Understanding the difference between a payment gateway and a payment processor
Businesses now need to deal with online transactions more than ever. For this, you need to set up an online payment processing system that is safe as well as efficient. Such a system can comprise of several service providers. So, it is important to know the precise services provided by each provider. For starters, you need to distinguish between a payment gateway and a payment processor. While both of them provide online payment related services, they have very distinct areas of operations. So, read on to better understand their differences and run your business with confidence.
What is a payment gateway?
A payment gateway is a tool that helps process the payment between the client’s bank account and the business’s bank account. The main function of a payment gateway is to secure the transmission of online payment data from one end to another. These service providers are also responsible for authorizing payments for card-not-present transactions. A gateway is mainly useful for processing online credit card payments.
In simple terms, a payment gateway is a like a middleman between a client and an online business. When a client provides their payment details to an online business, then the gateway sends this data to the payment processor for further action.
For an online business, a payment gateway can provide a wide range of services such as ensuring the safety of personal data, uninterrupted services, and the ability to accept multiple payment options. Furthermore, a payment gateway may also enable your business to accept different currencies, thus enabling international transactions. While selecting a gateway for your business, you should pay proper attention to the service offered as well as the various fees and commissions charged.
What is a payment processor?
A payment processor is generally a financial institution which carries out payment processing services for online businesses. Such payment processors generally enjoy collaboration with other companies, which have direct interaction with merchants or consumers. A processor acts as a connecting node between a payment gateway and a merchant’s account.
The main task of a payment processor is to facilitate the transfer of payment related information and to keep the data secured. A processor collects the data pertaining to the transaction, validates and executes the instructions, and then deposits the money into the merchant account. It concludes the cycle by informing the payment gateway about the final outcome of the transaction.
There are a wide range of payment processors available in the market today. It is important to pay attention to different criteria while selecting an appropriate payment processor for your business. A processor should not only provide swift and smooth transfer of funds, but it should also be able to ensure that sensitive data transferred remains safe and secure.
Integration of payment gateway and payment processor
For an online business, it is important to engage the services of both a payment gateway and a payment processor. In order to complete the cycle of online payments, the services of both are required in conjunction with a merchant account.
Essentially, a payment gateway is required to receive the payment related details from the client. Then pass the information on to the payment processor, which carries out the rest of the transaction and sends the status back to the payment gateway.
These service providers should be chosen carefully after taking your business’s specific requirements into account.