Payment Gateways vs. Payment Processors: What are the differences

Electronic payments are the most difficult part of the electronic commerce sphere. The entire transaction processing chain consists of several stages. This process’s main “heroes” are payment gateways and payment processors. These words are quite similar, but only in the sense that they are directly about processing money transfers.  Their functions, however, are completely different.

So, what is the key difference between them? In this post, we will analyze both concepts and compare their roles in the transaction chain: payment processor vs. payment gateway. Also, you can prefer Contactless Card Machines that make your business easy.

What is a payment gateway?

It is a kind of virtual “gateway” through which a transaction must pass during the payment process. It is a special transfer service that allows you to make payments by bank cards, as well as numerous alternative paying methods.

From the buyer’s point of view, the gateway looks like the last page when placing an order on your website. The necessary details of the payer are entered there (such as the card number). After this procedure, you can click on the “Buy now” button. Therefore, for the client, the payment page should look reliable and respectable.

How does it work?

The gateway software transmits transaction data between the web page and a trading platform, bank, or other acquiring company in the background. At the same time, the gateway encrypts all transaction data so that all confidential information is transmitted through a secure channel. The payment gateway is also a reliable barrier against fraudsters. The most sophisticated security system, anti-fraud filters, and automatic rules created based on artificial intelligence provide the highest level of protection against data theft.

The payment gateway sends transaction data along the chain and receives the information necessary to confirm the payment: for example, the correctness of the personal data, the availability of funds on the card, etc.

The gateway also decides in the background whether to approve or reject this transaction and sends its verdict to your site. There is no universal decision on selecting a particular payment solution supplier and payment gateway – every business chooses one that optimally matches its target audience, items, and solutions, as well as the region of presence and other factors.

What is a payment processor?

It is an organization or service that processes online payments with the use of credit cards. It helps online companies accept digital payments quickly and securely by coordinating all operations between the bank, the digital store, the purchaser, and the bank acquirer. The processor is a kind of link between all participants of settlements, which is in charge of ensuring that sellers receive money from buyers on time. It is crucial to choose it correctly, for instance, Solidgate is an online payment provider that guarantees smooth online operations and simplified payment facilities, allowing card acquisition to be admitted globally.

The way processing works

The fast and unobtrusive electronic funds transfer from the seller to the buyer is a complex and extensive procedure involving many parties. A whole processing system communicates with its participants, verifies data, transmits it along the chain, and encrypts it according to all security rules.

Let’s present a detailed scheme of card approval by an online store that has connected the acceptance of payments by bank cards:

1. Accepting payments

The purchaser decided to pay for the items in the online store. It gets into the payment form on the same site without going to third-party resources. There they select the payment method by credit card or by using payment services.

2. Handling of payments

Next, the acquiring service asks the financial institution that released the client’s card whether everything is correct with its data and whether there are enough funds there. They, in turn, ask the buyer to enter a confirmation code to debit the required amount. Data exchange is instantaneous. Upon payment acceptance, the money is debited from the client’s account and arrives at the bank serving the Internet acquiring provider.

3. Reporting data

After that, the service automatically sends an electronic receipt for the money transfer to the client and a purchase notification to the business.

4. Receiving money to the account

During the day, the acquiring service will “freeze” the transfer. This period is necessary for the security of settlements — so that the client can cancel an erroneous purchase via the finance company. The money will be relocated to the seller’s checking account on the next working day.

5. Write-off of the service commission

For the convenience and fast speed of the entire card acceptance system, sellers are ready to pay a commission to the platform when operations can be performed anywhere in the world and at any period of the day. The commission is debited automatically before the money is relocated to the seller’s profile.

What’s the key difference between a payment processor and a gateway?

Let’s sum up and understand the key distinguishing payment processor vs. gateway features. The first one collects and forwards banking info to the second. They notify you and your client whether or not the purchase was authorized. At the same time, processors perform in the background, safely forwarding data to numerous stakeholders from the start of the procedure to the settling of financing in your profile.

How do they collaborate?

A gateway, as well as a processor, are needed for your organization to proceed with digital financial purchases. The gateway is used as both the financial operation’s start and finish. After inserting the card details, the client will get permission or cancellation of the purchase.

The payment processor forwards info from the user’s financial institution to the seller’s bank. Each digital banking operation requires both of them.