The Difference between a Payment Gateway and a Payment Processor

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When you make an online purchase, how does the money get from your bank to the stores? This is where payment processors and gateways come in handy. These terms have distinct functions during a business transaction. This article will examine the distinctions between payment gateways and payment processors.

 

Payment Gateway

A payment gateway is a software that allows money to be sent from a buyer to a seller during an online transaction. It mediates communications between the e-commerce site and the acquiring bank. Securely authorizing credit or debit card transactions, verifying customer information, and transferring monies from the consumer's account to the merchant's account does the payment gateway perform all functions.

When a customer purchases on the merchant's site, the payment gateway encrypts their financial details before sending them to the bank for verification. The payment gateway will notify the merchant's website of the bank's approval of the transaction before enabling the order to be fulfilled.

To further ensure the safety of their customer's financial information, payment gateways provide further layers of security, including fraud detection, tokenization, and two-factor authentication. Each transaction incurs a fee that is either a fixed rate or a percentage of the total money being transferred.

PayPal, Stripe, Authorize.net, and Braintree are just a few examples of widely used payment gateways.

 

Payment Processor

The term "payment processor" refers to the financial institution or service provider that processes transactionsbetween the customer's bank and the merchant's bank or credit card company. Merchants, customers, and banks all communicate with each other via payment processors.

The payment processor gets the payment transaction data from the payment gateway, validates their legitimacy, and then submits them to the customer's bank for final approval once payment has been made. Following the successful completion of a transaction, the payment processor transfers funds to the store.

In addition to handling chargebacks and preventing fraudulent transactions, payment processors provide currency conversion services. Each transaction incurs a fee that is either a fixed rate or a percentage of the total money being transferred.

Some examples of payment processors are PayPal, Square, Stripe, and Braintree. Any company that wants to accept electronic payments and process transactions quickly, securely, and reliably must work with a payment processor.

 

Differences between Payment Gateway and Payment Processor

Significant similarities and distinctions exist between payment gateways and payment processors, which help make online purchases possible.

 

Transaction Flow

Payment Gateway: A payment gateway acts as a conduit for financial information between a client and a retailer. When a payment is successful, the gateway notifies the retailer's site to fulfill the order.


Example:

Consider a shopper who wants to make an online purchase. The consumer pays through the store's website by entering their credit card information, which is subsequently sent to the payment gateway. After confirming the transaction, a confirmation message is sent to the merchant's site from the payment gateway. The gateway checked the information, sent them to the payment processor for permission, and received confirmation.

Payment Processor: Payment processors authorize transactions and transfer funds from the client's bank to the dealer's bank. The payment gateway communicates with the payment processor whenever a customer purchases. The processor then checks with the customer's bank to ensure adequate money is in the account to cover the purchase.

 

Example:

Following the transmission of transaction details from the payment gateway to the payment processor, the processor verifies the transaction and initiates communication with the customer's bank to obtain authorization for the transaction and to transfer funds from the customer's bank to the merchant's bank account, as in the previous example.


Security Features

Payment Gateway: Tokenization, two-factor authentication, and fraud detection are only some of the extra security measures offered by payment gateways to ensure the safety of their customer's financial information. Algorithms are used in fraud detection to detect and stop potentially dishonest financial dealings. With tokenization, the customer's sensitive payment details are swapped out for a random token that one cannot use for fraud. With two-factor authentication, the consumer is also asked to submit a second verification form, such as a password or a code texted to their mobile phone, for increased protection.

 

Example:

Tokenization, two-factor authentication, and fraud detection are just some security measures offered by PayPal, a widely used payment gateway.

Payment Processor: Besides confirming and sending payments, payment processors have security procedures, such as anti-fraud technologies and encryption.


Example:

Stripe is a payment processor that provides anti-fraud solutions, such as Radar, which uses machine learning to detect and prevent potentially fraudulent transactions.

 

Fees and Pricing

Payment Gateway: Transaction fees for a payment gateway are often assessed as a flat rate for each transaction or as a percentage of the total transaction value. Some payment processors also require monthly subscriptions or transaction fees.

