Differences Between Payment Processors and Payment Gateways

Payment Processors

As the world continues to become a digital marketplace, finding the right payment service provider can evolve into one of the most complex decisions. With eCommerce as the overwhelming choice for purchasing products and services, merchants and consumers are moving away from cash and toward digital transactions. The rate of cash payments has drastically decreased over time, with cashless payment options being the go-to choice for shoppers across the globe.

Growing trends in online shopping require a shift in how buyers pay for goods, so online business owners need to adapt to payment processors.

Basic Payment Terminology

High-risk merchant accounts are payment handling accounts for firms considered high risk by payment processors due to chargebacks or fraud.

Payment processors are programs that send transaction information from a merchant to the acquiring bank.

A Payment Gateway is equivalent to the point of sale system for online transactions. It encrypts and transmits information to the payment processor, allowing you to accept payments from anyone anywhere in the world.

What Is a Payment Processor?

A payment processor can be defined as a third party that helps you process payments from your customers. It can also be called a payment service provider(PSP). The payment service providers will help you minimize the time and effort involved in processing fees from your customers to focus on other core business objectives.

There are numerous diverse payment service providers, but each has proprietary software. Proprietary is the software used to store, analyze, and process transactions on behalf of the merchant. Some PSPs offer only payment gateway services; others have added features such as a breadth of security and reporting features and online checkout interfaces.

What Is a Payment Gateway?

A payment gateway securely delivers transaction data to a payment processor to ensure the transaction runs smoothly. The payment begins when the gateway approves a transaction between your business and a customer. It essentially functions as a digital point of sale, making it great for credit or debit card transactions that do not require tangible cards.

The best payment gateways offer tools that help you manage your customers, increase sales and grow your business. They also give you access to features like fraud detection and PCI compliance.

What Are the Similarities?

Payment Gateways and Payment processors work closely together to make transactions easier. Both services encrypt the transaction details sent out whether you are using a payment processor or a payment gateway. With Payment processors and a POS terminal, the data is encrypted by the POS terminal reading the chip in your credit or debit card. With a gateway, your customers enter their credit card information online or over the phone.

What Are the Differences?

Payment processors and payment gateways are both types of solutions that work together to offer payment services to merchants. A payment processor is a corporation that offers a service for processing credit cards and other electronic payments for businesses. These companies typically make money by charging fees for every transaction, but they can also provide different services like fraud detection or settlement.

A payment gateway is a cyber service that accepts customer card payments and transmits the transaction information for processing. You are not required to set recurring charges or install any additional software on your site. You must hyperlink your site to the payment processor’s system.

Payment processors are available in retail and eCommerce transactions, while payment gateways are primarily used in eCommerce transactions.

Can They Be Used Together?

You cannot have one without the other. Two types of payment processors and gateways are necessary for online transactions to go through, and your business will require both to process online payments.

A gateway is the beginning and end of the transaction. It is where your customers enter their credit card information and receive an approval or denial of the transaction. The gateway is a tollbooth that lets you collect their payment information before processing it at the processor level. High-risk merchant accounts require you to have both systems to ensure you have a theft-proof system.

The processor is what moves the information between banks and processes transactions for you. Every transaction processed online needs a processor for it to go through successfully. It is impossible only to have a gateway or a processor, as the transactions will not be seamless. Choose the platform with the most flexibility and customization options to grow your business.

Conclusion

In today’s e-commerce world, gateways have created a seamless buying experience across all sales channels and devices. The gateway deals directly with potential customers and authenticates them before allowing them to enter their sensitive data to process payments.

With today’s growing online population, the threat of cybercrime continues to grow. Protecting your company from this growing threat is vital as a business owner.