Payment gateway vs payment processor

Both payment gateways and payment processors are key players in payment processing. Because a lot of companies offer both tools, it is sometimes difficult to make a distinction between the two. In this article we will explain you the differences between gateways and processors, their role in payment processing and how you can choose the right ones for your business.

The role of a payment gateway

Payment gateway is the technology that captures your bank details from your Issuing bank and sends it to the payment processor. It also encrypts the data before transmitting it, to ensure that your data is protected before reaching the other players in the payment process. It works as a mediator between the Issuing bank and the processor in one of the first stages of a payment transaction. Without it, your business can’t take payments.

Why do I need a payment gateway?

The gateway’s mediating function can easily be undervalued. However, it is actually a crucial step to prevent fraud and data breach. Online payments come with higher risks of cybercrime because it’s more difficult to verify the identity of the cardholder and the validity of the account. If the payment gateway was taken out of the payment process, your bank details would not be encrypted, so they would be less protected and therefore more likely to be hacked.

payment gateway

The role of a payment processor

Payments processors or Payment Service Providers (PSP) are the mediator between the Issuing bank and Acquiring bank. As the name suggests, they are responsible for processing the payment and transferring the funds from one account to the other. When a customer purchases a product and the payment is initiated, the gateway will transmit the encrypted bank details to the payment processor, who then authenticates the payment using Strong Customer Authentication (SCA) tools- should the cardholder be legitimate and have enough funds on the account to cover the transaction, the processor authorises the payment. Sometimes your bank can also work as a payment processor.

Why do I need a payment processor?

Whilst a payment gateway is responsible for encrypting the data and transmitting it to the payment processor, a payment processor is responsible for authorising the payment. Authorisation is one of the most important parts of the process because without it your customers could be subject to data and money theft without any consequences.

Banks need to ensure that, whenever your customers make a payment, the card information belongs to them and their bank account is legitimate. This benefits both the customer and the merchant, as it prevents you from receiving fraudulent payments and having to pay extra fees for chargebacks to your Acquiring bank.


Do I need both a payment gateway and a payment processor?

Yes, you need a gateway and a processor to take payments. As we saw above, both play a crucial role in payment processing. More often than not, payment processors have their own gateways and offer both tools as a package. Other payment processors have partnerships with third-party gateway companies, so you can set up a gateway through them and avoid set-up fees. You can also individually choose a gateway and a processor to work with but in this case it is advisable to check what are the payment gateways that your payment processor supports, as you need them to be compatible.

Payment Service Providers help merchants to accept payments and manage their transactionss

How can I choose a payment gateway and payment processor

Now that you have an understanding of the role that gateways and processors play, it will be easier to make a decision on which to choose for your business. As with any other service or tool you might want to outsource from a third-party company, your company’s needs and future growth plans are key factors to take into account. A few aspects to consider are:


The pricing and fees

Every player in the payment process charges a sum of money for their services. Naturally, gateways and processors are no different. Costs can include setup fees, monthly fees and transaction fees. These may depend on the countries your company operates in or the amount of payments it needs to process, so it is worth double checking what each processor and gateway charge.


The payment methods it supports

Debit and credit card payment are some of the most popular payment methods worldwide. Your processor should accept most major card networks along with electronic payment methods like Apple Pay or Google Pay, as this will enable you to reach more customers. Multi-currency support is equally important if your company operates globally.


Security tools and PCI compliance

Choosing a gateway and processor that are PCI compliant is a must. Having a secure system will help you avoid potential fraud and chargebacks, but also reassure your customers that your services can be trusted, which will have a positive effect on your company’s reputation.


How Imburse can help

Imburse offers integration-free connectivity to all payment gateways and payment processors worldwide, so you have the freedom to partner with the processors of your choice and expand your services to other countries. This gives you the flexibility to quickly adapt to business and customer needs without the stress, time and cost that comes with making single integrations. Reach out to us below if you have any question or would like to know more.

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