Whether you are a consumer, brick-and-mortar business owner, or involved in eCommerce, it is important to know the difference between payment gateways and payment processors. Unfortunately, this is a difference that can be hard to establish and the two are often confused. Let’s break it down and discuss the purposes, benefits, and costs of each.
Before We Get Started
First, it’s important to note that every transaction involves four parties:
- The Merchant- the seller of goods or services
- The Customer/Consumer- the purchaser of goods or services
- The Issuing Bank- the bank of the consumer
- The Acquiring Bank- the bank of the merchant
Recognizing and establishing these key parties is often helpful when discussing the difference between payment processors and payment gateways.
What is a payment processor?
There is a series of steps involved in every transaction that requires the use of a payment processor. Simply put, a payment processor allows businesses to accept payment via debit card or credit card. It is how the consumer digitally pays the merchant for their goods or services.
When a payment or purchase is digitally made, the processor is responsible for securely transmitting the debit or credit card information to the credit card network. At that point, it is confirmed if the necessary funds are available in the issuing bank account. Once approved, the funds are transferred from the issuing bank to the acquiring bank.To utilize the services of a payment processor, a merchant account is required. A merchant account is a business bank account that accepts payment via credit or debit card. If you are a business owner offering goods or services, it is important to establish a merchant account so that you may accept electronic payment in today’s largely digital world.In addition to receiving payment via credit or debit card, the benefits of a payment processor include the following:
- Instantaneous transactions
- Less handling of cash
- Secure transmission of funds
- Efficient integration with CRM and accounting/billing
In summary, a payment processor simplifies your business transactions, resulting in a seamless business process and happy, returning customers.Now that we have established the purpose of a payment processor, what service providers are available? Luckily,
there is no shortage of payment processor providers today. Monthly fees may start as low as $0/month. However, it is important to first identify the needs of a business and consider the variety of features available before selecting a provider. By paying a minimal monthly fee, additional processing features may be available that greatly benefit a business.
Below are a few of the top payment processor providers and their service fees:
- Due- starting FREE
- Square- 5% + 10¢/transaction
In a society of fast paced, immediate gratification adults, it is important to implement the services of a payment processor to ensure the success of a business and the contentment and satisfaction of its valued customers.
What is a payment gateway?
As the name implies, a payment gateway acts as a bridge between the issuing bank of a consumer and the acquiring bank of the merchant. Unlike payment processors, payment gateways are primarily used on eCommerce sites. When a purchase is made online, the payment gateway transfers credit card information from the eCommerce platform directly to thecredit card processor. The gateway will either approve or deny the transaction. Once approved, the transaction details are returned to the merchant and ultimately, to the consumer.There are many benefits in utilizing a payment gateway, specifically for online and eCommerce businesses. Websites and eCommerce sites are prohibited from transmitting credit card information directly to credit card processors. For this sole reason, payment gateways are necessary in online transactions or when purchases are made without a physical credit card present. The payment gateway acts as a “virtual terminal,” allowing the purchaser to simply enter a credit card number for an online or eCommerce purchase.
Additional benefits to using a payment gateway include:
- Acceptance of multiple currencies
- Use of Address Verification Service (AVS)
- Calculation of sales tax to be charged
- Integration with many eCommerce platforms (ie, Selz, Shopify, WooCommerce)
- Enablement of geolocation services
- Guarantee of secure encryption via SSL
It is important to note, that in order to ensure the security and safety of eCommerce purchases, the payment gateway must be PCI-DSS compliant. Also, similar to a payment processor, a merchant account is required when using a payment gateway.In a digital sea of gateway providers, how do you determine which one best suits your needs? Cost is a factor in
almost every decision and chances are this one is no different. It is standard for a payment gateway provider to charge a transaction fee, and sometimes an additional monthly fee. It is important to do research and fully understand the benefits and features of each provider before making a decision.
Below are a few of the top payment gateway providers and their service fees:
- PayPal Payments Pro- $30/month, plus 2.9% + $0.30/transaction
- Amazon Payments- 9% + $0.30/transaction
- Stripe-9% + $0.30/transaction
Payment processors and payment gatewaysoftenwork hand-in-hand to seamlessly process transactions and transfer funds. When purchasing from a traditional, brick-and-mortar shop, a payment processor is undeniably necessary to process electronic payments via debit or credit card. However, considering eCommerce sales, a payment gateway works with the payment processor to provide quick, secure, and digital sales. With respect to the success of a business, it is wise to evaluate the necessity of eCommerce sales in a world that is digitally dependent. Regardless, the vast availability of payment processors and payment gateways will help simplify the transaction process online or in-store.