Payment Gateway and Payment Processor: What You Need to Know

Payment gateways serve to gather and authenticate a customer's credit card information. They function as the digital equivalent of a physical point-of-sale terminal chip reader. Their primary objective is to validate a transaction, and they typically feature a payment page where customers can securely input their details.

Fremont, CA: You are likely familiar with the terms "payment gateway" and "payment processor" being used interchangeably. Although both are crucial in handling online transactions, the difference between the two can be unclear, particularly for those new to the e-commerce industry.

Payment Gateway

Payment gateways serve to gather and authenticate a customer's credit card information. They function as the digital equivalent of a physical point-of-sale terminal chip reader. Their primary objective is to validate a transaction, and they typically feature a payment page where customers can securely input their details.

The gateway's integration into the website can be seamless (a white-label payment gateway), or the checkout process may redirect customers to the gateway's site to finalize the transaction before returning them to the merchant. This setup is known as a third-party payment gateway. Payment gateways are commonly provided as a complimentary service, as the company levies charges for the payment processing aspect of the transaction.

After credit card information is submitted, the payment gateway forwards it to the payment processor for verification purposes. Instead of directly processing the transaction, the payment gateway ensures the card's validity, much like a point-of-sale terminal verifies the chip of a physical credit card.

Payment Processor

A payment processor acts as a communication intermediary, facilitating the exchange of messages between your business, your customers, their bank accounts, and your bank account.

Regardless of the nature of your business, having a payment processor is essential. Additionally, many payment processors offer POS systems for brick-and-mortar stores to assist in gathering credit card details during transactions.

Numerous enterprises utilize a payment processor linked to their merchant account, ensuring direct delivery of all payments. Alternatively, a third-party payment processor can handle payments for multiple businesses, offering a more efficient process with reduced fees.

The roles of a payment gateway and a payment processor differ. Payment gateways are crucial for validating a customer's credit card details, whereas payment processors manage the communication in the background, ensuring that payments are successfully deposited into your account. Certain companies, like Stripe, offer both of these services.

In general, online stores will typically require both solutions, whereas physical retail stores usually only need a payment processor.