In the world of payment processing, the terms “payment gateway” and “payment processor” are often used interchangeably. There is no doubt that each plays a crucial role in managing online transactions. However, the distinction can be a bit confusing, especially if you’re newly introduced to ecommerce payment solutions.
What is a payment gateway?
Using an online payment gateway, you can collect and verify the credit card details of your customers to conduct a transaction online. In essence, they mimic the functionality of a chip reader on a point-of-sale terminal virtually. Typically, they include a purchasing page where customers can submit their information securely to authorise the transaction.
Depending on the merchant, the payment gateway might be integrated into the website (known as a white-label payment gateway) or customers might be sent to the payment gateway’s website for the transaction, and then sent back to the merchant’s website. A third-party payment gateway facilitates this type of transaction. In general, payment gateways are offered free of charge since the company charges an amount to process payments.
You’ll want to utilise the help of a payment gateway if you’re stepping into the world of e-commerce. Payment gateways are your only pathways for verifying the details of a credit card in a virtual setting and conducting a smooth transaction. If you don’t use them, there is a possibility that you might be scammed by people using fraudulent information or who don’t have much money in their accounts to conduct their purchases.
What is a payment processor?
Upon receiving credit card information from the user, the payment gateway sends it to the payment processor for verification. This device does not process the transaction directly but rather checks the card’s validity, like how a card machine for business checks its chip.
In other words, a payment processor is a communication intermediary. This is the service that sends messages between your business, your customers, and their bank accounts. No matter what type of business you operate, you’ll need a payment processor. Additionally, many payment processors provide point-of-sale systems that help you collect credit card information at your brick-and-mortar store.
It is common for businesses to use payment processors connected directly to their merchant accounts, so they can receive payments directly. It is also possible to use a third-party payment processor that can store payments for a wide variety of businesses. Lower fees and a more streamlined experience are the benefits. Most businesses accepting credit cards, whether they’re online or brick-and-mortar, will need some form of payment processor.
Difference between payment gateway & payment processor?
Definition and function
The payment gateway connects your bank account with the platform where the money needs to be transferred. In short, a payment gateway is an online service for accepting or declining payments between a website and its customer. By verifying all details, the payment gateway allows the payment processor to process the sale. Payment gateway software can be integrated directly into your accounting software or eCommerce store to process credit cards. Payment processors enable you to accept different types of payments without having to set up separate payment integrations.
It is financial institutions that execute the transaction and secure the funds from the customer. For you to receive payment for your sales, a payment processor manages the transfer of funds. To accept credit cards and debit cards in business, they set up a merchant account for the merchant.
How to choose
Since payment gateways can read both the customer and merchant’s data, merchants should consider the safety of the software when choosing one. Since it is software, it can be hacked, and the vendor is responsible for the data of his customers because the payment gateway is integrated into his website. Merchants also consider international payments support, swift integration, pricing, and easy checkout while choosing a payment gateway. The payment processor should have PCI compliance, software compatibility, and fraud prevention. Vendors are not solely responsible for data breaches from the payment processor’s side.
Use
With the help of a payment gateway, you can conduct online transactions using multiple payment methods. They read the details of the customers and verify them to initiate the transaction. Payment gateways carry out the first phase of the transactions. They solely act as an ecommerce payment solution. The payment processor, on the other hand, acts as a link between the cardholder, merchant, acquiring bank, payment gateway, and issuing bank. Therefore, a payment gateway initiates a transaction and gets approval or decline status, while a payment processor coordinates the process by connecting all parties involved and carrying out the rest of the transaction. The payment processor is responsible for securely transferring money from one account to another.
A payment gateway is an online point-of-sale portal to make sure the card is valid while a payment processor is an in-person point-of-sale (POS) terminal to verify the details of the cardholder. A payment gateway acts primarily between a business and a customer, whereas a payment processor acts between a business and the customer’s bank, as well as between the merchant’s bank and the customer’s bank. A payment gateway must work together with a payment processor, but the payment processor can also work on its own.
When To Use
Payment gateways are essential for vendors setting up online stores, collecting payments over the phone without a credit card present, and collecting in-person payments without buying full POS systems. Payment processors are useful for brick-and-mortar businesses that also operate an e-commerce website, for pop-up shops that travel to different venues, and for businesses with a permanent POS system.