Guide to Payment Gateways vs. Payment Processors — Backoffice (2022)

Let’s say you’re the dutiful grandchild sending a care package to your grandmother. You place it in a UPS drop box, UPS collects the package, transports the item and sends you and grandma a confirmation email when the delivery is complete.

Think of the UPS distribution network as analogous to a payment processor—and the associated dropbox as a payment gateway. To make an online payment, the customer initiates a transaction through a payment gateway and payment processor facilitates communication between the parties and transfers funds into the merchant’s bank account.

Both a payment processor and a payment gateway are required to accept credit card payments. They make payments easy and secure for customers and save business owners time by reducing payment processing labor.

What is a payment processor?

The payment processor acts as an intermediary between the merchant’s bank account and the customer’s bank account. Online payments involve, at least, five parties: the merchant, the customer, the merchant’s bank, the customer’s bank and the payment processor, the entity responsible for communicating between the parties involved in the transaction.

For example, accepting credit cards requires business owners to work with third-party credit card processors. Once the customer submits the payment, the payment processor will communicate the transaction to the credit card network and to the customer’s bank. After the customer’s bank approves (or declines) the transaction, the payment processor will notify the merchant’s bank, either depositing funds into the merchant’s bank account or notifying the bank, merchant and customer of the declined transaction.

Advantages of using a payment processor

In theory, not all transactions require an intermediary. Consider a cash payment, for example: your customer gives you $5, you hand him a bag of premium fish food, and you go your separate ways.

Most business owners choose to work with a third-party payment processor so they can accept credit card payments. Most payment processors allow businesses to accept multiple payment methods (including online payments) and help increase the speed of transfers into their accounts.

What is a payment gateway?

A payment gateway is a virtual terminal, or point of sale (POS), for online payments. Just like how brick and mortar stores have physical credit card terminals to accept card payments, online stores need payment gateways to securely collect their customers’ payment information. For online payments, a payment gateway (ie, a virtual terminal) serves as a point of sale.

Payment processors and payment gateways work together: payment gateway technology collects and authenticates digital payment information and sends it securely to the vendor’s payment processing partners, and payment processors communicate between parties to complete transactions.

Advantages of using a payment gateway

Using payment gateway technology offers business owners multiple efficient and secure payment methods.

• Efficiency. A payment gateway is an efficient method of accepting credit card payments, allowing purchases to be completed in-store and online and enabling card-not-present transactions. They can also integrate payments with your existing accounting software, automatically record sales data and save you and your accounting team time.
• Safety. Payment processors and payment gateways work together to enable secure online payment processing. Most payment gateway technologies use SSL encryption to transmit personal information to payment processors. This data encryption protects your customers’ financial information from possible data breaches.
• Option to pay. Payment gateways enable cardless transactions, allow multiple payment methods and accept multiple types of credit cards. Offering multiple payment options can increase customer satisfaction and reduce your cart abandonment rate.

Payment gateway vs. Payment processor FAQ

Do I need a payment gateway and a payment processor?

If your business only accepts checks, cash, wire transfers, and credit card payments in person, you don’t need a payment processor and payment gateway—but you’ll also miss out on sales to customers who choose other payment methods (like credit cards).

Do I need a payment gateway and a merchant account?

Accepting credit cards online requires a business to have both a payment gateway and a merchant account, which is a specific type of business bank account set up to accept card payments. Many payment gateway technology partners provide additional merchant services, including merchant accounts.

What is the difference between a payment gateway and a payment service provider?

Payment gateways and payment service providers (also known as payment processors) work together to process transactions—but they’re not the same thing. The payment gateway collects the customer’s personal information and passes it securely to the payment service provider. The payment service provider then facilitates communication between the merchant’s bank account and the customer’s bank account, processes the transaction and notifies the merchant’s bank account of a successful payment.

source: https://www.shopify.co.id/blog/payment-gateway-vs-payment-processor