There are multiple links in the payment processing chain. Two major ones are payment gateways and payment processors. If you run a business, you have most likely heard these terms when handling payments. Though they may seem similar – and they do share a similarity in that they are both directly related to the processing of payments – payment gateways and payment processors perform very different functions.
So, the real question is: What is the difference between them?
This article is intended to provide an overview of payment gateways and payment processors, defining the two terms and comparing their role in the transaction processing chain.
What is a payment gateway?
As the name states, a payment gateway is a virtual “gate” that a transaction must go through before continuing the payment process. A payment gateway is a transaction service that enables credit card and debit card payments for different businesses, online retailers, and service providers. An online business needs to have a payment gateway in place to accept credit card payments, amongst other alternative payment methods that their customers might prefer.
There are various kinds of gateways and picking the right one can be challenging, so we’ve compiled a list of recommendations on how to choose the best one for your business here. It’s worth bearing in mind that brand recognition isn’t everything when choosing a payment gateway provider. We highly recommend that any merchant seeking a trustworthy payment gateway ensures that it complies with PCI DSS.
From the customer's perspective, the payment gateway is the final checkout page on your website, i.e. the page where they put in their payment information, such as card number, etc. and click the “buy now” button. In the background, behind the scenes, the payment gateway software transfers transaction data by forging a link between your website and the acquiring bank or acquiring financial institution.
Along the way, the payment gateway encrypts the payment data, so that all sensitive transaction information is secure and protected. The payment gateway is also a barrier against fraudsters. Within it lies a sophisticated security system, anti-fraud filters, and automatic rules based on artificial intelligence, amongst other security measures to ensure safety and privacy. The gate sends the transaction data and receives the information needed to validate the payment, checking, for instance, if the payment information is correct, if the customer has sufficient funds, etc. The payment gateway approves or declines customer transactions, sending its decision back to your website.
Payment gateways are necessary for making any kind of payment transactions. There are many payment gateway providers, so how do you pick the right one? There isn’t a one-size-fits-all solution, read more about it in this article.
What is a payment processor?
When an online purchase is made, the payment gateway transfers the transaction data and approves or declines the payment. However, it does not deal with the processing of the payment itself. That is where the payment processor comes in. It is a mediator between the cardholder, merchant, acquiring bank, the payment gateway, and the issuing bank. A payment processor is a company or financial institution chosen by a merchant to process online payments, such as credit and debit card payments (Visa, Mastercard, American Express, etc.) or payments made by alternative payment methods (Alipay, WeChat, etc.).
Beyond simply connecting payment systems and holding the appropriate license, payment processors, or payment service providers, as they’re also known, offer their own proprietary software product. This software is integrated into the client’s site to process, archive, and analyse the merchant’s transactions. The processor handles the entire payment process, along with card processing, alternative payment processing, merchant processing, and more.
Some processors, like ECOMMPAY, are direct acquirers and hold Visa/Mastercard Principal Member status, which enables them to process credit and debit card transactions on behalf of card issuers. Thanks to direct acquirers, online payment services for businesses accepting transactions from different payment systems all over the globe have become safer and more convenient.
Almost every business experiences some challenges to accepting payments online. That’s why partnering with the right payment processor is crucial to your business success. Choosing the right one among the various payment processing companies on the market is not only about facilitating a great customer experience, but also about increasing your conversion through an enhanced and effortless payment gateway.
And so, what’s the real difference between a payment gateway and a payment processor?
In short, the distinction is that a payment gateway is a tool/service that approves or declines transactions between your website and your customers, and a payment processor executes the transaction. If you’re wondering where to begin and how to choose the best solution for your business, you’ve come to the right place. ECOMMPAY makes it easy, so that you can focus on the things that are important to you. ECOMMPAY functions as a direct card acquirer, payment processor, and payment service provider. Our gateway facilitates an omnichannel transaction process with access to a range of payment systems, as well as enhanced security measures and comprehensive risk management through a single, unified integration. Avoid excess integration fees and the operational costs associated with processing locally or across borders. We offer the optimal solution to keep costs low, reduce time to market, and increase payment success rates.