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Payment Processing Services vs Payment Gateways: Key Differences Revealed

US customers today are spending a lot of money and time online.

 

Last year, in 2018, digital payments reached $3.14 million and are expected to further grow to $5.7 million by 2022.

 

If you are a business owner who wants to launch an online store, you need to take understand the basics of ecommerce, payments, in particular.

 

Before you start selling online, it is important to learn the difference between payment processing services and payment gateways.

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What is a Merchant Account

A merchant account is a bank account that allows merchants to accept card payments on their ecommerce websites.

 

If you want to use a payment gateway to process transactions on your website, you need these accounts.

 

You can create your own merchant account from payment processing companies and payment gateway as well as banks that offer similar services.

 

The accounts are provided by MSPs or Member Service Providers and ISOs or Independent Sales Organizations. In other words, if you want to get yourself a merchant account, you need to make an arrangement with a payment processor to accept card payments from purchasers.

 

There are many companies that provide payment processing, as well as, payment gateway services. Each company charges its own costs and monthly fees.

 

Analyze and compare to select the best and most affordable platforms for your business needs. You need to make sure your business turns profitable.

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All About Payment Gateways

A payment gateway offers a lot of benefits to its users.

 

It helps you to sell online by allowing you to process and charge the purchase amount to your buyers’ credit cards.

 

The payment gateway providers can be compared to POS terminals used in physical stores as it allows you to take online credit card payments on your site. If you want to know more information here we leave the following link of one of the best platforms at POS: https://www.shopify.com/pos

 

The main role of the payment gateway is to work as a mediator between the active transactions on your store and the payment processor.

 

Today, this has become a requirement due to security protocols. Now it is forbidden to send transaction information from your website to a payment processor.

 

The payment gateway providers such as PayPal and others are crucial in how we do business today. If you want to expand your business and sell across the borders, a gateway is essential.

Examples of Payment Gateways

Some of the most popular payment gateways used today are

1.PayPal

PayPal officially started operations in 1999 and today it is one of the most popular payment gateways that accept credit and debit card payments.

 

Purchasers can use the service for free while the store owners need to pay fees of 3.4% + $0.30 to accept credit card payments.

 

PayPal has become popular because it doesn’t charge any gateway, setup or monthly fees.

2. Authorize.Net

Authorize.Net is used by over 400.000 merchants all over the world. The costs are $49 for setup fees + $29 for monthly gateway fees.

 

This payment gateway is especially recommended for Magento and osCommerce stores.

3. Adyen

Adyen payment gateway facilitates ecommerce, omnichannel, and mobile transactions.

 

It supports all credit and debit card payments including Visa, Master, American Express, Diners Club, JCB, NYCE, DISCOVER, and more.

 

For ecommerce transactions, it accepts payments from Apple Pay and Android Pay.

4. SecurePay

Launched in 1997, SecurePay is another popular payment gateway that accepts mobile payments and offers electronic check services.

 

In order to process credit card transactions, the sellers need to register on SecurePay.com.

Introduction to Payment Processor

Payment processors provide helpful features that allow online merchants to store funds, accept payments, meet compliance needs, disburse payments, and much more.

 

In other words, they are financial platforms that work in the background to offer payment services to merchants and retailers. They are able to offer these services by forming partnerships with other companies that deal with consumers or merchants.

 

One of the many benefits is that payment processors link to a merchant account and payment gateway and effectively transmits data to and from in a safe way.

 

Payment processors have reselling agreements with payment gateways or merchant account vendors to offer their services to website owners and online sellers.

 

There are some payment processors who also focus on providing direct merchant services, however, most specialize in processing payments.

Examples of Payment Processors

The payment processing service providers come in different varieties.

 

There are card companies which aren’t card issues, however, they process transactions.

 

There are banks that coordinate with sellers and banks that issue credit cards to their users.

 

And finally, there are processors that offer services to merchants and transfer funds between banks.

1.Card Networks

Visa, MasterCard, American Express, and Discover are card networks that facilitate transactions between merchants, buyers, processors, and banks.

 

They provide electronic networks that help all parties process transactions. Card networks profit from the fees paid by financial companies (companies that are included in the transactions).

2. Card Issuers

Card issues offer credit or debit cards to customers.

 

For example, certain banks may issue Visa or Master credit card. These financial institutions pay the merchant bank on behalf of the customers who use their cards for buying.

3. Merchant Acquirers

In order for merchants to accept payments, they need to make arrangements with financial companies.

 

Merchant acquirers can be independent sales organizations or payment processors.

4. Payment Processors

Payment processors are platforms that coordinate with banks and card networks to allow merchants to process payments.

 

Payment processors ensure money is available, perform anti-fraud procedures, and verify transaction details.

 

The processors may be linked with certain banks, for example, Bank of America or can be independent organizations such as First Data or Vantiv.

 

Each payment processor is differentiated by the options and technical capabilities they offer to process financial transactions. More Info https://en.wikipedia.org/wiki/Point_of_sale

A Final Word

Now that you know the difference between a payment processor and payment gateway you can understand how they function together and help merchants accept payments and transactions on their websites.

 

If you want to venture yourself into ecommerce and you have plans to build your own online store, this knowledge is important.