Third-Party Service Provider (TPSP)

A TPSP for digital payments is a company that facilitates online transactions between businesses and their customers. They access customer accounts and conduct transactions on behalf of companies, enabling them to accept payments without directly handling financial transactions or needing to obtain merchant accounts.

This ability to handle the complexities of payment processing streamlines online transactions, enhances the customer experience, and reduces operational costs. Empowered by this, businesses can focus on their core operations.

The essential role these intermediaries play in the online payment process is underscored by the different types of TPSP that support this ecosystem, including:

Payment Processor

Payment processors enable merchants to accept electronic payment transactions – including credit and debit card payments, direct debits, bank transfers, and real-time bank transfers – by connecting them to the broader financial infrastructure.

Payment Gateways

These technology platforms securely transmit payment information between a customer, a business, and a payment processor. This ability to bridge the gap between the relevant parties enables businesses to accept and process payments from customers efficiently and securely.

Merchant Acquirers

Also referred to as an acquiring bank, a merchant acquirer is a financial institution partners with businesses to process credit and debit card transactions. In their role as intermediaries between businesses, payment processors, and issuing banks, they ensure online payments are authorized, processed, and settled securely.

Customer Experience

TPSPs enhance the customer experience by empowering businesses to deliver a raft of enriching payment services, including personalized financial insights, real-time payments, innovative reconciliation services, customized checkout experience, and multiple currencies and payment methods. This ability to elevate the payment process increases customer engagement and loyalty.

Security and Compliance

Robust security protocols and fraud detection mechanisms – including authentication, encryption, tokenization, and monitoring for unauthorized script execution – facilitate the secure transmission and storage of sensitive customer data.

It’s the responsibility of TPSPs to ensure their systems and processes comply with industry standards and regulations, such as the Payment Card Industry Data Security Standard (PCI DSS). In doing so, they reduce a business’s regulatory burden.

Scalability

TPSPs help businesses grow by handling increased transaction volumes and compliance requirements effortlessly without investment in additional resources. Their flexibility also allows companies to adapt to market changes expeditiously, integrating new financial tools as required.

Cost

TPSPs enable businesses to eliminate the high fees typically associated with traditional card networks and merchant accounts, such as setup, monthly, and annual fees. For example, automation reduces the operational costs generated by manual or dated financial processes.

Competitive Advantage

By leveraging TPSPs, businesses can reduce risk, enhance customer satisfaction, accelerate growth, and stay agile in a competitive marketplace. For example, empowered by this agility, businesses can roll out new products and services expeditiously, helping them stay ahead of competitors.

As the payments landscape rapidly evolves, shaped by technological advancements, regulatory shifts, and changing consumer expectations, it requires an ecosystem of TPSPs that can evolve with it. 

Built on a foundation of innovation, these service providers are well-placed to embrace the tools, systems, and processes needed to move with the times. For example, automation and artificial intelligence (AI) have the power to enhance efficiency and accuracy, enabling TPSPs to handle tasks faster and more effectively.