The terms payment gateway and payment processor are not unheard of and most people are aware of how they work. However, few are not aware of the terms and most importantly, the differences. So, in this brief article, let us find out more about the same.
Payment gateway vs payment processor
While the two terms are used for any credit card processing solution, the two are not the same. Before we try to understand the differences between the two, let us find out the main elements in any credit card transaction.
When your customer is making a payment with the help of a credit card, a series of processes going on behind the scenes and there are many parties involved in the same. So, if you are an entrepreneur that has just started, you must be aware of the role each one plays in this series of processes. So, look at the parties involved in the credit card payment gateway process.
The issuing bank
This is the bank that issues the plastic card to the customer. When the customer makes a transaction with the card, this bank will deduct the spent amount from the cardholder’s account and pay to the bank that is acquiring it.
This is also known as the merchant account provider, this bank aids in depositing funds from the credit card sales to the merchant account. Interchange fees are deducted from the amount that is purchased by the acquiring bank and paid to the issuing bank.
It is the technology that helps in encrypting the credit card information and transports it to the credit card processor.
These can include credit card brands like Visa payment gateway, Mastercard, and American Express to name just a few.
What is a payment gateway and how does it work?
A payment gateway helps in online credit card payments and transactions when plastic cards are not present physically. That technology develops a secure connection between the browser and credit card processing firm. How does it work?
- With a credit card, your purchase through an e-commerce site or any virtual terminal
- The secure connection of the payment gateway encrypts credit card data and pushes it to acquire bank
- It also determines the credit card network involved and sends the transaction to that bank.
- Authenticity is verified by the issuing bank and finds out the buyer’s credit limit availability.
- The issuing bank then approves or rejects the transaction.
What is a payment processor, and how does it work?
As a business owner, if you intend to accept payments from your clients online through plastic cards, over the phone, or at any point of sale, you must enter into a partnership with a payment processor.
It is the company that manages plastic card transactions for any business. They are categorized into front-end and back-end processors. While the front-end processor-
- Maintains connection with card networks and the settlement services
- Manages merchant accounts on the client’s behalf
- And coordinate with the back-end network
The back-end network processor
- Settle the transactions, transferring money from the customer’s account (the issuing bank) to the merchant bank
The pricing structure will differ from one bank to another depending on the amount and value of the transaction.