The Difference Between a Payment Gateway vs. Payment Processor

To start, let’s keep it simple. Think of the gateway as a helpful tool that you, your customers, or your employees can use to approve or decline a transaction, which triggers your payment processor to process the transaction behind the scenes.

To start, it might help you to know the parties involved when making a payment. We will look at an example of payment by credit card: There are four parties involved with every credit card transaction:

  1. The business that accepts the card payment (in this case, you)
  2. The consumer, which is the person who uses the card to make the payment
  3. The acquiring bank that receives the payment (your bank)
  4. The issuing bank that issued the consumer’s credit card
  5. The role of payment processors and payment gateways differ, yet each is a vital component in accepting payments online

What Is a Payment Processor?

The payment processor is the software that executes the payment transaction. The payment processor makes the transaction happen by transmitting data between you, the issuing bank, and the acquiring bank (your bank). A payment processor provider also typically provides the means to accept the credit card payment, such as an online portal or a card-swipe machine.

In the case of BillingTree, we run the whole gamut of online payment tools to improve the payment experience for your end-users. These include an online portal, SMS/Text payments, Interactive Voice Response systems (IVR), and email payment links for instances where you need someone without an account to make a payment, and so much more. In addition, we also offer essential features like Account Updater, which automatically updates card information when an account is close to its expiration date to avoid late payments, custom reporting tools, and we work with multiple banks for redundancy, ensuring your payments are always processing securely.

What Is a Payment Gateway?

A payment gateway is the secure online portal (or stand-alone device) that the consumer works with to enter the credit card number. The payment gateway securely authorizes payments for payment-accepting websites. Think of it as an online point-of-sale terminal for your business. When the card number is entered, the payment gateway connects with the payment processor to complete the transaction.

Key Differences

The most crucial difference to keep in mind is that a payment processor facilitates the transaction. On the other hand, a payment gateway is a tool that communicates the approval or decline of transactions between you and your customers.

Things to Consider

The critical aspect of payment gateways and processors is secure transactions. Both the gateway and processor must be Payment Card Industry Data Security Standard (PCI-DSS) compliant to ensure secure transmission and protection of consumers’ financial information. All gateways and processors must be audited and certified annually to the most current standard, so be sure to look into a company’s compliance certification if you are trying to decide on a third party for either. In addition, to use a payment processor and payment gateway, you must have a merchant account. Many payment-processing providers can also help you set up a merchant account as well.

As mentioned above, there are many gateway and processor companies out there looking to gain your business. Your options are seemingly endless, so you can afford to be highly selective when making the decision. We suggest looking into the following aspects first when deciding which third-party gateway or processor to use.

  • Compliance
  • Security
  • Features
  • Industry-specific service
  • Price-points

Takeaways

BillingTree offers payment processors, payment gateways, and merchant accounts to our customers to ensure you and your customers can have a flawless payment experience. They are easy to implement and PCI-DSS, HIPAA, and SSAE-16 compliant so that you can begin taking fully compliant payments. If you would like more information contact, reach out today for a free demo request.