April 23rd, 2024 • Payments by Marketing Skaleet

PSP: What solutions do you need to manage the full spectrum of payments? 🎯

Payment Service Providers (PSPs) are in a state of flux! They need to expand their offerings beyond their core functions to meet increasingly demanding financial challenges. This evolution is essential to differentiate themselves, satisfy their customers, and manage the full spectrum of payments. We provide insight into the evolution of their capabilities and the critical role of core banking in this equation. 

What is a PSP, and what is its role?

The main role of a payment service provider is to help businesses accept payments, whether online on an e-commerce site or at a point of sale (PoS). They offer a variety of payment methods and ensure that funds pass through correctly and are returned to the merchant's customer in accordance with regulatory requirements.

The Payment Cycle

There are two stages to the payment cycle:

  1. The authorization cycle (processing and acquisition): the PSP retrieves the information, transmits it to the scheme, and then to the acquirer to verify that the necessary funds are available. The communication then flows in the opposite direction, and the payment is either authorized or not.
  1. The funds processing cycle: Funds flow from the bank to the PSP. Each collects the funds and commissions necessary for the PSP to transfer to its customer.

Today, PSPs go far beyond this, and their usefulness extends far beyond this. They want to enable their customers to take the entire payment cycle off their shoulders. As a result, the product suite has evolved to reflect a new reality: today's PSPs must be able to provide all the building blocks required for a smooth payment process in an integrated environment. This evolution is more critical as it takes place in a highly technical environment with numerous standards and regulatory constraints.

Fighting Fraud and Streamlining Payments

During onboarding, the KYC/KYB (know your customer/know your business) process refers to the obligation merchants are subject to when registering on a platform. It aims to verify their identity to assess their risk. This involves collecting documents such as identification and proof of address. This measure is part of the fight against financial fraud, terrorist financing, and money laundering.

In addition to verifying identity, PSPs are also involved in ensuring that transactions are not suspicious. For example, the 2nd Payment Services Directive introduced robust authentication criteria and methods to secure payments. As a result, they strictly follow these standards to detect suspicious behavior. Conversely, if the PSP has the correct information (thanks to an explicit and legitimate transaction history on a user), the transaction is smoothed out, for example, by validating the payment with a single click.

Other technical issues handled by the PSP may also relate to payment lifecycle security, such as the use of Token Provider Services (TPS) or tokenization to protect and anonymize PANs.

Payment Orchestration

During the acceptance phase, the PSP needs to determine the routing destination of the transaction for various reasons:

- A partner failure: the transaction must be routed to another partner who can manage the authorization and release of funds.

- The cost: all PSPs and acquirers take commissions on transactions. For example, if a customer pays €100 for a purchase, the merchant only receives €97, and the remaining €3 is split between two models:

  • Regulatory split: already defined and automatic.
  • Deal breakdown: Depending on the acquirer and PSP, offers and commissions may differ. With high payment volumes, these few cents can have a significant impact on processing costs.
    It's important to route transactions intelligently to save money!

After the pay-in phase, the PSP triggers the pay-out to make these funds available to the merchant's customers (after 24 hours or 7 days) so they can collect the money that belongs to them.

APIs for complete expert management

APIs are gateways that facilitate interaction between two IT systems. It's an out-of-the-box technology that is revolutionizing the financial sector by providing access to a catalog of partners that step in to perform innovative or key functions: onboarding, KYC/KYB, third-party and transaction filtering, general ledger, and so on.

Core Banking provides the technology to facilitate the integration of appropriate partners and allows flexible connection to new services, enabling complete management of the payment lifecycle.

An API-driven architecture provides unprecedented building power! Because it is scalable, the latest generation of Core Banking coordinates the various functional building blocks, allowing companies to test, add, and modify components as needed to create their own ecosystem.

Skaleet, Core Banking to run them all

Thanks to its API-first structure, Skaleet provides the capabilities to launch innovative new services in response to the precise needs of customers. The platform manages the technology while financial institutions focus on their value proposition: developing differentiating offerings or creating a fluid, customized customer experience.

Skaleet Core Banking takes a best-of-breed approach. It identifies the best solution for each need, developed by an expert partner.

To ensure that transactions run smoothly, Core Banking meets the challenges of payment orchestration involving multiple partners (multiple PSPs and acquirers). Core Banking can retrieve all transaction files from the different partners, centralize them, and facilitate reconciliation at different levels: by customer, transaction, or commission. Skaleet is the only core banking system in Europe capable of automated reconciliation. By merchant, the platform can collect its associated transactions to provide unique visibility and take analysis to the next level.

Skaleet offers complete payment orchestration, streamlining inbound and outbound payment processes. Want to learn more about our solution? Please contact us.

  • #innovation

  • #fintech

  • #banking

  • #corebanking