The payment ecosystem involves many players, including payment gateways and processors. Shoppers interact with gateway technologies when checking out from your e-commerce platform or payment link. Meanwhile, merchants rely on processors to process and deposit funds securely.
These technologies and services are entwined yet different in many more ways. This guide outlines the systems while comparing functionality, security, and integrations. Learn when to use a payment gateway versus a payment processor, and find solutions that offer both.
Main takeaways: payment processor vs. payment gateway
Both payment technologies are integral to payment acceptance. However, a payment gateway handles the front-end aspect, whereas a processor manages the back end.
You need a payment processor to take credit cards in person through a point-of-sale (POS) system or card reader. Conversely, e-commerce transactions require processing and gateway services. The same goes for your customer who pays over the phone, and your business processes the payment through a virtual terminal. Fortunately, many processors include both with their services.
To summarize the differences between payment processor and payment gateway services, consider these use cases:
- A payment processor is best for any business that wants to accept electronic payments, such as credit and debit cards, digital wallets, or e-checks.
- A credit card gateway is best for merchants who process online transactions, take payments over the phone, or prefer a virtual terminal over a physical system.
What is a payment gateway?
A payment gateway is a technology that collects cardholder payment information at the point of sale. It authenticates the payment method and transfers the data to the credit card processor or merchant-acquiring bank. Payment gateways encrypt card details, ensuring information security and compliance with the Payment Card Industry (PCI) standards.
E-commerce platforms, payment pages, and virtual terminals use online payment gateways to facilitate card-not-present (CNP) sales. When the gateway comes with your service, it’s hardly noticeable. The provider builds the interface into your payment acceptance system or integrates a third-party solution.
Credit card processing companies also offer proprietary gateways or integrations with well-known services, like Authorize.net. Many payment service providers (PSPs) connect to popular online storefronts and supply application programming interfaces (APIs) for custom installations.
While less visible in brick-and-mortar purchasing experiences, payment gateways transmit and authorize transaction data behind the scenes. POS devices, credit card machines, and payment terminals capture and transmit cardholder data. Companies like Clover and Square build gateway functions into their processing ecosystem, whereas a third-party device like Verifone connects to your PSP or gateway service.
[Read more: Payment Gateways: Why They Work and Why Your Business Needs One]
What is a payment processor?
A payment processor is a service or company that enables your company to process mobile wallets and credit and debit cards. It communicates with card networks and financial institutions, handling the transaction from beginning to end. Like payment gateways, processors comply with PCI standards for secure payment processing. Once settlement occurs, the provider transfers funds from the customer’s bank to the merchant or business bank accounts.
The terms “payment processor” and “credit card processor” are used interchangeably. Both manage the technical aspects of payment acceptance. The broader “payment” verbiage indicates support for credit and debit cards, Automated Clearing House (ACH), and digital wallets.
A PSP or payment aggregator also processes electronic transactions. Vendors like Stripe and PayPal are PSPs. They don’t establish individual merchant accounts to hold funds during the process. On the other hand, merchant account providers like Helcim maintain dedicated merchant bank accounts.
A credit card gateway is best for merchants who process online transactions, take payments over the phone, or prefer a virtual terminal over a physical system.
Differences between payment processors and payment gateways
The payment ecosystem involves merchants, customers, technology providers, card networks, and various financial services. Payment processors and gateways are key players with distinct roles and functions.
[Read more: E-Commerce Credit Card Processing: The Ultimate Guide to Accepting Payments]
Core functions
Payment gateways capture and encrypt transactions, whereas processing services oversee the end-to-end payment acceptance system, from confirming purchase approval or denial to transferring funds to the merchant.
Think of it this way: The gateway is a front-end system that interacts with customers, allowing your company to collect and verify card information. On the other hand, the credit card processing provider handles the back end, including what is arguably the most important part to small businesses: settlement and funding.
Security
Despite their differences, processors and gateways both work to enable secure transactions. Online gateways encrypt sensitive data and often offer fraud tools like card verification value (CVV) and address verification service (AVS) checks. When your customer enters their billing address and the card’s CVV code at checkout, the payment gateway runs these checks to detect fraud.
However, since payment processors manage the whole transaction lifecycle, they have a broader role in the security process. These providers maintain infrastructure and continuously monitor transactions. Data encryption, tokenization, and robust fraud detection systems protect customer information and payment networks.
[Read more: How to Protect and Secure Customer Data]
Integrations
The difference between payment processor and payment gateway integrations returns to their core roles. While gateways focus on front-end integrations with e-commerce platforms and POS systems, payment processors connect to financial technologies like accounting programs and banks.
Payment gateways integrate with shopping cart software, POS systems, and various merchant platforms through plugins and APIs. They play a customer-facing role and provide seamless checkout experiences. Meanwhile, processors integrate with many financial institutions to move funds securely and accurately. Many also support multiple payment channels and third-party services, but the integration process differs by vendor.
However, the setup process is more straightforward if you choose a payment processor with pre-built shopping carts, payment pages, or online store builders. Vendors may also preconfigure credit card machines to work with existing systems and provide virtual terminals for CNP transactions.
Services and features
Although payment gateways and processors provide essential tools for small businesses, they offer different value-added services. For instance, unlike gateways, payment processors help business owners with chargebacks and disputes.
Indeed, PSPs and merchant account providers supply extensive customer support, including dedicated agents, 24/7 help lines, and assistance with funding questions or integrated hardware. In contrast, most payment gateways help with basic technical questions regarding integrations and features. Many gateway services are also available 24/7.
Other differences include the following:
- Reporting: Merchants can monitor sales through payment gateway dashboards and analytics. Processors offer a complete view of your transactions, from settlement to reconciliation reports.
- Recurring billing: Some gateways provide subscription management tools for customer profiles and automated billing. Processors ensure recurring funds transfer reliably and securely to your account.
- Additional services: Payment processors may offer many business services, including cash advances, POS software, or payroll processing. Add-ons for gateways prioritize checkout experiences with fraud detection tools or customizable payment pages.
[Read more: How To Streamline Payment Processing]
Payment gateways and processor solutions
Merchants and customers want a fast, convenient checkout and processing experience. Find services that support your sales channels and business goals to ensure your payment ecosystem works together.
Here are a few payment processing providers with gateway options:
- Stax: High-volume e-commerce merchants appreciate this vendor’s API capabilities and integrations with major platforms, including WooCommerce and Lightspeed (previously Vend).
- Helcim: In addition to APIs, Helcim offers hosted payment pages, a subscription manager, and an end-to-end e-commerce store.
- ProMerchant: Through an Authorize.net integration, ProMerchant supplies “buy now” buttons and shopping cart integrations.
- Merchant One: The gateway services include an invoice generator, customer vault, and hosted checkout tools.
- Clover: This payment processor and POS system provider offers a gateway with a card account updater and security package.
- Payment Depot: Along with virtual and mobile processing solutions, Payment Depot supports third-party gateways like Authorize.net and SwipeSimple.
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