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Payment gateway vs payment processor: is it the same?
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Payment gateway vs payment processor: is it the same?

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Are you twisted up in knotty payment terms and their definitions? You’re not alone. As a merchant, you’ve probably stumbled upon terms like “payment gateway” and “payment processor”. Although many people mistakenly believe that these two concepts are identical, they perform different tasks in payment processing.

This article aims to provide you with exhaustive information about payment gateways and payment processors, as well as clarify the differences between them. Let’s get down to business.

What is a payment gateway?

Small comparison: Buyers usually make payments with a physical debit/credit card via a POS terminal in a regular brick-and-mortar store. But in online card-not-present transactions, the role of the POS terminal is played by a payment gateway.

A payment gateway is a piece of online payment processing software. It serves as an interface that receives customer card data, encrypts it to prevent fraud, and transmits the information for further processing. After confirming the payment, the gateway informs customer about the successful transaction.

Simply put, the payment gateway acts as a communicator between all participants in payment processing. Its operation is always accompanied by a set of security measures aimed at protecting sensitive customer data from breaches and payment fraud. Among them are encryption, card tokenisation, TLS (SSL) protocol, and others.

The gateway process explained

When customers click the “Buy” button on your site, they are redirected to a checkout page to select a payment method. In the case of card-involving payment method, the customer enters their card details. Then a payment gateway comes into operation, encrypting the information and sending it to a payment processor. If the acquirer and issuer approve the transaction, the payment gateway informs the customer about the successful payment.

The payment gateway runs like a red thread through the entire payment process, making online transactions safe and secure for both customers and merchants. Before you start looking for payment gateway providers, there’s something else you should know.

What is a payment processor?

The actual payment processing begins when the encrypted customers’ data is made available to the payment processor. What's its role here?

Payment processors are PCI DSS compliant institutions authorised by major card networks to process online transactions. They act as an intermediary between a customer, issuing bank, acquiring bank, and merchant, routing the transaction data between them.

Essentially, the payment processor receives customers’ card data from a payment gateway and relays it between the other parties involved in the transaction. However, its functionality isn’t limited to this. Payment processors manage merchants' transactions, ensuring smooth processing from the moment a customer initiates a payment to the moment funds are credited to the merchant’s bank account. Plus, they may provide value-added services such as:

  • Equipment for card acceptance
  • Merchant account assistance
  • Anti-fraud tools

Very often, a payment processor offers its own payment gateway to merchants, making it easier to set up a payment processing solution.

Payment gateway vs payment processor: summing up

Take a look at a small comparison table to organise the information we’ve learned:

Payment gateway Payment Processor
Software Organisation
Encrypts customers’ card data Routes the encrypted data between a customer, issuing bank, acquiring bank, and merchant
Authenticates the transaction Authorises the transaction
Sends data to a payment processor Sends data to financial institutions and then back to a payment gateway
Notifies the customer about transaction result

The payment processor and gateway, while quite different, are essential components of a secure online payment system. They work closely together to make online card transactions possible. As a merchant who wants to accept any type of digital payment, you cannot go without payment gateway integration. Let’s learn more about it.

How to choose a payment gateway & payment processor

Regardless of your business type, a payment gateway and payment processor are your only ways to accept payments conveniently and securely. However, choosing the right payment service provider will require a deep analysis of your business needs and expectations. For example, if you sell goods online, you’ll need an e-commerce payment gateway that supports a range of alternative payment options in addition to bank cards.

With so many of the largest payment processors, payment platforms, and payment gateway providers on the market, it may be hard to make up your mind on the most suitable solution.

This little checklist will help you be more productive while searching for a payment service provider:

  • What payment methods does the gateway support? Are the methods I need on the list?
  • What are the supported currencies and coverage?
  • Is the solution PCI DSS compliant?
  • What transaction processing capabilities does the online payment platform provide?
  • How much will PSP charge me, and how often will I have to pay?
  • What value-added services does this merchant processor offer?

Don’t rush to work with the first payment gateway and payment processor you encounter. By taking your time and researching the market, you can find a true gem that will not only satisfy your current needs, but also allow you to scale. Following the strictest industry standards, we at Corefy empower our clients to accept payments in dozens of methods across multiple payment providers.

Book a demo with us to learn more about how we can facilitate your growth.

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