PSPs Through a Bank’s Lens

Learning Adviser

xUnlocked Learning Team

PSPs and fintechs are changing how banks move money, serve clients and build payment propositions. This video explores the opportunities they create through innovation, open banking, embedded finance and FI relationships, while highlighting the risks banks must manage around safeguarding, fraud, financial crime, cyber security, operational resilience and third-party dependency.

Fintech

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PSPs Through a Bank’s Lens

5 mins

Key learning objectives:

Understand how PSPs and fintechs operate within the payments ecosystem
Identify the main commercial opportunities PSPs create for banks and Financial Institutions teams
Outline the key risks banks need to manage when banking, partnering with or relying on PSPs

Overview:

Payment Service Providers are reshaping how money moves through the financial system. For banks, they can be clients, partners, suppliers, competitors or users of payment infrastructure. They create opportunities through faster innovation, open banking, embedded finance, merchant services, clearing, settlement, FX and transaction banking. But they also introduce risks around safeguarding, fraud, financial crime, cyber security, operational resilience, conduct, reputation and third-party dependency. The challenge is serving and working with PSPs safely.

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Summary

Why do PSPs matter to banks?

Payment Service Providers help customers, merchants, businesses and financial institutions make, receive, process or initiate payments. For banks, they matter because they sit close to the movement of money and may act as clients, partners, suppliers, competitors or users of bank payment infrastructure.

This means banks need to understand how PSPs interact with accounts, clearing, settlement, FX, liquidity, payment systems and transaction banking services.

What opportunities do they create?

PSPs can help banks innovate faster, improve payment experiences, support merchants and SMEs, and reach customers through new digital channels. Open banking and account-to-account payments create alternatives to traditional card-based models, while embedded finance allows banks to provide regulated infrastructure behind non-bank customer journeys.

For Financial Institutions teams, PSPs can also be valuable clients, requiring accounts, clearing access, settlement, cross-border payments, FX, liquidity support and transaction banking.

What risks need managing?

The main risks include operational resilience, third-party dependency, safeguarding, fraud, financial crime, cyber and data risk, conduct risk and reputational risk.

Because PSPs move money quickly and at scale, banks need to understand their business model, customer base, transaction patterns, payment corridors and control environment. Where PSPs hold customer funds, safeguarding is especially important.

How should banks respond?

Banks should assess PSPs before banking, partnering with or relying on them. Due diligence should cover permissions, governance, financial strength, safeguarding, financial crime controls, fraud controls, cyber security, operational resilience, data protection, subcontractors and exit options.

After onboarding, banks should continue monitoring incidents, outages, fraud levels, complaints, reconciliation issues, regulatory concerns, financial condition and changes in the PSP’s business model.

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