Difference between payment gateway and payment processor www.deekpay.com

What is a payment gateway

Payment GatewayIt is the easiest way for companies to receive digital or online payments through their website or app. It is a platform that connects a merchant's bank account to the merchant's need to transfer money.

Payment gateways authorise merchants to conduct online transactions through different payment methods, such as online banking, credit cards, and debit cards,UPI or many of the online wallets available today. It plays the role of a third party, securely transferring the merchant's funds from the bank account to the merchant'spayment gateway.

Related reading:Types of payment gateways.

What is a payment processor

Payment Processoris a payment system that manages customers' transactions and allows them to purchase goods and services from merchants. It acts as an intermediary between cardholders, merchants, acquiring banks and issuing banks.

It is a common system used by merchants to execute online transactions with customers through various channels such as credit cards, debit cards or bank accounts.

When an online purchase is made, the payment gateway transmits the transaction data and provides information to approve or reject the payment based on various parameters. However, it does not handle the processing of the payment itself, which is where the payment processor comes into play.

Payment Gateways and Payment Processors

A payment gateway is a network that collects, validates, and performs fraud checks on a customer's credit card information before sending it to a payment processor.

A payment processor is a service that routes a customer's credit card information between the customer's bank and a commercial bank.

Following are the main differences between payment gateways and payment processors based on various parameters:

Payment Gateway Payment Processor Works Collects, encrypts, and verifies credit card information Cardholders, merchants, acquiring banks, and issuing banks communicate with each other. Define a payment gateway approves or rejects transactions between a website and a customer. The payment processor is responsible for transferring funds through the communication between the merchant, issuing bank and acquiring bank. How to choose a PG offers different payment methods.PP Ensures PCI compliance, software compatibility and fraud prevention. Uses Acts as a card validation and fraud prevention endpoint. Acts as a mediator between merchants and financial institutions to facilitate credit card transactions. Scenarios E-commerce shops and card-not-present (CNP) transactions. POS and face-to-face transactions. Does it facilitate payment No. The payment gateway only communicates the status of the transaction. Yes. Key Differences between Payment Gateways and Payment ProcessorsComponents of electronic payments

During the payment process, all parties work together to ensure a smooth and secure transaction:

Customer: Initiate payment by providing payment information such as credit card, UPI or bank details. Payment gateway: acts as an intermediary, encrypting the customer's data and authorising the transaction. Acquiring bank (merchant bank): receives authorised transactions and processes settlements. Card networks (e.g. Visa, MasterCard): Facilitates the transfer of funds between the acquiring bank and the customer's issuing bank. Issuing bank (customer's bank): validates the customer's payment information and ensures that sufficient funds are available for the transaction.

The payment gateway authorises online payments through different payment methods such as credit card, debit card, internet banking, UPI, etc. It follows Secure Socket Layer (SSL) encryption technology for safe and secure transfer of funds. The security of data is the responsibility of the payment gateway.

The payment processor is responsible for delivering the payment to the merchant's bank account, acting as a communications intermediary.

How payment gateways work

When the merchant clicks "Buy Now", the payment gateway will perform the following steps:

Data encryption: The first task of a payment gateway is to convert a merchant's payment details (such as card numbers and CVVs) into an indecipherable code. This ensures that the merchant's information remains secure throughout the online journey. Secure connection: The payment gateway creates a secure connection between the merchant's online shop and the bank (often using the familiar HTTPS). Authorisation request: Once the merchant's information reaches the payment gateway, it sends an authorisation request to the merchant's issuing bank. Bank Approval: The merchant's bank reviews the request and checks the merchant's account. If the merchant's information is verified, it sends an "approved" signal back to the payment gateway. Transaction Completion: With the green light from the bank, the merchant's payment is completed and the merchant receives a happy "transaction successful" message.

Related reading.How Payment Gateways Work.

When to use a payment gateway

As a business owner, it is necessary to use a payment gateway if the merchant accepts payments via

E-commerce shops: If a merchant runs an online shop, a payment gateway is a must. It enables secure and convenient transactions and fosters customer trust. Small businesses: Small businesses can also benefit from a payment gateway, especially if they operate online or want to accept digital payments in-store. Subscription services: For businesses offering subscription-based services, payment gateways simplify recurring billing and ensure easy payment for customers. Donations and fundraising: Non-profit organisations and charities can use payment gateways to facilitate online donations. This extends their reach and makes contributions more accessible. How Payment Processors Work

Payment processors are systems that handle online transactions. They act as an intermediary between the merchant and the financial institution in question. Here's an inside look at how payment processors work:

Transaction initiation: The payment processor starts running when the merchant fills the shopping cart and clicks on the payment tab. Merchant to Processor: The merchant (online shop) sends the merchant's payment details (including the purchase amount and the merchant's card information) to the payment processor. Processor to Bank: Next, the payment processor communicates with the merchant's card-issuing bank to ask the merchant if they have enough funds for the purchase. Bank Confirmation: The merchant's bank reviews the request and checks the merchant's account. If there is a sufficient balance, it sends back an "approved" signal. Transaction Complete: The payment processor now tells the merchant, "Great!" The purchase is complete. The merchant receives an order confirmation message. When to use a payment processor

Payment processors oversee the credit card transaction process by acting as an intermediary between the merchant and the financial institution in question. A credit card processor can authorise credit card transactions and help merchants get paid on time by enabling payment transfers. The following are situations in which merchants should consider using a payment processor:

High Transaction Volume: If a merchant's business handles a high volume of transactions, such as a busy retail shop or e-commerce giant, a payment processor can efficiently handle the heavy lifting. Credit card payments: payment processors specialise in processing credit card payments. If a merchant's business relies heavily on credit card transactions, a payment processor is essential for fast, secure processing. Point-of-Sale (POS) Systems: Businesses that use POS systems, whether they are brick-and-mortar shops or food outlets, can benefit from the fast, accurate payment processing of a payment processor. Global Expansion: As merchants take their business international, payment processors can simplify the complexity of handling different currencies and payment methods, allowing for smoother global expansion.

concluding remarks

Payment gateways and payment processors have distinct but interrelated roles, and each plays a vital role in ensuring that merchants' financial transactions run smoothly.

Payment gateways are perfect for businesses that need a secure path to process card payments, especially in the e-commerce space. Payment gateways specialise in encrypting merchants' payment details to ensure a secure online buying process. They usually charge a fee for each transaction, which can vary depending on the merchant's provider and scheme.

A payment processor is vital for businesses looking to process a large number of transactions. It interacts with banks to ensure funds are available and facilitate transfers. Payment processors usually charge fees based on transaction volume, sometimes including a fixed fee per transaction.

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