Due to the growth of digital technologies, online money transactions keep changing. For money to move from one bank or money wallet to another, there needs to be a well-coordinated network. Payments systems play a critical role in ensuring money transactions flow smoothly. Some of the two services that make this happen are payment gateways and payment processors. People often confuse the two and use them synonymously. However, they refer to different entities. They ensure there are safe and effective methods for transferring funds during online payments. It is important to understand the differences especially if you do online transactions often.
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What is a payment gateway?
When people are making payments with cards or mobile wallets, technology plays an important role. Tech has to be used to send communication between the client’s card or mobile wallet and their bank. This tech acts as the go-between and authorizes the transaction. It commands the bank or wallet to make a secure payment to the recipient. The recipient could be a retail store, freelancer, consultant, or any other beneficiary.
The technology that allows all these processes to happen securely is what is known as a payment gateway. Whenever clients or businesses want their payment to be accepted, they must be connected to a payment gateway. One of its key components is security and fast exchange of payment information. For it to process the transaction, the user needs to allow authorization. They need to be connected online.
Any type of business or company can create a payment gateway for its transactions. The organization that desires to create the gateway needs to identify a strong server for handling the processes. It could be the company’s or third party server. Once they get started, the entire process of payment gateway is simple. The company first needs to build a payment gateway backend. After that, they must build the front end to allow customers to interact with the system. The process of how to create a payment gateway also includes developing a CRM system. The infrastructure requires a variety of safety features. They may include encryption and different authentication processes.
What is a payment processor?
While a payment gateway process has to do with allowing payments, a payment processor is different. The processor is the company that manages payment processes. In other words, it is a mediator that links banks and merchants. When a client swipes a card on a system or keys in the account details, it is a processor that reads the data.
It sends it to the customer’s bank or system where the money is stored. The work of the processor does not stop there. The company follows up on the payment ensuring the recipient receives it on time. Once they complete the process, they get a commission. The processing platforms are important for the new age of entrepreneurs seeking fast and secure payment processes.
Payment gateway vs payment processor
Here is a payment gateway comparison with a payment processor.
- Some payment gateways could be operating within a limited geographic area. Payment processors cover wider geographic areas such as continents and the world.
- Payment gateways could limit themselves to specific types of currencies. Payment processors mostly deal with more than one type of currency.
- Both systems charge fees but the costs may vary. The cost of using payment gateways could be less than payment processors. This is because payment processors mostly offer a wider range of services.
- Payment gateways usually interact with users at checkouts. Users key in their data directly on the gateway interface. A client may never interact directly with a payment processor.
- A payment gateway receives data from the client and submits it to a processor. Processors on the other hand work on the entire process.
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Types of payment gateway
Whenever a client interacts with a payment gateway, they connect to different servers. The client may not directly know what type of payment gateway they are dealing with. However, they could be dealing with any of these four types.
- Locally hosted gateway (integrated into a bank). Connects a company to a local bank.
- Hosted platform. Provided by third-parties
- Self-hosted. Hosted within a business system.
- API- hosted. Provided through different apps
How do payment processors work?
Payment processors initiate transactions once users put their card data into a payment gateway. The system encrypts the data and communicates with the customer’s bankers. It authorizes the request and ensures it prevents fraud. The system does this by demanding payment verification. After this, it sends information to the various credit or debit card networks.
Once communicated, the card network authorizes processing, and the transaction is settled. The funds get transferred and the system creates a summary of the transaction. The system charges a fee for the entire process. It also ensures there is total compliance. As new technologies develop, the future of payment gateways continues to be better.
Conclusion
Payment gateways and payment processors have different responsibilities. However, none of the systems can work as standalone. They send information to each other ensuring data is transmitted securely. Gateways largely oversee safety during data transfer. Processors on the other hand ensure the entire process goes on smoothly. Both systems offer customers the safest money transaction platforms.
