Payment Gateway vs Payment Processor

Businesses have to always find a way how to keep afloat and succeed. With increasing competitors around them and the growing customer base, they consistently struggle to provide the best service. While some are using intelligent strategies to deal with them, others find themselves trapped in such situations with no room for escape.

That is why automated methods come in handy to provide businesses with the smart assistance they are looking for. These automated systems are quick, easy to use, and are also highly useful. One such speedy automated system is called a payment gateway. However, there is a lot of chaos regarding which is better – a payment gateway or a payment processor.

This article will help you find out the difference between payment gateways and payment processors.

What Is a Payment Gateway?

A payment gateway is responsible for collecting and transferring payment information. This may be done from a specific client to a merchant acquirer. Once that occurs, it will help us to analyse whether a specific payment has been accepted or declined. It can give us a hint of whether or not to move into the next step of processing the payment. If the payment is declined, it will come back to the customer. So, whenever you attempt to get over a purchase, you will come across a payment gateway urgently.

Another thing that we must understand is that the payment gateway is the mid-point between the customer and the merchant. What it does is that it collects and ensures the payment information of the client. They are also responsible for communicating with the bank that helps them make sure that the funds are available. Once that is done, they help transfer the payment to the processor and the acquiring bank.

A Step-By-Step Guide on How They Work

#1 The client provides their payment details on the checkout page.

#2 The payment getaway obtains the details and transfers them to the merchant acquirer.

#3 Then, the acquiring bank implements a payment processor that helps customers receive a payment request with either approval or denial of the transaction.

#4 When the transaction is accepted, the payment gateway helps provide the notification to the customer. As such, the sale gets finalised.

What Is a Payment Processor?

Whenever payment card transactions occur, payment processors start to function in the background. Their primary goal is to transfer sensitive customer information in numerous ways. Let us take a look at these diverse techniques as we read.

#1 The payment getaway offers encrypted client information to the payment processor.

#2 Then, the payment processor transfers the client information to the bank account of the merchant.

#3 Once that is done, the merchant bank account requests the client’s card issuing bank. This comes in handy to verify the customer’s identity and validate the transaction.

#4 The client’s card issuing bank either provides a rejection or an approval message to the payment processor. This is then directed back to the payment gateway.

#5 It provides a notification to the customer about the approval of the transaction.

#6 When the transaction is approved, the client can satisfactorily go with the checkout process. As such, the transaction is finalised.

As soon as the transaction is final, the processor transfers the details to the card-issuing bank regarding the fund transfer to the merchant account. That is why every merchant should have an account that can help accept both credit and debit cards respectively.

How to Choose a Payment Gateway vs Payment Processor Provider?

When scouting for a payment gateway or a payment processor provider, it is significant to comprehensively consider the features and options. Here’s what else to look at:

1. Strong Security

Any business that wants to function online needs to focus on creating a strong security system for survival. That is why when you are looking for a potential provider, make sure they are PCI compliant. This helps prevent customer data from any unsafe behavior but also helps keep payment gateway credentials safe.

2. Fraud Detection

Today, several payment gateways provide fraud detection as a significant feature. This helps determine the transactions and actively eliminate any fraud. If you want to stop this, it is best to look for providers who scout for identity and safeguard your system against any fraudulent transactions.

3. Payment Options

Always remember that the payment options you offer your customers are important. The more payment options you have, the more customers will purchase from you. Make sure that the potential provider you choose is capable enough of handling transactions from various payment systems. They should also approve debit and credit card systems.

Does It Cost Money to Work with Payment Processor or Payment Gateway?

Whether you opt for a payment processor or a payment gateway, both will cost you. However, the prices may differentiate based on several factors. They are:

1. The same firm delivers both the payment gateway and the processor.

2. You sync the system with a custom payment gateway.

3. You may have to pay additional charges. This may contain refund, membership, and cancellation.

If you want to have an easy experience, make sure you inspect each payment provider’s costs properly. Moreover, do not forget to understand what it takes to switch to a different firm altogether.

What Is a Merchant Account?

A merchant account is where pending transactions go before they are credited to your company’s bank account. Here, there is no encrypted information. However, you are likely to find funds for the transaction. As such, the payment is likely to sit in the merchant account for a while and then move into the company’s bank account after finalisation of the same.

If you want to set up your merchant account, a payment processing business will provide you with a specific merchant ID number. The number that is provided will be tied to your account until the transaction settles. Whether you want to accept credit or debit card payments, this type of account is necessary both ways. That is why we recommend you to have that.

Payment Gateway vs Payment Processor: The Bottom Line

There is no need to choose between a payment processor or a payment gateway. Since both are significant for online payments, you need to execute each in an e-commerce firm. Also, if you plan to accept card payments online, the need for both a payment gateway and payment processor is essential.

So, what are you waiting for? Do not choose between payment gateways and payment processors. Try them both if you wish to take your e-commerce business to new heights.