product or service entail? What is the strategic alignment of your company?

If you want to find out more about what online retailers should watch out for when choosing a payment service provider, I recommend our new Business Insights Report. Find six tips which will help you in your decision, and learn the essentials about choosing a payment partner from industry experts.

Jan Kalle Wulf

Head of Product Management AfterPay DACH | Arvato Financial Solutions

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