We get this question a lot from businesses with an e-commerce presence or businesses that accept credit card payments via their computer (typically through a “virtual terminal”). At first it seems very confusing. Why does a business need a payment processor and a payment gateway? Aren’t they really the same thing?  The answer to the previous question is, no, they are not the same. Read on to learn about the difference between a gateway and a processor.

A gateway is a piece of software running on a server that receives the credit card information from a company’s website (or virtual terminal) and passes it securely along to the credit card processor. You can learn more about gateways in one of our past posts.

A payment processor provides a company with its merchant account.  The payment processor receives the information from the gateway and handles the transfer of money from the customer’s account to the company’s bank account.

The payment processor needs a gateway to hook into and vice versa in order to get the job done.

A good way to think of gateways and processors is to use the brick-and-mortar store analog. In the brick-and-mortar store you typically see a device used to swipe credit cards.  That device is essentially a physical representation of a gateway.  It encrypts and sends along the information contained on the card to the processor.  The processor then settles the transaction and moves the money from the customer’s bank account to the company’s bank account.

Another thing we should briefly note, and this is something that causes some of the confusion, is that some providers can be both a processor and a gateway. One of the classic examples of this scenario is PayPal. PayPal is set up as both a processor and a gateway. A one-stop-shop if you will.

We hope that this short post cleared up some of the confusion between gateways and processors.  It is strange to think that as a business owner you need two entities to process credit card payments but it is true, you need two.