Payment Gateways & Payment Processors

This entry was posted on June 23, 2014 by Mark Switajski

Payment gateways. Payment processors. Same thing, right? Well, not quite. If you’ve found your way to our blog then odds are you know a bit about ecommerce or you’re at least interested enough to spend your time checking out this awesome article. With that in mind it would be advantageous for you to know the difference between payment gateways and payment processors (the latter often referred to as acquirers).

So what is the difference anyway?

Glad you asked! I’ll start by defining the two.

Payment gateway: an application between the merchant and payment processors. The service they provide authorizes payments for businesses. A few examples include, Plug N Play, SecurePay and Skipjack.

Payment processor: these are the ones that interact directly with card networks such as VISA or Mastercard. They process payments from both merchants and payment gateways. It will then be sent off to VISA or Mastercard who will in turn take the transaction to the bank that issued the card making the payment. The most common payment processor is Paypal.

Here’s a simplified diagram to help illustrate the process:

So which one do you want to use?

As you can see, having a payment gateway isn’t 100% necessary but it does have its advantages. Gateways offer easy integration for the merchant but it does come with a cost. A merchant could just interact directly with a processor but they also have fees associated with them, usually depending on the number of transactions. Typically, the higher the number of transactions the cheaper it is to work directly with a payment processor, so keep that in mind when deciding which one to use.

For a more detailed list of pros and cons of payment processors vs payment gateways feel free to check out this great article on Chetu’s website right here.