What Is the Difference Between A Payment Gateway and A Payment Processor?

Adnan Umar
5 min readDec 9, 2022

Payment gateways and payment service providers (also known as payment processors) collaborate to handle transactions, although they are not synonymous. Payment gateways gather a customer’s personal information and securely transmit it to a payment service provider. The payment services provider then permits communication between the merchant’s bank account and the customer’s bank account, executes the transaction, and notifies the merchant’s bank account that the payment was successful.

Consumers like having a variety of payment alternatives available, and that is evident. Flexibility is essential to ensuring a positive purchasing experience for your consumers, whether they want to pay with a credit or debit card, a mobile wallet, or a contactless payment method.

When searching for a payment service provider, it’s likely that you, as an eCommerce merchant, have run into the terms payment gateway and payment processor.

In 2019, 23% of transactions were made using credit cards, which is 2% greater than in 2017. This number is probably going to keep rising, which emphasizes the necessity of a strong credit card processing infrastructure for your company. You may also come across the option of payment gateways when you look into your options for credit card processing.

What is a Payment Processor?

Between a merchant’s bank account and a customer’s bank account, payment processors serve as a middleman. At least five parties are involved in an online payment: the customer, the merchant, the merchant’s bank, and the payment processor, which facilitates communication between the parties.

For example, accepting credit cards necessitates that business owners work with a third-party credit card processor. When a consumer submits a payment, the payment processor notifies the credit card network and the customer’s bank of the transaction.

The payment processor will notify the merchant’s bank after the customer’s bank approves (or rejects) the transaction, either depositing funds into the merchant’s bank account or notifying the bank, merchant, and customer of a declined transaction.

What is a Payment Gateway?

The virtual version of a point of sale (POS) terminal, or the credit card readers you often see at the register, is a payment gateway. Online payment gateways enable card-not-present (CNP) transactions, in which the buyer and seller do not physically interact. POS terminals are built for in-person transactions. On the website, in a hosted checkout form, or on a mobile app, the credit card information is submitted. This explains the necessity of payment gateways for eCommerce websites.

What is the main distinction between a payment processor and a payment gateway?

Payment gateways capture and deliver credit card data to the payment processor, which is the primary distinction. They also inform you and your client of approvals or rejections.

Payment processors operate behind the scenes, securely transmitting data across all parties until monies are settled in your bank account.

What is the Key Difference?

The information on payment gateways and processors above contains a lot of potentially perplexing verbiage that may obscure what is, in reality, a quite obvious distinction between the two. Using the information that a payment gateway collects, payment processors connect customers, retailers, and banks. The acceptance or rejection of transactions is another decision made by payment gateways.

Based on the types of sales you make and the level of data encryption required, payment gateways and processors also differ from one another. You may use these distinctions to determine whether you require a payment processor, a payment gateway, or both.

Advantages of Using Payment Gateways

Business owners may choose from a variety of quick and secure payment ways by using payment gateway technology.

Security

Together, payment processors and payment gateways make it possible to handle online payments securely. The majority of payment gateway technologies transfer personal data to payment processors using SSL encryption. Your client’s financial information is protected from a potential data breach by this data encryption.

Efficiency

Payment gateways are a useful tool for taking credit card payments since they enable card-not-present transactions and permit in-person and online purchases. They can also automate the recording of sales data in your current accounting software, saving you and your accounting staff time.

Payment Options

Payment gateways allow for card-not-present transactions, accept a variety of payment options, and support different kinds of credit cards. Having a range of payment alternatives available can improve customer satisfaction and lower your cart abandonment rate.

Advantages of Using Payment Processors

Theoretically, not every transaction needs a middleman. Take cash payments as an illustration: your client delivers you $5, you give her a bag of quality fish food, and you part ways.

To be able to take credit card payments, the majority of business owners decide to work with a third-party payment processor. The majority of payment processors enable companies to accept various payment options, including internet payments, and aid in accelerating transactions into their accounts.

Similarities

The transaction information that is sent out is encrypted whether you use a payment gateway or a payment processor.

When a payment processor and POS terminal are used, the POS terminal reads the EMV chip on the credit and debit card to encrypt the transaction data (whether you swipe, tap, or dip).
A payment gateway creates a secure link over which the credit card and transaction information are sent.

Whichever service provider you choose, both should encrypt the data of your clients.
You don’t need a payment processor and a payment gateway if your company only accepts checks, cash, wire transfers, and in-person credit card payments; nevertheless, you’ll lose out on sales from clients who prefer alternative payment methods (like credit cards).

Choose a source of payment systems that offer open pricing structures and contracts that specify exactly what is covered by the monthly or yearly plan, so you won’t be taken by surprise when you receive your bill. Chargeback fees, monthly bill processing fees, and other hidden costs are extremely frequent with some carriers.

If you’re interested in how we can help you grow your eCommerce business, Contact Us Today.

Read More

--

--