Payment Gateways Vs Payment Processors: Differences Explained

Ultimately, you want to find the most efficient and user-friendly way of allowing your customers to complete their purchase on your eCommerce site. There is a lot going on behind the scenes to make that transaction happen and there are a number of critical steps in that payment process.

If you are looking for an eCommerce solution for your site, you might decide to search payment gateway in order to check your options. As a result, you will most likely find references to payment gateways and payment processors.

The question you probably want an answer to is what is the difference between a payment gateway and a payment processor?

Here are some of the key differences explained.

Understanding what a payment gateway does

A good starting point would be to appreciate the fundamental differences between a payment gateway and a payment processor.

A payment gateway can be viewed as the conduit that a payment transaction has to pass through before continuing with the payment process.

Your online business needs this payment gateway in order to be able to accept a variety of payment methods so that your customer can pay for their purchase using their preferred payment option.

In general terms, a payment gateway is an encrypted and secure link between your website and the bank processing the payment.

What is a payment processor?

Once the payment gateway has done its job and approved or declined the request before transferring the relevant transaction data provided by the customer, it is the turn of the payment processor to carry on the transaction through to a satisfactory completion.

In effect, a payment processor can be viewed as a mediator that communicates with all parties involved in the transaction. This means the cardholder (customer), the merchant (your eCommerce site) your chosen payment gateway, and the relevant financial institution chosen to process the payment.

Key differences between the two

The fundamental difference between a payment gateway and a payment processor is that the gateway is designed to either approve or decline the proposed transaction between you and your customer. The payment processor is then used to execute that transaction once it has been verified and approved.

What is the best solution for your business?

When you are creating your eCommerce site it can be a bit bewildering trying to decide how best to create an efficient payment system that makes it easy for customers to buy from you securely and efficiently.

From your point of view, you also want to find an option that makes it as simple and easy as possible to handle the administrative aspects of receiving payments.

What you need for everything to come together is a payment gateway and payment processor solution.

Your aim should be to find a way of bringing all of these functions together as seamlessly as possible. There are also numerous other aspects that need to be considered when making your choice, such as ensuring that security and risk management features are incorporated into your chosen solution.

It is easier to make those decisions when you understand the difference between a payment gateway and a payment processor.