In the rapidly evolving world of digital commerce, the ability to process payments efficiently and securely is paramount. Whether you're a small business owner venturing into online sales or a seasoned retailer looking to optimize in-store transactions, understanding the payment landscape is essential.
Two terms that often surface in this context are payment gateway and payment processor. While they may seem interchangeable, they serve distinct functions in the payment process.
But what exactly are these terms, and how do they differ? Why might a business need one or both, and how do you choose the right solutions for your specific needs?
This article aims to demystify these concepts, breaking down the differences between payment gateways and payment processors, their roles, when to use them, and how to select the best options for your business.
Payment gateway vs payment processor: What's the difference at a glance?
Payment gateways and payment processors are two essential components in the payment processing chain, often confused but serving distinct roles. A payment gateway verifies and authorizes card information, while a payment processor handles the logistics of the transaction, transmitting data between the merchant, banks, and card networks.
For a quick overview, take a look at the table below:
|Payment Gateway||Payment Processor|
|Gathers, encrypts, and verifies customer’s credit card information||Transfers funds by communicating between the merchant, acquiring bank, and issuing bank|
|Acts as a digital POS terminal||Acts as an in-person POS|
|A bridge between the business and the customer’s bank||A bridge between the business, customer’s bank, and the merchant’s bank|
|Must be integrated with a payment processor||Can be used on its own|
|When to use: Ecommerce or card-not-present transactions||When to use: Digital wallets, bank transfers, direct debits, and in-person payments|
What is a payment gateway?
A payment gateway is a technology that encrypts and transmits payment details from the point of entry to the payment processor.
It acts as an online point-of-sale terminal, authorizing payments for card-not-present transactions, mainly for eCommerce websites. Payment gateways can be third-party or integrated into the merchant's e-commerce platform.
When to use a payment gateway
Payment gateways are essential for online transactions, especially in the world of e-commerce. They are used to:
- Set up an online store.
- Collect payments over the phone without a physical credit card present.
- Collect in-person payments without a full POS system.
- Integrate payments with accounting or CRM software.
How to choose a payment gateway for your business
When selecting a payment gateway, consider:
- Integration with your existing systems.
- Costs and fees, which may range from 1% to 3% of the purchase.
- Whether you want to receive international payments.
- If you prefer a third-party or native payment gateway.
What is a payment processor?
A payment processor executes the transaction by transmitting data between the merchant, issuing bank and acquiring bank. It's responsible for relaying transaction details and is necessary for all card-based transactions. Payment processors may also provide credit card machines and other equipment to accept credit card payments.
When to use a payment processor
Payment processors are required for any business accepting credit card payments. They are used:
- In brick-and-mortar stores.
- To accept payments online (e.g on an ecommerce website).
- In pop-up shops that travel to different venues.
How to choose a payment processor
When selecting a payment processor:
- Understand your basic setup needs, including merchant account and POS system.
- Consider costs, which are often a percentage of the transaction plus a fixed fee.
- Look for providers that offer discounts for high transaction volumes.
- Evaluate if the processor accepts all types of mobile wallets and local payment methods
Do I need a payment gateway, a payment processor, or both?
The decision to use a payment gateway, payment processor, or both depends on the nature of your business and the way you handle transactions.
For E-commerce businesses, the online nature of transactions necessitates both a payment gateway and a payment processor. A payment gateway is essential to authenticate and verify card information, acting as a secure bridge between the customer's bank and your website. Meanwhile, the payment processor handles the actual transfer of funds, ensuring that the money reaches your account. Together, they create a seamless and secure online payment experience.
Brick-and-mortar shops, on the other hand, typically require only a payment processor. Since transactions occur in person, the need for online authentication through a payment gateway is eliminated. The payment processor takes care of transmitting data between the merchant, issuing bank, and acquiring bank, making it a one-stop solution for in-store card payments.
Hybrid businesses that operate both online and in-person will need both. If the business accepts online payments, a payment gateway becomes necessary to verify online transactions. Simultaneously, a payment processor is required to handle all card-based transactions, whether online or in-store. The combination ensures that all bases are covered, providing flexibility and security across various transaction methods.
Pin Payments Makes It Easy for Small Businesses to Accept Payments
In the complex landscape of online payments, small businesses often face challenges in setting up and managing accounts with multiple providers. Traditional methods require a separate payment gateway, processor, and merchant account, which can be cumbersome and difficult for small businesses to obtain.
Pin Payments simplifies this process by offering a single, all-in-one solution. This approach not only streamlines the payment process but also makes it more accessible for small businesses.
Historically, obtaining an online merchant account through banking institutions has been a challenging task for small businesses. Pin Payments eliminates this barrier by providing a small business-friendly solution that's free to set up and maintain. With a number of ways to accept card payments online, Pin Payments offers flexibility and ease of use, catering specifically to the needs of small business owners.
Whether you're just starting your online venture or looking to optimize your existing payment process, Pin Payments provides a straightforward and cost-effective solution to accept card payments from your customers online.
Get started with Pin Payments today, and take advantage of a system designed with small businesses in mind.