Payment Gateway Vs Payment Processor: Differences you need to know

Choosing payment gateway vs payment processor options depends on your business size and payment options to the customers. In this digital day and age, you can easily choose from cash, cheque, credit card, debit card or bank transaction options. This allows you to make secure payments with the method you are comfortable with.

Since digital payments are becoming the norm, businesses are looking for options to streamline customer processes. Additionally, cost saving is a priority. When exploring such options, you will come across two terms: payment processors and payment gateways. 

Knowing their differences is important to help you choose services that suit your business requirements. 

Understanding Online Transactions

Before understanding the payment gateway vs payment processor features, you should know how online transactions work. This transaction process involves four entities, which include:

• Customer
• Merchant
• Issuing bank
• Recipient bank

You may already know that when a customer initiates a payment, the issuing bank sends money to the recipient bank. Then, the money is transferred into the merchant’s bank account. However, there is a fifth entity involved which connects all of them. This can be either the payment gateway provider or payment processor. 

What is Payment Integration?

Payment Integration is a software-based system which processes all transactions online and from the POS solution. This process encapsulates payment gateway services, payment processing, logging and data entry keeping. 

In simple words, understand that these processes perform the same function in the financial ecosystem. They mean to simplify and speed up the payment process for the consumer. For merchants, it allows them to provide their customers with payment solutions for different types of transactions. 

What is a Payment Gateway?

Payment Gateway is software or a POS solution that reads the customer’s card details to approve or decline the payments. It plays a key role in detecting fraudulent transactions. Note that simply having the gateway is not enough to complete the transaction. 

This is because after you have verified the payment, you need a solution to connect the merchant’s and issuer’s banks. The customer’s bank must release the payment and the merchant’s bank must accept the payment to complete the process. This is where a payment processor comes in. 

Also Read: What is Digital Payment?

What is a Payment Processor?

This is a settlement system that acts as an intermediary between the banks. To use their services, you need to create a merchant account and pay a subscription amount. Some payment processors also provide gateway services to provide an all-around POS solution.

Difference Between a Payment Gateway and a Payment Processor

To summarise, if you are a merchant, you need both these services to receive payment from your customer’s bank account into yours. When the customer enters their credit card details, the gateway verifies this information to authorise the payment. 

Once the processor receives the confirmation, it establishes a communication between the merchant and customer bank accounts. This sets up the cycle for release and receipt of payment, the process taking less than a minute. 

Payment gateways can work independently by connecting to multiple processors. On the other hand, a processor cannot work without a gateway. However, more and more companies are providing a bundled solution for streamlined processing and reducing the merchants’ costs. 

It also benefits customers as they can complete their payments faster and without much hassle. Another way you can enjoy better services on your credit card payment is to opt for an issuer with best-in-class service. One such card that helps you save money and gives you maximum rewards is the Fibe Axis Bank Credit Card. 

It is a RuPay credit card that ensures secure payments through UPI. To further improve its security features, it is a numberless credit card; this means that your credit card number is not printed on the physical card.  This way, fraudsters cannot use your details to make online transactions. 

The card offers many other benefits that enhance your user experience. For example, it gives you up to 3% cashback on online and offline transactions. You can also access domestic airport lounges four times a year and enjoy a 1% fuel surcharge waiver as a customer benefit. To apply online, download the Fibe App now! 

FAQs on Payment Gateway vs Payment Processor

How many payment processors are there?

There are many processors in India; some of the well-known companies are:

• Cashfree
• PayU
• PayPal India
• Paytm
• Bill Desk
• PhonePe
• Razorpay
• Instamojo
• PayKun
• DirecPay Payment

Can a payment gateway function without a payment processor?

No! Both work together to make any payment successful, especially online credit card payments. However, a payment gateway can link to multiple payment processors but payment processors only require one payment gateway.

What role do payment processors play in risk management?

It helps manage risk in the following ways:

• Aiding in detection and prevention
• Ensuring Payment Card Industry Data Security Standard (PCI DSS) compliance 
• By tokenising the payment
• Implementing end-to-end encryption
• Adopting multi-factor authentication