Distinguishing Between a Payment gateway and a Payment Processor


While there are two main, connected aspects of credit card processing, they are not the same. If you’re on the hunt for credit card processing solutions, you might have heard the words “payment gateway” or “paying processor” You aren’t alone, if you’re unsure of the difference.

However, it is important to understand the nuances in order to make an educated decision regarding your small business ‘ ability to accept payment by credit card.

The guide would tell you how the two work together and how the transaction gates and processors are given.

You will probably need a payment gateway and a payment processor if you plan to accept credit card payments online, so understanding each of them is critical in order to make the right choice for your small business.

What does a Payment gateway mean?

An on-line credit card payment system allows payment electronically. It is a software that provides a safe connection from the website or app of your business to the credit card processor.

A secure connection is used to decrypt credit card payment information for each transaction, to verify the authenticity of the transaction and to protect sensitive data.

The security of financial information for your clients is of utmost importance in the new world of digital business.

In general, in association with your chosen credit card processing company you can set up a payment gateway.

Complications and compatibility issues are less common if you set up a transaction system through your merchant account provider. This is often the easiest way to set up a transaction gateway

Many credit card providers have their own transaction gateways, while others partner through third-party payment gateways on behalf of their customers. For example, Authorize. Net is one of the most common third-party payment gateway providers.

Normally, if you operate through your merchant account company, you can avoid setting up payment gateway charges.

Before setting up a payment gateway, you should always check the terms and conditions so that you know exactly how much it will cost you in advance, as well as on a monthly and sometimes per-transaction basis.

Working Principle of a Payment gateway

The payment gateway can operate through online transactions by encrypting credit card information as it reaches the payment gateway at the time of purchase.

Encrypted data is sent securely to the credit card processor, the card network, the bank that issued the card, and the bank of your business. Once the encrypted data has been provided, the customer card will be charged the appropriate amount for the transaction.

The funds are directly delivered to your account, less the fees and costs that your credit card processor has agreed to process.

What does a Payment Processor mean?

A payment processor is the company that manages transactions by credit card and debit card for a company.

The payment processor can be told to transfer money from one account to the next if the payment gateway translates encrypted data.

Payment processors can be classified as front-end processors or back-end. Front-end processors build links with card networks and payment systems and handle corporate accounts on behalf of their customers.

Back end processors settle transactions primarily and transfer money from an issuing bank to a commercial bank which, when the transaction is completed, transfers money to a bank account of the company.

The pricing rates and payments of the payment processors differ according to the cost and volume of the transactions you perform and the design.

Payment processors usually charge a percentage of each payment, often including the inclusion of a small transaction fee or a few other charges, including a quarterly report fees, a minimum monthly fee, and an annual PCI enforcement fee.

If you are willing to accept electronically, over the phone and at the point of purchase credit card or debit card transactions from your customers, a partner with a payment processor is required.

Which is more important between a payment gateway and a payment processor?

To accept payments from your credit card or debit card, you will need both a payment processor and a payment gateway. Nonetheless, if you only intend to accept credit card or debit card transactions at the point of sale terminal, you may usually neglect the use of a payment window.

However, the use of a payment gateway requires virtual terminals accessed via your computer although you only take the payment at the point of sale.

Does PayPal perform payment gateway or Payment processing services?

Paypal, which has its own payment gateway named Payflow, is regarded as a payment aggregator. Like traditional payment processors, transaction aggregators do not allow the company to build a commercial account.

Alternatively, aggregators combine the payments with those of other retailers, rendering you effectively a submerger on a merchant’s own page.

Payment aggregators are typically fast and easy to implement and require processing times much faster than traditional payment processors. Fees are usually easier and at aggregates, depending on the value of their purchases, are often more competitive overall.

Payment aggregators, unfortunately, represent a threat warner and may penalize your account if they detect potential suspect activity or increased reimbursement possibilities.

By comparison with payment processors, aggregators generally offer fixed rates, so the price you pay does not change even as the sales volume increases.

Payment processors typically, on the other side, bid businesses with high transaction levels and value-added payments more competitive prices.

How does a Merchant account differ from a Payment gateway?

A trading fund is basically an agreement with the lender to set up a space for pending transactions where the money goes before it is loaned to the bank account of your company.

This differs from a payment gateway by not sending encrypted data, but rather the transaction-related assets.

Transaction is immediately held at the end of the payment into the dealer account and the proceeds are moved to a business account or the bank account. Payment will be rendered indefinitely.

A payment processing firm will assign you a trader ID number to establish a trading account. This ID number is connected to the trader’s account that keeps your money until a transaction is settled.

You must take a merchant account to accept payments from customers by credit card and debit card unless you operate as a dealer with a payment facilitator, such as PayPal, Square and Stripe.

While a trader’s account is unique from a payment gateway, electronic or point-of-sale credit card or debit card transactions often have to be approved.

How do I make a choice of a payment processor and a payment gateway service?

It could first sound difficult to select the correct payment processor or set up a payment gateway. There are several transaction providers, all with pricing models and cost plans of their own. Exploring the sea of services available can be challenging, in particular for a contractor who cares about daily business activities.


For the sales and satisfaction of your small business, the correct credit card processor can make a big difference. Nonetheless, to make sure you get the best deal for your company, it is important to thoroughly investigate the market.

This depends largely on the form and quality of your usual purchases and on how you allow payments only at the point of sale or set up payment gates for online transactions.

A first step in getting the trip less difficult is to understand the difference between payment processors, transaction platforms and business accounts.

Komolafe Timileyin is a passionate entrepreneur that loves to solve entrepreneurial issues. He is also a blogger and an upcoming Engineer.


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