What Are The Differences Between Psps And Payment Gateways?

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The demand for integrated, multi-channel payments is increasing in the world of digital commerce.

Payment gateways are becoming the cutting edge of security, functionality, speed, and reliability, with billions of daily transactions. Similarly, payment service providers (PSPs) are becoming indispensable team players for businesses and eCommerce sites when it comes to setting up payment systems and services.

In this article, we will discuss the distinction between a payment gateway and a payment service provider, as well as their respective roles in online transactions.

Payment Gateways: A Definition
An online payment gateway is a service and software that sends credit/debit card information from a website to a payment network. They are similar to Point of Sale (PoS) machines, such as credit/debit card readers at cash registers. Most payment gateways support all payment services, including authorization and refunds.

It acts as a bridge between the merchant, payment processor, and acquiring bank, as well as informing the customer of their purchase status. A payment gateway is in charge of card ...
... payments, transaction encryption, and verification systems.

Many eCommerce merchants rely on payment service providers (PSPs) for payment gateway access.

How does a payment gateway work?
A payment gateway is responsible for establishing a secure channel between a merchant and a customer. The basic steps for demonstrating how a payment gateway works are as follows:
Step 1: The customer enters their selection into the shopping card and proceeds to the checkout, where they enter their debit/credit card information.
Step 2: After the customer confirms the purchase, the sensitive payment information is encrypted and sent to the payment gateway.
Step 3: The payment gateway transmits the encrypted transaction data to the payment processor, which is used by the acquiring bank (the customer's bank).
Step 4: The acquiring bank receives the request and sends an approval or denial message to the payment processor (with reasons, if any).
Step 5: The response is forwarded to the merchant's website by the payment gateway. The entire process takes about 2-3 seconds.

Benefits of a Payment Gateway
Payment gateways facilitate eCommerce transactions. Here are some of their advantages:
* Secure transactions using industry-standard encryption
* Safeguards sensitive data, such as credit card numbers
* Faster transaction processing
* Expands customer base for merchants through easy checkouts
* 24/7 availability for online purchases
* Access to fraud management

Payment Service Providers: A Definition
PSPs, or best online payment gateway service providers, are third-party companies that assist businesses in accepting a wide range of online payment methods, including credit cards, debit cards, e-wallets, and online banking. PSPs ensure the security of the transactions.

They are an essential component of the payment ecosystem, which links merchants, consumers, financial institutions, and payment networks. PSPs provide merchants and their customers with gateway functionality.
How does a PSP work?

To understand how a payment service provider works, you must first understand the basic components of an online transaction. These are some examples:

Cardholder: A customer who purchases a product or service through a merchant's website.

Card networks: Fund transfer facilitators between customers, merchants, and banks. They help with payment authorization.
Merchant: A merchant is a person or company who sells goods and services.
Payment service provider: Payment service providers (PSPs) contact the relevant card networks and banks on the merchant's behalf.
Payment service providers follow the steps below:

Step 1: A customer initiates payment by purchasing goods or services from a merchant site.
Step 2: After that, the payment gateway sends the transaction details to the PSP.
Step 3: On behalf of the merchant, the payment service provider detects and connects to the relevant card network.
Step 4: The card network validates the issuer (customer) and assigns them a transaction account.
Step 5: The issuing bank confirms the transaction's legitimacy and responds to the network with approval or refusal.
Step 6: The card network sends the approval/refusal message to the PSP.
Step 7: The payment processor sends the message to the merchant via the payment service provider. The merchant is then given funds.

Advantages of Payment Service Providers
The high demand for value-added payment service providers demonstrates their ability to secure eCommerce partners and payments. PSPs provide the following advantages:

Integration and processing costs will be reduced
Acceptance of various payment methods and currencies
Payment processing security and safety

What are the differences between PSPs and payment gateways?
A payment service provider is a financial institution that facilitates online payments. It connects merchants to card networks and payment processors in order to process payments. A payment service provider (PSP) offers a merchant account as well as a payment gateway for payment collection and management.

A payment gateway, on the other hand, is the software that facilitates credit card transactions between a merchant and their customers. The payment gateway connects to the payment service provider to process the transaction after the payment information is entered on the merchant's website.

A payment gateway is typically used by businesses with a high volume of sales, whereas small and medium-sized businesses prefer to use a full-service payment service provider to simplify their payment needs.