As a small business owner, you may have heard the terms payment processor vs. payment gateway before. These both play an important role in payment processing, but do you understand the difference between them? Let’s take a look at these terms.
First, we need to understand the key components of payment processing. Here are the main players of each credit card transaction:
Payment processors and payment gateways are both an essential part of this process, although they each have their own unique roles.
As a small business owner, you probably know how to process credit cards. Your customer makes a purchase, and funds are eventually transferred to your bank account.
However, there are many steps that happen in between that allow you to receive your funds.
This is where a payment processor comes in.
A payment processor will set up a merchant account that allows your business to accept credit cards.
First, a payment processor takes the credit card information you entered and passes it along to the credit card network, which checks with your customer’s bank to make sure they have the proper funds. The payment processor then passes along the approval from the network back to you.
Next, the payment processor tells the credit card network to go back and collect the amount of each transaction from the bank of each customer.
Finally, the money is removed from the customer’s account and deposited into your account.
Essentially, a payment processor is a link that connects your bank with your customer’s bank. Without this link, you wouldn’t be able to process payments and properly obtain funds from your customers.
When you sign up with a payment processor, you will receive a merchant account. Some processors will also offer a payment gateway.
A payment gateway is a software that lets your business securely process payments online. It is like a POS terminal that operates exclusively online.
Payment gateways can be integrated to plug-in to your ERP/accounting software or eCommerce store, allowing you to process credit cards directly within your existing software.
A payment gateway is frequently used by businesses that accept orders over the phone or online. A good gateway will allow you to view unlimited transactions and batch history to make reporting easier for your business.
Using an integrated payment gateway is an easy way to accept payments online, eliminate double data entry, enhance payment security, and streamline workflow.