The phrases “payment gateway” and “payment processor” are often confusing. By now, you have heard of these two terms, and it is natural that you cannot seem to understand the difference.
In this post, we will help you understand the difference between these two phrases so that you can decide which one is right for your business.
Before we dig deeper, you need to be familiar with the four key players associated with business transactions.
Breaking down the process of online payment
Customers being the first player, chooses to do business with you. You, the merchant being the second player, offer a service or products your customers need. Likely, the customer makes the purchase from your store by entering the payment details.
There comes this third player, the issuing bank that hosts your customer’s bank account. In addition, it offers payment cards to customers on behalf of networks such as Visa or Mastercard.
The acquiring bank hosts the merchant’s bank account, which is the fourth player in this transaction game.
Now, you can imagine the picture like this:
- Customers buy a product or service from the business
- Payment is processed
- The issuing bank debits the fund from customers’ accounts
- The acquiring bank deposits the fund into the merchant account
You might be wondering where payment gateway and processor come into the picture. Most importantly, what is the difference? For you to understand how one differs from another, it is wise to know how both of these works.
Understanding how payment processor works
A payment processor refers to the service that deals with your customer transactions, enabling them to purchase products or services from your store. It works to relay the information from the customers’ cards to the issuing and acquiring bank.
In fact, when a business charges a customer indirectly, the payment processor rectifies it. The payment processing company abides by security measures to ensure safe transactions. This reduces the odds of fraudulent transactions.
The payment processor typically provides a Point of Sale interface such as a card machine or other equipment during offline transactions.
A payment gateway is what transmits the payment information to the processor. It connects the payment processor to card companies (Visa or Mastercard) and the merchant account. Payment gateways in India are used mainly by businesses. The payment gateway authenticates the digital credentials before transmitting the payment details to the payment processor.
Understanding payment aggregator and payment gateway
A payment gateway enables businesses to process transactions on your site or an application. It has an infrastructure that can assist with online payment transaction processing. There are a host of payment options available that include net banking, UPI, cards, and more. A PG does not handle the money.
On the other hand, a payment aggregator or PA is a service that enables you to accept different payment tools without setting up discrete payment integrations. Instead, it facilitates the connection between you (the merchant) and the acquiring bank. When a PA receives funds from the customers, it transfers them directly to the merchant’s account.
PAs have saved a lot of hassle as you no longer have to own a pre-existing individual merchant account. Instead, the PA takes care of the job of integrating with card companies and payment service providers.
In addition, a payment aggregator can aid in transactions across online and offline touchpoints.
The difference: payment gateway versus payment processor
Once you are familiar with the basics, it is time to move on to the specifics. A payment processor works to make the transaction between two parties happen. On the other hand, a payment gateway catches the customers’ payment details to relay them to the payment processor.
Which do you need for your business?
To understand this, you want to look at two different scenarios.
You need a payment processor only during in-person card payments. First, the payment processing company will offer you a payment terminal. It will then authenticate the card and send the payment data to the issuing bank. Finally, the payment processor will send the transaction status (whether approved or declined) to the physical terminal. Once the transaction is approved, details will be sent to the acquiring bank.
On the other hand, a payment gateway will become necessary for companies that are selling their products online and need diverse payment options.
Payment completion using both payment gateway and payment processor
The customer first selects a product and goes to the checkout page, and submits their payment details.
The payment gateway verifies the details and checks if it is part of the issuing bank. Then, the payment processor transfers the information from the payment gateway to the bank.
Finally, the authorization process happens. A payer authentication request is sent to the Access Control Server. This is where a customer’s CVV number is needed.
If this step becomes successful, an Accountholder Authentication Value will be generated. Thereafter, the merchant sends a request to the payment aggregator. Then it submits the request to the issuing bank.
If there are sufficient funds in the customer’s account, the authorization is made, and funds are debited. Later, the authorized money gets transferred from the customer’s account to your (merchant) account. Thus, the transaction takes place. Whether you are looking for a payment gateway or a processor, make sure that it fulfills your specific business needs. PayKun is a leading payment gateway in India that works to facilitate your business transactions. Please visit our website for further queries.