What is the difference between a payment gateway and a payment processor?
If you are in the market for credit card processing solutions, you may have come across the terms "Payment Gateway" and "Payment Processor". Although these are two important, related elements of credit card processing, they are not the same. If you are not sure of the distinction, you are not alone. However, to make an informed purchase decision about your small business's ability to accept credit card payments, it's important to understand the nuances.
This guide will familiarize you with payment gateways and payment processors. You'll also learn how both work together. If you plan to accept credit card payments online, you probably need both a payment gateway and a payment processor. Therefore, it is crucial for your small business to make the right choice.
Typically, you can set up a payment gateway in collaboration with the credit card company you select. When you set up a payment gateway through your merchant account provider, complications such as compatibility issues are less likely. This is often the cheapest way to set up a payment gateway.
Some credit card processors have their own payment gateways while others work with third-party payment gateways on behalf of their client companies. For example, one of the most popular third-party payment gateway providers is Authorize.Net. If you work through your merchant account provider, you can usually avoid setup fees for the payment gateway. You should always check the terms and conditions before you set up a payment gateway so you know exactly how much it costs you in advance, as well as monthly and sometimes even per transaction.
Payment handlers can be split into front-end and back-end handlers. Front-end processors maintain connections to card networks and billing services and manage merchant accounts on behalf of their customers. Back-end processors primarily handle transactions by transferring money from the issuing bank (the customer account) to the merchant bank, which eventually transfers the money to the company's bank account when the transaction is completed.
The pricing structures and fees of payment processors vary depending on the amount and value of the transactions you are processing and the model you choose. In general, payment processors charge a percentage of each transaction, often with a small fee per transaction and some other fees, such as: A monthly billing fee, a monthly minimum fee, and an annual PCI compliance fee.
If you want to accept credit and debit card payments from your customer online, by phone, or at the point of sale, you must partner with a payment service provider.
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Payment aggregators generally have a quick and easy claim process and allow much faster processing times than traditional payment processors. The fees are usually less complicated, and aggregators are often cheaper overall, depending on the amount and value of your transactions.
Unfortunately, payment aggregators are more risky and may penalize your account if they detect potentially suspicious activity or the increased likelihood of chargebacks.
Unlike payment processors, aggregators generally offer fixed rates, so the price you pay does not increase as your transaction volume increases. On the other hand, payment processors typically offer cheaper rates to high-volume businesses or high-value transactions.
To set up a merchant account, a payment-processing company assigns you a merchant ID number. This ID number is tied to the merchant account where your balance is located until a transaction is processed. A merchant account is required to accept credit and debit card payments from your customers, unless you work as a sub-merchant with a payment broker such as PayPal, Square or Stripe. While a merchant account differs from a payment gateway, it is often essential to accept both online and point-of-sale credit and debit card payments.
To help you choose the right payment service provider for your small business, business.com has created a guide to accepting credit card payments. We have also carefully reviewed some of the leading payment providers on the market today and compiled a list of our best deals. For more information about payment providers and how to choose the right provider for online and on-premises credit and debit card acceptance, visit the following links:
The right credit card processor can make a big difference to your small business and customer satisfaction. However, it is important to study the market thoroughly to make sure you get the best deal for your business. Whether this means accepting payments at the point of sale or setting up a payment gateway for online transactions depends largely on the nature of your business and the volume and value of your typical transactions. Understanding the difference between payment processors, payment gateways, and merchant accounts is the first step to simplifying your purchasing process.
This guide will familiarize you with payment gateways and payment processors. You'll also learn how both work together. If you plan to accept credit card payments online, you probably need both a payment gateway and a payment processor. Therefore, it is crucial for your small business to make the right choice.
What is a payment portal?
A payment gateway facilitates online credit card payments. This technology creates a secure connection between your company's website or browser and the credit card company. This secure connection is used to encrypt credit card payment data for each transaction, to verify the authenticity of a transaction, and to protect sensitive information. In the modern world of digital business, the security of your customers' financial information is paramount.Typically, you can set up a payment gateway in collaboration with the credit card company you select. When you set up a payment gateway through your merchant account provider, complications such as compatibility issues are less likely. This is often the cheapest way to set up a payment gateway.
Some credit card processors have their own payment gateways while others work with third-party payment gateways on behalf of their client companies. For example, one of the most popular third-party payment gateway providers is Authorize.Net. If you work through your merchant account provider, you can usually avoid setup fees for the payment gateway. You should always check the terms and conditions before you set up a payment gateway so you know exactly how much it costs you in advance, as well as monthly and sometimes even per transaction.
