What is the Difference Between a Payment Gateway and a Payment Processor?

If you are a business owner, the terms payment gateway and payment processor are likely not foreign to you. In fact, they are likely something you have spent a lot of time thinking about. However, understanding the difference between the two may at times seem difficult. Yet it does not have to be so complicated. The reality is, these similar tools for payment processing are not hard concepts to understand with just a little explanation. So what exactly is the difference between a payment gateway and a payment processor? Let’s find out the answer to that question below.

The Four Entities of a Credit Card Transaction

Credit Card Gateway

Before we look at the difference between payment gateways and payment processors, it is helpful to first look at the different entities involved in a credit card transaction. There is the customer, the merchant, the acquiring bank and the issuing bank. The acquiring bank is the bank that the merchant utilizes for payment processing whereas the issuing bank is the bank that provided the customer with their credit card. We are simply referring to the respective banks of both the customer and the merchant. Now that we have these terms in place, let’s take a look at the difference between a payment gateway and a payment processor.

Payment Processor

A payment processor is responsible for sending payment data from the merchant to the issuing bank and then to the acquiring bank. Traditionally, a payment processor would furnish you with processing equipment such as your credit card machines and so on. This is the payment solution that you are most likely already acquainted with.

Payment Gateway

Now let’s take a look at payment gateways. A payment gateway is very similar to a payment processor in that it is a tool that transmits payments between the customer’s bank and yours. The main difference however is that it is primarily used as a tool for e-commerce or card not present transactions. In other words, it is essentially a point of sale terminal for online transactions. A payment gateway is often one of the services offered by a payment processing company. However, the downside is that not all payment processing companies offer them.

Conclusion

Whichever payment processing solution you go with will simply depend on the specific needs of your business. If you do not have an e-commerce store, you are less likely to need a payment gateway. It would make more sense to sign up with a basic merchant account since you will not need it to do anything extra. But if you plan on starting an e-commerce business, a payment gateway is likely the solution you will be needing. If this is the route you plan on going, make sure you find a payment processor that includes a payment gateway.

As you can see, payment gateways and payment processors are very similar yet distinctly beneficial tools for completing credit card transactions. Both are great solutions for what they were built to do in regards to payment processing. The tool you end up going with will be determined by your specific needs and preferences. Regardless of which payment solution you go with, Tidal Commerce can provide you with what you are looking for while offering exceptional service and cutting edge technology. Please let us know if you have any further questions. We look forward to providing your business with the payment processing tools it needs to succeed.