Online Payment Gateway Vs. Payment Processor: What Is The Difference?

By Author: sifip
Total Articles: 686
Comment this article

The online payment gateway and the payment processor are two critical links in the payment processing chain. You've probably heard these terms and wondered what they meant as a business owner.

Let's begin here: In every credit card transaction, four parties are involved:

1. The merchant
2. The customer
3. The bank that issued the customer's credit or debit card.
4. The acquiring bank is the bank that receives funds from the issuing bank.

Payment processors and payment gateways play different roles, but both are essential in accepting credit card payments.

What is a payment processor?
A payment processor completes the transaction by sending data between you, the merchant, the issuing bank (the bank that issued your customer's credit card), and the acquiring bank (i.e., your bank). In most cases, the payment processor will also provide the credit card machines and other equipment you need to accept credit card payments. Set up a merchant account with a merchant service provider to accept credit cards at your business.

What is a payment gateway?
A payment gateway ...
... is a tool that securely transmits online payment data to the processor to continue the transaction's lifecycle. It also authorises card-not-present transactions, primarily for eCommerce websites. Consider it an online point-of-sale terminal for your company.
The difference is that a payment processor facilitates the transaction, whereas a payment gateway is a tool that communicates transaction approval or decline between you and your customers.

What’s the difference between a payment gateway and payment processor?
To put it into perspective, the primary distinctions between a payment gateway and a payment processor are as follows:

Payment Gateway
The technology that encrypts and transmits payment details from the point of entry to the payment processor is known as a payment gateway. It also communicates the merchant's or customer's approval or denial.

Payment gateways are most commonly associated with eCommerce transactions, but they can also be used to accept payments via a credit card reader, POS system, or software integration.

Payment Processor
A payment processor is in charge of transmitting transaction information to and from the customer's issuing bank and the merchant's acquiring bank.

Payment processors are required for all card-based transactions, whether they occur online, in-person, or via a mobile app.

Payment gateway vs. payment processor: Which do I need?
The most common application of a gateway is to accept payments for goods and services online; however, in today's payments landscape, gateway technology has evolved to provide a unified purchasing experience across all sales channels and devices. A gateway can also be used to integrate payments with your accounting or CRM software, or to process transactions at a point-of-sale system or on a mobile device, in addition to eCommerce transactions.

The best online payment gateway is not available with all merchant account providers. Some providers use a third-party payment gateway, which can be inconvenient if there is a dispute. When you have a problem, who should you contact?

It may be best to go with a single provider for both a merchant account and a payment gateway. Using a payment gateway to securely process integrated payments can reduce errors, accelerate transaction processing, and make reconciliation easier.

If you don't want to invest in credit card readers or don't have an eCommerce website, you can process transactions using a virtual terminal as long as you have an Internet or data connection.