Payment Gateway vs Payment Processor: The Difference

Ordering food, shopping, booking movie tickets, and planning surprises have become quicker and easier than ever before. This all is attributed to the fast online payment solutions.

All of it goes with the blink of an eye!

Gone is the time when you had to stand in a queue and wait to receive change after the cash you had paid. That is because you can now make payments online using any of the payment processors or payment gateways. 

Apart from syncing daily life activities, online payments have taken businesses far in leaps and bounds. Small business owners and freelancers could think of expansions because of the convenient online payment processors and gateways.

Have used the services of both but still unclear of what is the difference between the two?

Not sure what is helpful for you? Here is an example to make things ward off ambiguity.

The payment processor is like your mobile handset, which allows you to connect with people either via the internet or through networks. But a payment gateway is like a mobile network service provider that gives you connectivity over a network. There are multiple network services, but you can use only one at a time.

If you still sense ambiguity over this, let us understand in detail about the two services. 

Let us now see what a payment gateway is.

What is a Payment Gateway?

Payment Gateway, on the other hand, is used to transmit the payment data to the processor. Therefore, you can understand this payment method as an agent that assists in completing the transaction lifecycle.

The gateway captures and collects payment data from customers and sends it to the acquirer. Broadly, payment gateways are used by eCommerce websites. 

After picking up the payment data, from the customer and passing it on to the acquiring or merchant’s bank, the payment gateway sends confirmation of money transacted to the customer.

The gateway assures that the customer has a valid card and sufficient funds in the bank to extend payment in favor of the merchant. The card information of the customer is encrypted to maintain safety.

Payment Gateway

A Payment Gateway Process Explained

There are several payment gateways that you can rely on. Top 5 payment gateways that you can consider include:

  • PayPal
  • RazorPay
  • Skrill
  • Stripe
  • Amazon Pay

You may also like: What You Should Know About International Fees on PayPal

In the absence of a payment gateway, you expose your business to a high level of fraud. If you make online payments without using a payment gateway, the chances of hacking your card details are higher. Once your information is leaked, you might have to face some illegitimate transaction not initiated by you. 

In simple words, a payment gateway does these:

  • Keeps the payment information of the cardholder safe.
  • Protects the merchants and intimate them about the insufficient funds.
  • Informs the merchants about exceeding credit card limits, expired cards, and closed accounts.

What is a Payment Processor?

A payment processor is an electronic service provider that takes care of online transactions. 

You can understand a payment processor as the mediator between the merchant and the financial institutions involved to manage the transactions. Their job is to authorize the money transfer. The merchant appoints a payment processor to handle transactions from credit cards, debit cards, etc. 

Overall, the payment processing involves front-end and back-end activities. In the front end, the processor provides authorization and settlement services to the merchant’s bank. While on the back-end, the processor receives payment from the front end.

Don’t worry about all these back and forth steps; your money is safe. It is because the payment processors take care of security measures to prevent any fraudulent activities over money transactions.  The functionality of payment processors does not confine to this.

Giving you service is one aspect but benefitting you with it is another. Never thought of it, right?

Other than making online money transfer smooth, a payment processor that saves you some pennies will suit you. Users must select the one that serves you with low transaction fees. Low-cost services will not matter in the small transactions but amount to pretty good savings in larger transfers. 

So before you select one processor, find out the one that will suit your requirements. Though there are many service providers, PingPong India is one of the leading payment processors.

Why PingPong?

  • PingPong is a new and competitive payment processor that helps you receive international payments. 
  • They charge you only 1% of all fees inclusive per transaction. 
  • There are no hidden fees that bother you later. 
  • You do not need any technical support to use the service. 
  • It is just a three-step process after which you can start the transfer of funds.

Payment Processor and Payment Gateway: What The Difference

Let us now see what the difference between a payment processor and a payment gateway is.

It may seem that they both have the same functionality, but there is a slight difference between a payment gateway and a payment processor.

Payment ProcessorPayment Gateway
A payment processor makes the transaction between the two parties that could be a merchant and a buyer or a freelancer and the client.A payment gateway, on the other hand, collects the customer’s payment information and passes it on to the processor.
The payment processor moves the payment data from the payment gateway to the card network and back.The payment gateway authenticates the card information of the customer and confirms whether it belongs to the customer’s account.
The payment processor confirms whether the card is a part of the 3D-secure platform or not.Payment gateway updates the status of the transaction to the customer as well as the merchant.

You may also like: 9 Cash Flow Tips for Freelancers to Optimize Money Management

How to choose a Payment Gateway?

The payment gateways must have the capacity to absorb the volume of your transactions. As then, it can form a basis of your choice. Here are the points to consider when selecting a payment gateway:

  • International payment support: A payment gateway must allow multiple currency transactions. Check before using one.
  • Payment settlement cycles: In common, the payment settlement cycles are of T+1, T+2 days. Select the payment gateway with faster settlement cycles enabling you to keep track of in-flow and out-flow of money.
  • Customer service support: Pick the payment gateway that has reliable and consistent customer service support. 
  • Payment History: The payment gateway should hold the history of the transfer of money. This allows you to strategize over your sales and marketing.

How to choose a Payment Processor?

You can choose the payment processor before making the payment. Here are a few things you can consider:

  • PCI compliance: Ensure that the processor complies with the industry security standards or not.
  • International payment support: Find out whether the payment processor supports you to receive and send payments abroad.
  • Fraud Aversion: The payment processor must be capable of ensuring safety for data. It should work in integration with a payment gateway to put a hold on transaction fraud.
  • Software Consonance: The payment software must agree with the one the users use.
  • Check fees: You must consider the transaction and other fees, especially when receiving payments from abroad.

Conclusion

This was a brief description of a payment processor and payment gateway. Whatever choice you make, it should meet your business requirements. In the end, you should be saving more by reducing the outgo in the transaction fees.

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About FinanceGAB

Ajeet Sharma is a financial blogger and I am blogging since 2017. Financegab is a personal blog dedicated to personal finance. The main aim of this blog to help people to make well-informed financial decisions.
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