Understand the Difference Between a Payment Gateway and a Payments Processor

Ever wondered if a payment gateway and a payment processor is the same? You’re not alone. The world of digital payments often throws up a lot of complex, confusing terms. In this article, we talk about the difference between a payment processor and a payment gateway and the roles they play in the overall payments flow.

What is a payment gateway?

A payment gateway is a service (offered by a payment services provider, like Novalnet) that allows your business to accept online payments. Using a gateway, you can accept payments from buyers, anywhere in the world, in multiple currencies. A payment gateway acts like an intermediary between customers and merchants, enabling payments and keeping merchants and customers from fraud.

It follows strict processes to secure data as defined by the PCI DSS compliance standards, including periodic audits and recertifications. Payment gateways also encrypt sensitive payments data before sending it from the merchant to the acquiring bank. Choosing the best gateway for your business depends on many factors. But the best one for your business will be the one that supports multiple payment methods, while simplifying the checkout process.

How does a payment gateway work?

A payment gateway is linked to a business’s online shop. When a customer completes the purchase, they fill out their billing and shipping details on the merchant’s checkout page. These details are collected by the payment gateway. It then encrypts the data, performs fraud checks, and passes it to the payment processor for the next steps. Once the payment is approved and completed, the payment gateway passes on the confirmation to the customer. While there are a number of steps involved, the entire process only takes seconds, and the customer gets to know if there payment is accepted or declined right away.

Read more: How to Add a Payment Gateway to Your Online Store

What is a payment processor?

A payment processor is a company that processes all digital payments on behalf of a merchant’s bank (also called the acquiring bank). Sometimes the acquiring bank itself acts as the payment processor. A payment processor can verify and authorize payments. It works with the merchant’s bank to ensure the merchant gets paid. It facilitates communication between the payment gateway, the merchant’s bank, the payment network, and the customer’s bank. The payments processor also offers PCI DSS compliance (a must in Europe), customer and tech support, fraud checks, and a host of other value-added payment processing services.

How does a payment processor work?

The payment gateway first captures the customer’s payment info and sends it to the payment processor. The payment processor then shares this info with the payment network, which in turn, sends it to the customer’s bank (also called the issuing bank). The issuing bank performs various checks, such as verifying if the customer payment details are correct and if they have sufficient funds in their account.

If all is in line, the issuing bank approves the transaction and communicates it to the payment processor via the payment network. The payment processor then authorizes and clears the transaction, and the results are shared with the customer via the payment gateway. All of these steps take place in the background within a few seconds.

What’s the difference between a payment gateway and a payment processor?

• A payment gateway is an application that is integrated into an e-commerce/ online shop using APIs. It helps a business accept a host of online payment methods, while keeping payments secure.
• A payment processor is a company that processes payments and handles other related technical aspects for the merchant’s bank (or acquiring bank). Sometimes, the acquiring bank itself is also the payment processor, while in other cases both are separate entities.

What is a Payment Services Provider (PSP)

Both payment gateway and payments processor are essential to the payments process and you cannot do away with either. You need both in order to accept or make digital payments. But rather than working with two separate entities (which can be expensive and complex), you can choose to partner with one payments services provider, or PSP.
Working with a PSP has several advantages, such as:

• Let’s you offer a comfortable and secure payments experience to your customers, leading to higher sales and a stronger brand image.
• Gives you one singular partner that provides you all payments processing services under one roof. A single point of contact ensures your payments run smoothly so that you can focus on your business rather than worrying about payments.
• Ability to accept multiple currencies and multiple payment methods – this helps you sell to a global audience.
• Quick and easy integration of multiple payment methods into your website, online store, or mobile app.
• Compliance with global payment standards to ensure secure payments.
• Enhanced fraud protection using AI-based risk solutions.
• Payment and chargeback guarantees to ensure your money is safe.

How Can Novalnet Help

We can help you create a payments experience that will delight your customers and boost your brand. We are a global PSP with decades of experience in helping Europe’s leading brands process their payments. With our technology, you can accept payments globally in 125+ currencies in 150+ automated country-specific payment methods. Plus, our AI-based risk management solutions and advanced analytics solutions help you design the best payment experiences for your customers, all in a fully secure PCI DSS-certified environment. And that’s not all.
Reach out to us today to know more.

Jose Augustine

Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.