The growth that has been occurring with payment gateway apps that really are spreading worldwide is evidence that becoming digital is the way to go for business and that this is clear in the boom that has been happening with these applications. People from around the world have switched their purchasing activities to be completed online and have utilized a variety of applications for numerous transactions as a result of the COVID-19 epidemic. This has led to an increase in online sales.

This post will explain payment gateway vs. payment processor as well as how both of these types of software may be used in conjunction with such a merchant account to provide you the ability to take payments from your clients. Because these components work together to move money from the buyers to the sellers, it is imperative that you have a solid grasp of the part that each platform plays in the process.

Payment gateway vs. Payment processor: Detailed discussion

Payment gateway vs. Payment processor: Which is better?

What exactly does “Payment Processor” mean?

Payment processors are businesses or financial organizations that process transactions involving credit cards and other payment methods. These processors are utilized for sales made in physical as well as digital stores. Your company will be unable to process credit card transactions if you do not have a payment processor. Let’s discuss the payment processor to know about the payment gateway vs. payment processor.

Let’s begin by taking a look at traditional sales channels.

The information about the customer’s credit card is transmitted between the acquiring bank, the financial institution, as well as the owner of the business during the processing of payments via payment processors. In addition to this, they let the client know whether or not the transaction was approved and make sure that now the monies are transferred from the customer’s savings account to the merchant’s account once they have been taken out of the customer’s account.

How does the Payment Gateway function in a system?

The following are the stages that illustrate the operation of a payment gateway:

  • The sensitive information that a consumer enters on their computer or other device is encrypted before being sent to the issuing bank through the Payment Gateway.
  • Once data reaches the issuing bank, the encrypted data is decrypted by the Payment Gateway, and the decrypted data is presented to the bank in a manner that can be used.
  • The information that was submitted by the consumer is subsequently checked for authenticity and denied by the issuing bank.
  • After the issuing bank has validated the legitimacy of the customer’s request, the Payment Gateway would then make use of SSL encryption to send the transaction records to the Payment Processor (which will then be discussed in more detail in the following paragraphs), who will then finish processing the transaction.

What is meant by the term “payment gateway”?

A payment gateway uses encryption to send data about a transaction to a payment processor, which helps the transaction go without any hitches. The process of collecting money can start once a transaction between your company and a client is given the green light by a payment gateway. Payment gateways serve much the same purpose as digital point-of-sale, which makes them an excellent choice for transactions using credit or debit cards that do not require physical cards to be presented.

How does the Payment Gateway actually function?

The following is an example of how a payment processor is responsible for the transmission of sensitive client information and how it affects the payment gateway vs the payment processor-

  • The payment processor receives sensitive consumer information that has been encrypted thanks to the payment gateway.
  • The merchant account bank receives the customer’s information, which is sent by the payment processor.
  • The bank that handles the merchant account will submit a request to the card-issuing bank of the consumer in order to confirm both the card holder’s identification and the legitimacy of the transaction.
  • The card-issuing financial institution of the consumer communicates with the payment processor through a notification of rejection or acceptance, which is then sent to the payment gateway.
  • The consumer is informed by the payment gateway regarding whether or not the transaction has been accepted.
  • In the event that the transaction is allowed to proceed, the patron will proceed with the checkout procedure in order to complete the purchase.
  • When the processing of the transaction is complete, the information necessary for the transfer of funds towards the merchant account is sent from the processor to the card-issuing bank.

Payment gateway vs. payment processor differences

When they have been employed is one of the most significant distinctions that can be made here between a payment gateway and a payment processor. Only transactions that include the physical presence of a card, such as those conducted through a credit card terminal just at the point of sale, need the use of a payment processor.

Meantime, in order to conduct CNP transactions, such as sales made over the phone or through an eCommerce website, a payment gateway in addition to a processor is required. The processor service is designed for transmitting the data between the client’s bank and the acquiring bank, whereas the payment gateway is responsible for creating the link that allows a consumer to submit their credit card documents in a secure manner.

Payment gateway vs. payment processor: Conclusion

Most notably, the payment processor doesn’t really interact directly with just an authentication server; rather, the job of an authenticator is played by the Payment Gateway. Therefore, selecting the appropriate payment gateway is quite crucial if you want to protect the private information of your customers.