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Pros And Cons Of Payment Gateways Vs Payment Processors

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMay 20233 min read

All businesses need to take payments. Most businesses accept digital (non-cash) payments. In fact, some businesses only take digital payments. Often, these businesses simply can't take cash. For businesses that take digital payments, finding the right payment solution is crucial. With that in mind, here is a quick guide to the pros and cons of payment gateways vs payment processors.

An overview of payment gateways vs payment processors

Before looking at the pros and cons of payment gateways vs payment processors, it’s important to be clear on what they are.

What is a payment gateway?

A payment gateway acts as an intermediary between the merchant's website or point-of-sale system and a payment processor. It provides a secure and convenient way for customers to make online or in-person payments. Payment gateways typically support multiple payment methods, including payment cards and ewallets.

Payment gateways also provide fraud prevention features such as encryption as well as ensuring compliance with industry standards. In particular, they will ensure PCI compliance. This means that transactions comply with the Payment Card Industry Data Security Standard (PCI DSS).

What is a payment processor?

A payment processor is a service provider that handles the transactional aspect of processing electronic payments, including authorisation, settlement and reporting. Payment processors work with payment gateways to transmit payment data from customers' payment methods to the appropriate financial institutions for authorisation, clearing and settlement.

Payment processors are responsible for ensuring that transactions are completed accurately and efficiently and they typically charge a fee for their services. This is separate from the transaction fees charged by the payment schemes themselves. Payment processors also provide fraud prevention measures, such as identifying and representing improper chargebacks.

Advantages and disadvantages of payment gateways

The main advantages and disadvantages of payment gateways are as follows.

Advantages

Payment gateways can be easily integrated into websites or online stores.
They offer a secure and user-friendly payment processing solution for customers.
Payment gateways provide a variety of payment options, including payment cards and e-wallets.
Merchants can benefit from features such as fraud detection and fraud prevention tools, chargeback management and recurring payment options.
Customisable branding options are often available to help businesses maintain their brand identity during the payment process.

Disadvantages

Payment gateways can be expensive. Transaction fees are usually charged on each transaction and additional monthly fees may apply.
Payment gateways may require merchants to organise their own PCI compliance.
Integration with certain online stores or website platforms may not be possible due to compatibility issues.
Customer support may be limited to email, rather than phone or live chat.
Advantages and disadvantages of payment processors

Advantages and disadvantages of payment processors

The main advantages and disadvantages of payment processors are as follows.

Advantages

Offer a streamlined payment processing solution that integrates seamlessly with a range of payment gateways and online store platforms.
Often offer competitive pricing options with lower transaction fees than payment gateways.
May offer a wider range of payment options, including bank transfers, direct debits and a range of e-wallets.
Provide merchants with features such as fraud detection and prevention tools, chargeback management and recurring payment options.
Will usually take care of PCI compliance.
Generally offer customer support via phone and/or live chat.

Disadvantages:

May not offer customisable branding options, potentially affecting brand identity during the payment process
Can be more complex to integrate than payment gateways, requiring additional development resources
May not provide a standalone payment processing solution.

What to consider when choosing between payment gateways vs payment processors

Choosing between payment gateways vs payment processors can be a challenging decision, especially for small businesses. Here are 6 key points you should consider when comparing them.

Fees: It's vital to understand both the headline fees and the fee structure. For example, payment gateways tend to charge transaction fees and may charge monthly fees. The transaction fees may be percentage-based or flat fees.

Payment processors are more likely to charge monthly fees that include a certain number of transactions. Per transaction fees will, however, usually be applied if you go over this limit. Again, you need to know how these are calculated.

Security: Both payment gateways and payment processors offer secure payment processing. Both also tend to provide fraud detection and fraud prevention tools. Payment processors, however, will also often have additional layers of security, such as protection from payer fraud (e.g. improper chargebacks).

Integration: Payment gateways and processors vary in terms of integration options. Some payment gateways may only be compatible with specific website platforms, while certain payment processors may not integrate with some gateways.

Customer support: Payment processors tend to offer customer support by phone and/or live chat. Payment processors are more likely to have these options.

Compliance: Payment gateways may require merchants to arrange their own PCI compliance. Payment processors will generally handle PCI compliance for merchants.

Customisation: Payment gateways often have customisation options. Payment processors are less likely to offer these.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.