Payment Service Provider Agreement

A payment service provider agreement, or PSP agreement, is the contract under which a payment service provider lets a business accept cards, digital wallets, bank transfers and other methods through the provider's platform. The PSP supplies the technical connection, holds or arranges the relationships with acquirers and payment schemes, collects the funds and pays them out to the business, less its fees. Online sellers, marketplaces and software platforms commonly sign one instead of, or alongside, a direct acquiring contract.

The main difference from a merchant acquiring agreement is the position of the business. Under many PSP models, including the payment facilitator model, the business is a sub-merchant of the PSP, which is the acquirer's direct customer and is responsible to it for the business's transactions. The agreement therefore passes scheme and acquirer obligations down to the business.

Imagine a market hall where the owner has one contract with the electricity company and then rents stalls to traders, each with a socket on the wall. The traders never deal with the electricity company. They sign a stall agreement with the hall owner, who passes on some of the power company's rules and charges a fee for the convenience.

A PSP agreement is that stall agreement for payments. The PSP has the big contracts with banks and card schemes and plugs many businesses into them. Each business signs one simpler contract with the PSP, which sets the price, explains when the money arrives and lists the rules the business must follow to keep using the service.

• Scope of services. The payment methods, currencies and countries included, from card acceptance to alternative payment methods, plus any extras such as fraud tools, tokenisation or payouts to third parties.
• Fees. A blended rate per transaction is common for smaller businesses, while larger ones negotiate pass-through pricing; the schedule also lists refund, chargeback, currency conversion and payout fees.
• Settlement and payouts. The payout schedule, minimum amounts, the account funds go to, and the PSP's right to hold or offset funds.
• Reserves and limits. Processing caps, rolling or fixed reserves and the conditions under which they can change.
• Chargebacks and losses. The business usually bears every chargeback, refund and fine linked to its sales, and indemnifies the PSP.
• Service levels and integration. API terms, uptime commitments set out in a service level agreement, support hours and change notice.

The PSP must know who it is processing for, so the agreement requires accurate information for Know Your Business checks and prompt notice of changes in ownership, products or websites. It contains a list of prohibited and restricted businesses drawn from the acquirer's and schemes' rules and the PSP's own risk appetite. Processing payments for a business other than the one approved is forbidden, because it can amount to transaction laundering. Scheme rules generally require a sub-merchant whose card volume exceeds a set annual threshold to sign a direct agreement with the acquirer as well.

In the European Union and the United Kingdom, a PSP that holds client money is usually a licensed payment institution or electronic money institution. Its agreement is a framework contract under payment services law, and the funds it collects for merchants must be protected through safeguarding. In the United States, payment facilitators operate under the sponsorship of an acquiring bank, and whether a PSP needs money transmitter licences can depend on how the flow of funds is structured, including whether it can rely on an agent of the payee exemption. Data protection law, such as the GDPR, shapes the clauses on who controls customer data.

Businesses comparing PSP agreements tend to focus on total cost rather than headline rates, the reserve and termination clauses, the PSP's right to freeze funds, how quickly payouts arrive and how easily they can move card tokens to another provider if they leave. Larger merchants often use several PSPs through payment orchestration to reduce dependence on one contract. Marketplace payments raise extra issues, such as split payouts to sellers and which party acts as merchant of record.

Exit terms deserve as much attention as entry terms. Many PSP agreements renew automatically, allow the provider to change fees on notice, and let it end the relationship quickly if risk rises, while the business may face a notice period or early termination charges. After termination, the PSP typically keeps a reserve for several months to cover late refunds and disputes, so the business should plan for that cash being unavailable during a switch.