Digital payments have become a part of the ‘new normal’ as a payment method for the majority of the population in India. While sending and receiving payments online has become a common part of consumers’ lives, business owners are actively finding ways to simplify seamless payments by using multiple digital payment solutions that increase customer satisfaction through seamless checkout.
If you want to maximize your revenues going forward, you need to provide an array of digital payment options to potential customers. And when you are in the market for such payment solutions, you will come across these two terms – payment processors and payment gateways. What are they and how do we differentiate between them? Let’s jump in!
What is a payment processor?
A payment processor is a payment solution that handles your customer transactions and enables them to buy your products and services. It is a mediator between the cardholder, merchant, acquiring bank, the payment gateway, and the issuing bank.
When an online purchase is made, the payment gateway transfers the transaction data and approves or declines the payment based on various parameters. However, it does not deal with the processing of the payment itself. That is where the payment processor comes in.
What is a payment gateway?
A payment gateway is the simplest way for a business to collect digital or online payments from their website or app. It is a tunnel that connects your bank account to the platform where you need to transfer your money.
A payment gateway authorizes you to conduct an online transaction through different payment modes like net banking, credit card, debit card, UPI, or the many online wallets that are available these days. It plays the role of a third party that securely transfers your money from the bank account to the merchant’s payment portal.
Difference between a payment gateway vs a payment processor
|
Features |
Payment Gateway |
Payment Processor |
| Definition | A payment gateway is a tunnel that connects your bank account to the platform where you need to transfer your money. | A payment processor is a solution that allows you to accept different payments without setting up separate payment integrations. |
| How to choose | The payment gateway should primarily have multiple payment modes, international payments support, swift integration, pricing, and easy checkout | The payment processor should have PCI compliance, software compatibility, and fraud prevention |
| Use | A payment gateway authorizes you to conduct online transactions through different payment methods | It acts as a mediator between the cardholder, merchant, acquiring bank, the payment gateway, and the issuing bank |
| Benefits | It plays the role of a third party that securely transfers your money from the bank account to the merchant’s payment portal | It can authorize transactions and facilitate the transfer of funds to ensure timely settlements at the business owner’s side. |
| Does it facilitate the payment? | No, it communicates the approval or decline of transactions | Yes |
Remember, payment processors do not deal with authentication directly; that’s the role of the payment gateway or payment terminal (in a transaction where the customer physically presents a card).
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It is possible to obtain your payment gateway and payment processor from different providers. However, this can create difficulties whenever issues or disputes arise. After all, who can you blame if your online store suddenly has transaction issues in the middle of the night? So, by securing all three from the same provider, you reduce interoperability issues and miscommunication.