How does a payment gateway work?
A payment gateway encrypts the credit card information for online transactions when they arrive at the payment gateway at the time of purchase. The encrypted data is securely sent to the credit card processor, the card network, the bank that issued the card, and the bank of your company. Once the encrypted data has been delivered, the customer's card will be debited the appropriate amount for the transaction. The amount will be transferred directly to your company's bank account, less the fees and service charges you have agreed with your credit card processor.What is a payment processor?
A payment processor is the company that handles credit card and debit card transactions for a business. When the payment gateway moves encrypted data, it can be said that the payment processor is moving the money from one account to another.Payment handlers can be split into front-end and back-end handlers. Front-end processors maintain connections to card networks and billing services and manage merchant accounts on behalf of their customers. Back-end processors primarily handle transactions by transferring money from the issuing bank (the customer account) to the merchant bank, which eventually transfers the money to the company's bank account when the transaction is completed.
The pricing structures and fees of payment processors vary depending on the amount and value of the transactions you are processing and the model you choose. In general, payment processors charge a percentage of each transaction, often with a small fee per transaction and some other fees, such as: A monthly billing fee, a monthly minimum fee, and an annual PCI compliance fee.
If you want to accept credit and debit card payments from your customer online, by phone, or at the point of sale, you must partner with a payment service provider.
Do I need both a payment gateway and a payment processor?
You may need both a payment processor and a payment gateway to accept credit and debit card payments online. However, you can usually dispense with using a payment gateway if you only want to accept credit card and debit card payments at a point-of-sale terminal. However, virtual terminals accessed through your computer require the use of a payment gateway, even if you only accept payments at the point of sale.Is PayPal a payment gateway or a payment processor?
PayPal is a so-called payment aggregator and has its own payment gateway called Payflow. With payment aggregators, your company does not need to set up a merchant account, unlike traditional payment processors. Instead, aggregators group your transactions with those of other merchants, so you're essentially a sub-merchant in the aggregator's merchant account.Payment aggregators generally have a quick and easy claim process and allow much faster processing times than traditional payment processors. The fees are usually less complicated, and aggregators are often cheaper overall, depending on the amount and value of your transactions.
Unfortunately, payment aggregators are more risky and may penalize your account if they detect potentially suspicious activity or the increased likelihood of chargebacks.
Unlike payment processors, aggregators generally offer fixed rates, so the price you pay does not increase as your transaction volume increases. On the other hand, payment processors typically offer cheaper rates to high-volume businesses or high-value transactions.
What's the difference between a merchant account and a payment gateway?
A merchant account is essentially an agreement with the bank that establishes an area for pending transactions in which the funds are received before they are credited to your company's bank account. It differs from a payment gateway in that it does not transmit encrypted data, but the amounts associated with the transaction. The payment is temporarily held in the merchant account as soon as the transaction is completed. At that time, the money will be transferred to the bank account of your company through the merchant account.To set up a merchant account, a payment-processing company assigns you a merchant ID number. This ID number is tied to the merchant account where your balance is located until a transaction is processed. A merchant account is required to accept credit and debit card payments from your customers, unless you work as a sub-merchant with a payment broker such as PayPal, Square or Stripe. While a merchant account differs from a payment gateway, it is often essential to accept both online and point-of-sale credit and debit card payments.
How should I choose a payment processor and payment gateway provider?
Choosing the right payment service provider and setting up a payment gateway may initially seem complicated. There are many payment providers with their own pricing models and fee schedules. It can be difficult to navigate through the sea of available services, especially for an entrepreneur who deals with the daily business of his company.To help you choose the right payment service provider for your small business, business.com has created a guide to accepting credit card payments. We have also carefully reviewed some of the leading payment providers on the market today and compiled a list of our best deals. For more information about payment providers and how to choose the right provider for online and on-premises credit and debit card acceptance, visit the following links:
The right credit card processor can make a big difference to your small business and customer satisfaction. However, it is important to study the market thoroughly to make sure you get the best deal for your business. Whether this means accepting payments at the point of sale or setting up a payment gateway for online transactions depends largely on the nature of your business and the volume and value of your typical transactions. Understanding the difference between payment processors, payment gateways, and merchant accounts is the first step to simplifying your purchasing process.
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