Payment Gateways VS Payment Processors

The goal of every merchant is to have seamless and fast transactions, but with so many options in payment services, it is not easy to decide. It is imperative to consider convenience for clients and use a service that integrates seamlessly with your existing platform, in addition to technical details.

Payment gateways and payment processors both play key roles in electronic payments, but they serve different purposes. By understanding the differences between the two, businesses can find the right payment solution for their needs.

First, let’s understand the 4 key parties that are involved in processing any payments:

1. Merchant: A person or business that accepts payment for goods or services.
2. Customer: The person who makes payments to the merchant.
3. Issuing Bank: The bank in which the customer has an account.
4. Acquiring bank: This is the bank that holds the merchant’s account and processes the payment on behalf of the merchant.

What is a Payment Gateway?

A payment gateway is a technology that enables merchants to accept credit and debit card payments from customers. It ensures that sensitive payment information is transmitted securely between the merchant’s website and the payment processor.

Various payment methods can be accepted through payment gateways, including credit cards, debit cards, and electronic checks. They are an important component of the online payment process, as they provide a secure and efficient way for merchants to process transactions and for customers to make payments.

Why Use a Payment Gateway?

There are several reasons why merchants use payment gateways:

Security: Payment gateways use various security measures to protect sensitive financial information, such as encryption and tokenization, which helps to reduce the risk of fraud and data breaches.

Convenience: Payment gateways allow customers to make purchases online without having to enter their payment information manually. In turn, this can boost sales and customer satisfaction.

Compliance: A payment gateway ensures compliance with regulations, such as the PCI DSS (Payment Card Industry Data Security Standard).

Compatibility: Payment gateways are compatible with a variety of different payment processing networks and technologies, which makes it easier for merchants to accept a wide range of payment types.

Reporting and analytics: Payment gateways provide merchants with valuable insights and data about their sales and customer behavior, which can help them make informed business decisions.

What is a Payment Processor?

A payment processor facilitates the transfer of funds between a merchant and a customer’s bank account or credit or debit card company.

When a customer purchases from a merchant, the payment processor handles the transaction by verifying the customer’s payment information, transferring the funds from the customer’s account to the merchant’s account, and sending a receipt of the transaction to both the customer and the merchant.

Why use a Payment Processor?

There are several reasons why merchants use a payment processor:

Convenience: Payment processors make it easy for merchants to accept credit and debit cards, e-checks, and online payment systems. This can be especially useful for merchants who want to sell their products or services online.

Security: Payment processors use various security measures to protect against fraud and ensure that transactions are secure. This can give both merchants and customers peace of mind when conducting transactions.

Speed: By facilitating the transfer of funds in real-time, payment processors help merchants receive payments more quickly.

Compliance: Payment processors know the compliance requirements of different countries and industries, so they can assist merchants in complying.

How Does it Work Together?

Here are some of the following steps:

1. The customer initiates the payment by entering their payment information (such as their card number or bank account information) into the merchant’s payment system.
2. This information is then transmitted to the payment gateway, which encrypts it and sends it to the payment processor.
3. The payment processor verifies that the funds are available and transfers the money to the merchant’s account, then sends a confirmation back to the payment gateway.
4. The payment gateway passes this confirmation back to the merchant’s website.
5. If the payment information is valid, the payment processor transfers the funds from the customer’s account to the merchant’s account.
6. The payment processor sends a receipt of the transaction to both the customer and the merchant, confirming that the payment has been processed successfully.

Payment Gateway VS Payment Processor

Bottom line

Payment processors and payment gateway services are necessary to operate an online store and business. You will be able to run your business smoothly by utilizing these services while reducing the time required for your customers to process their payments. At last, the final choice depends on your business’s specific needs. However, a single payment gateway can’t handle all the transaction volumes of a growing business, leading to payment failures.

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Original Content: https://blog.mcsam.in/payment-gateways-vs-payment-processors/