Payment Gateway vs Payment Processor

Payment Gateway vs Payment Processor - What You Need to Know

Every payment processor requires a payment gateway, but not every payment gateway includes a payment processor. If you want to accept credit card payments on behalf of your business, you’ll need both of these important items, one of which allows you to accept payments securely and the other of which allows you to manage those transactions.

What Is the Difference Between a Payment Gateway and a Payment Processor?

The main difference between a payment gateway and a payment processor is that the payment gateway is a communication tunnel that connects the customer, banks, card networks, and the merchant to return an “approved” or “declined” message for each transaction. A payment processor is a service provider that facilitates electronic transactions for merchants.

41% of transactions in Europe were completed using payment instruments other than cash in 2022, according to the European Central Bank. The widespread use of electronic payment methods like cards and mobile apps makes it important for merchants to familiarise themselves with the process and the factors that go into choosing a payment processor and payment gateway.

What Is a Payment Gateway?

An online payment gateway is the virtual tunnel through which a transaction must travel. When a customer makes a payment on your website with a credit or debit card, it must pass through the gateway in order to reach your merchant services account. It’s the invisible link between you and your customer when a payment is submitted. A quality payment gateway is encrypted to prevent third-party interception and ensure that each payment goes to its intended destination.

What Is a Payment Processor?

A payment processor processes and manages all of the online payments you receive. Whereas the payment gateway is only concerned with the sender and receiver in a given transaction, the payment processor stores and tracks your online transaction payment data and allows you to transfer your earnings from your merchant account into your own personal or business bank account. The processor is concerned with your customers, the acquiring bank, the issuing bank, and the payment gateway. Your money is typically managed via a proprietary software solution.

Do I Need Both a Payment Gateway and a Payment Processor?

Most merchants will need both a payment gateway and a payment processor. The only major exception is if you accept debit and credit card payments exclusively at an in-person point-of-sale terminal. In these cases, your point-of-sale provider should have its own gateway through which incoming payments are transmitted.

If you operate in the e-commerce space and need to accept credit and debit card payments online, you’ll want to invest in payment gateway services with a dedicated merchant account. It’s the most affordable and reputable way to go. While you technically could use a payment aggregator like PayPal, this is not recommended for serious businesses. Not only are payment aggregators more inconvenient for customers, but:

  • It can reflect negatively on your business if your website is unable to natively accept credit card payments.
  • When you process high volumes of transactions, payment aggregators tend to be much more expensive. They typically offer fixed rates, which means you’re ineligible for discounts as your volume increases. With your own gateway, you can usually secure lower rates for high volumes.
  • Payment aggregators are extremely risk-averse, meaning that they’re much more likely to freeze or place a hold on your account if they suspect any suspicious activity. This can be very costly and frustrating for businesses.

For the sake of your business, always opt for both a payment gateway and a payment processor.

What to Look for in a Payment Gateway

When it comes to payment gateways, the most important thing is security.

  1. Always ensure that the gateway is PCI-compliant. If your business manages a high volume of card-not-present transactions (such as online transactions), ensure that the gateway is Level 1 compliant, as such gateways are equipped to manage millions of CNP transactions every month.
  2. Your gateway should be protected with SSL encryption to prevent third-party infiltration. Unicorn Group uses the SHA-256 SSL encryption standard to ensure maximum security for merchants.
  3. If you cater to an international audience, make sure that your payment gateway is able to accommodate a wide range of currencies and payment methods.

What to Look for in a Payment Processor

When choosing a payment processor, you’ll want to go with a respected, reputable company that offers a full suite of merchant services, including chargeback and fraud prevention tools, digital wallet services, and a convenient dashboard from which you can view incoming and past transactions in an easily digestible format. It’s also important to choose a company that offers excellent customer support.

The Pros & Cons of Choosing a Combined Payment Processor and Gateway

Some merchant services providers offer a secure payment gateway combined with full-service payment processing. But is it a good idea?

Pros: The main benefit is the convenience. You don’t have to shop around for multiple service providers, you don’t have to complete any complicated configurations, and you never have to worry about compatibility. Everything is streamlined. In addition, you can often save money by bundling these services.

Cons: Some merchant services providers will require you to use their gateway. So if you already have a gateway that you’re happy with, you may be out of luck. And you never want to get stuck with a gateway that doesn’t offer all of the currencies or payment options you need. If you do decide to bundle, make sure that the service includes everything you require.

Find the Solution that Best Meets Your Needs

E-commerce merchants need a payment processor and a payment gateway to accept and process electronic payments. When comparing payment processors and gateway options, prioritise security, compatibility, ease of use, and multicurrency capabilities if your business is international.

While you need both of these services to process non-cash payments, you have the option of contracting two different services or bundling them together. Bundling is usually the simplest option and guarantees compatibility. Make sure the processor and gateway offer all the features you need and you can go ahead with confidence.