A Payment Gateway (PG) and a Payment Processor (PP) are often considered similar – even though each is crucial in online transactions, there are subtle differences. To resolve this confusion, we are here with a detailed comparison marking all the differences between a Payment Gateway and a Payment Processor.

Before we start, let’s have a quick look at the definition of PG and PP:

What Is A Payment Gateway?

A Payment Gateway is like a bridge between all the parties involved in a transaction – the payer’s and the recipient’s bank, card network, etc. It securely transfers the card data and information like (approval/rejection) from one entity to another which ultimately completes a transaction.

The work-flow of a payment through a Payment Gateway is as follows:

Action	Performed by
Payment data encryption	Payment gateway
Assurance of secure connection	Payment gateway
Requesting payment authorization from bank	Payment gateway
Approval of the authorization request	Bank
conveying success/failure message	Payment gateway

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What Is A Payment Processor?

A Payment Processor is a system that processes the payments which the payers initiate. It is the Payment Processor that verifies all the details entered, checks compliance, and approves/rejects the transaction.

The work-flow of a payment through a Payment Processor is as follows:

Action	Performed by
Initiation of the transfer	Payment processor
Transferring payment data to Payment Processor	Merchant
Fund/balance inquiry from the bank	Payment processor
Approval of payment	Bank
Completion of payment	Payment processor

Differences Between Payment Gateway And Payment Processor: A Detailed Comparison

From the definition of Payment Gateway and Payment Processor, one difference is clear that one ensures smooth data transfer whereas the other processes the transaction.

Let’s dive in for further differences:

Factors	Payment gateway	Payment Processor
Role played during a transaction	Transfers the payment information between the participants	Authorizes the transaction, checks security, and ensures a successful transfer
Scope	Narrow as it itself does not take part in processing the payment – it ensures a smooth flow of communication between the parties	Broader compared to Payment Gateways because it actually processes the payment
Payment facilitation	No	Yes
Specific function	Approves transactions	Transfers money from one account to another
Dependence	Has to be integrated with a Payment Processor	Can work on its own
Suitable for	eCommerce stores and small businesses	Large volume payments, PoS payments

Payment Gateway And Payment Processor – Handling Transactions Together Irrespective Of The Differences

So, yes, indeed there are differences between Payment Gateway and Payment Processor; yet both are essential components for handling payments. On one side, a PG takes care of the security of payment data and connection, PP, on the other side ensures the transfer.

Let’s now break down the role of Payment Gateway and Payment Processor during a transaction in easier words,

The participants during a transaction are:

1. Customer
2. Issuing bank
3. Merchant/online store
4. Acquiring bank
5. Payment gateway
6. Cart networks
7. Payment processor

It means that during transactions all the participants have their distinct roles to play - if any of them stop functioning, it will interrupt the entire flow, resulting in termination of the transaction. Similarly, a Payment Gateway and a Payment Processor play different parts during a transaction; however, there is a dependency.

Payment Gateway Or Payment Processor: Which Is Ideal For You?

Seeing the differences between Payment Gateway and Payment processor, are you juggling which one will serve you the best?

Well, let us simplify it:

Which Is Suitable for Your Business Needs

It is advisable to use a combined payment solution where you can get both Payment Gateway and Payment Processor services. However, you can start with a PG (if you have a cost constraint), and later on, you can pick a composite payment solution. If you are into subscription or non-profit businesses (donations), then also a Payment Gateway will be a good choice.

Alternatively, you can also pick a payment solution after analysing your business needs (like checking the average transaction value and volume you need to handle each month). Also, you can check how much amount you are okay to spend on the payment solution and pick accordingly. Along with these, see the integrations these solutions offer and how helpful these are for your business.

But keep in mind that in future, you have to go for an upgrade to incorporate both Payment Gateway and Payment Processor, in case you choose either one as of now.

The Bottom Line

The payment scenario is evolving rapidly with the help of new technologies. Payment gateway and Payment Processors both are the products of this new technology. Both have a share in reshaping and rebuilding the old payment ecosystem. Both are somewhat streamlining the business transactions along with easing the collection process. So, wisely choose the one you need.

PayGawaits to assist your business with hi-tech payment solutions and a number of integrations. Not just that, it removed all the unnecessary complications from the onboarding process so that anyone can come and join in just no time. So, get started with PayG just by registering.