 

Example:

There is no monthly membership price to use Authorize.net. However, each transaction costs a 2.9% transaction fee + $0.30.

Payment Processor: Payment processing costs are generally calculated as a fixed rate plus a percentage of each transaction's total value. The flat charge is a set sum, typically about thirty cents for each transaction.

 

Example:

For domestic transactions, PayPal's cost is 2.9% + $0.30, while for international transactions, it's 4.4% plus a fixed fee depending on the currency.

 

Integration with Third-Party Platforms

Payment Gateway: E-commerce platforms, customer relationship management (CRM) systems, and shopping carts are third-party tools that payment gateways may use to sync up. Because of this link, the store owner has to maintain track of just one set of books for all of their transactions.

 

Example:

Stripe is compatible with many e-commerce and CRM systems because of its many available connectors.

Payment Processor: Besides offering connectivity with these systems, payment processors also provide their services.

 

Example:

While Square does provide integrations with other services, such as QuickBooks and WooCommerce, its primary offerings are payment processing and hardware.


Selecting the Best Payment Processor

Your business's requirements, financial resources, and the types of payment options you want to provide clients will all play a role in determining which payment gateway or processor is the best fit. When deciding on a payment gateway or processor, it's essential to keep in mind the following details:


Payment Methods

To keep your consumers happy, you must accept their preferred payment options. The acceptance rate of your company is directly related to the variety of payment options you get. Take digital wallets like PayPal and Apple Pay as an example: if most of your consumers use them, you should prioritize a service provider that accepts them.


Security

When making a final decision on a payment processor or gateway, safety must always come first. Tokenization, fraud detection, and two-factor authentication are some of the robust security features you should seek in a supplier. Tokenization replaces sensitive data with a random identity, making it harder for hackers to steal that data. Two-factor authentication provides additional security by forcing users to authenticate their identity using a second factor, such as a code delivered to their phone, and the primary factor (such as a password or other authentication method).


Fees

Payment processing and gateway fees might vary substantially. If you want to choose a service whose prices are within your means, shop around. Transaction costs, monthly fees, and other expenses should be considered. Some service providers may be willing to negotiate prices or provide volume discounts for commercial clients.


Integration

Find a payment processor or gateway that can connect with your online store or customer relationship management software. Payment processing may be streamlined, and the potential for disputes and mistakes reduced by integration with preexisting systems. Gaining information about your client's payment habits via integration may also aid in optimizing your payment processing for increased conversions.


Customer Support

Picking a payment processor or gateway that has reliable customer service will allow you to address any concerns or inquiries that may occur promptly. Find a service available whenever you need it through phone, email, and preferably live chat. In addition, certain service providers may assign a specific account manager to assist you during the onboarding process and beyond.


Reputation

Read up on the payment processor or gateway's history of success and dependability to understand its standing in the industry. Choose a company with a good track record of handling financial transactions safely and effectively. Let's say you're interested in further investigating your options for acquiring payments and processing transactions. In that case, you can always ask for suggestions from other companies in your field or look for relevant online forums and organizations.


Accessibility For Digital Currencies

Businesses must consider the growing popularity of alternative payment methods like cryptocurrencies when making their gateway or processor selections. Many companies are looking into ways to accept digital currency payments due to the recent surge in the popularity of cryptocurrencies. There is a need for automated trading systems like Bitcoin Profit . Businesses may quickly and simply convert Bitcoin payments into fiat money and deposit the resulting cash into their bank account using these services. By accepting payments via such services, you may reach more people and make life easier for those who pay with digital currencies.


Conclusion

You need to know the distinctions between payment gateways and payment processors to choose the best supplier for your company. Payment gateways securely transmit consumer data to the acquiring bank when transacting on your website. In contrast, the payment processor handles the actual processing of the payment and the transfer of money to the merchant account. If you take the time to choose the best supplier, you can provide your consumers peace of mind throughout the payment process and boost your company's success.

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