Key Differences Between Payment Gateway and Payment Processor

Since online sales are on the rise, companies have begun to adapt to a more digital manner of selling in the aftermath of the pandemic. With the rise of e-commerce, businesses are in search for ways to enable digital payment methods and shift to online business.

Choosing the right payment gateway for your business can be a challenge. In order to select the right payment gateway for your business, you should consider several factors. But before we start, it is important for you to understand the key definition of payment gateway and how it is different from a payment processor. You’ve probably heard these terms and wondered what they mean as a business owner. Although the two terms appear to be similar, they are not.

Keep reading to understand what payment gateway and payment processor are along with their key differences.

Payment Gateway

A payment gateway is a transaction service that allows companies, online merchants, and service providers to online payments. It validates the digital credentials before sending the payment information to the payment processor. Based on the payment processors provided by the respective payment gateway service providers enable online businesses to order to offer multiple payment methods, including debit & credit card payments, e-wallets, online net banking or FPX, and others to their consumers.

How Does Payment Gateway work?

1.The cardholder initiates a transaction by clicking the “purchase now” button on the merchant’s website.

2.Based on the payment gateway integrated to the online platform, the customers gets to choose their preferred mode of payment method; card payments, e-wallet, online banking or others.

2. Once the customer selects his/her preferred mode of payment, the payment gateway gets to work, first confirming that funds are available with the issuing bank.

3. To complete the transaction, the payment gateway delivers encrypted card information to the payment processor.

4. The transaction is approved by the payment processor, and the payment gateway delivers the information to the merchant’s website to execute the transaction.

5. The information is sent to the acquiring bank, which moves money from the customer’s issuing bank account to the merchant’s account.

6. Based on the transaction processing time, (which differs based on the payment method selected and with respect to the payment gateway provider) payment will be transferred & settled in the merchants account.

Pro Tip: Before selecting a payment gateway, enquire about the transaction settlement time along with per transaction costs and or if there are any other hidden charges.

Payment Processor

The Payment Processor serves as a link between the cardholder, merchant, acquiring bank, payment gateway, and the issuing bank. It is a firm or financial institution that a merchant has selected to process online payments such as Visa, MasterCard, American Express, etc. or payments made through other payment methods (Alipay, WeChat, etc.).

For secure transactions, the payment processing company employs security measures. This reduces the possibility of fraudulent transactions. In the case of offline transactions, the payment processor service will give you a point of sale (POS) interface. Typically, they will supply the money collection infrastructure. For example, card readers and other devices.

How Does Payment Processor Work?

1. The payment processor forwards the transaction to the card association affiliated with the issuing bank.

2. Based on specified criteria, the issuing bank accepts or denies the transaction.

3. The issuing bank then transmits either an acceptance or a refusal status to the merchant bank, which subsequently sends it to the merchant.

4. The issuing bank charges the cardholders a fee for the transaction.

5. The issuing bank then sends the appropriate amount to the merchant bank, less the interchange charge.

6. The merchant bank deposits the funds into the merchant’s account.

Payment Gateway vs Payment Processor

  • The major difference between a payment gateway and a payment processor is that a payment gateway is a tool/service that accepts or refuses transactions between your website and your consumers, whereas a payment processor executes the transaction.  

  • The payment gateway is the point at which the customer enters their credit card information and receives approval or refusal of the transaction. The payment processor transfers data from the customer’s bank to the merchant acquirer. 

  • A payment processor facilitates the transaction between two parties, whereas the payment gateway transmits the status of the transaction between the customer and you.  

  • You only need to utilize the payment processor for in-person card payments. In-person card transactions will, of course, not necessitate the use of a payment gateway. However, with the increase in e-commerce business and while more and more consumers are shifting to online shopping over in-store, businesses are now looking for options to hybridize their business channels to offer enhanced customer experiences.  

This is where payment gateway comes in play, offering multiple payment methods and other services that enables online businesses to accept online payments in secured environment and enhance customer experiences with smooth and fast checkout processes. In conclusion, a payment gateway is most commonly used to make payments for things and services offered online. It is a channel that enables online businesses or e-commerce businesses to sell online and accept online payments via a secured environment.

Choosing a right payment gateway for your business is critical to protecting your customers’ sensitive data and maintain website credibility. Not just that, a great payment gateway simplifies & enhances your customers’ checkout processes, hence experience. They also enable you to track transactions and make significant business decisions all in one place.

That is why RinggitPay, Malaysia’s most reliable and trusted payment gateway platform, is the best option! Having 10+ years of experience in providing banking products and services. RinggitPay offers an end-to-end payment solution to make your online business journey simple and efficient that meet your growing business needs.

Accelerate your online business with RinggitPay Payment Gateway.

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