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Payment Gateway vs Payment Processor

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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 editedFeb 20222 min read

When creating a new business, one of the first questions you need to think about is how to get paid. Payment processing involves multiple steps as a customer’s payment makes it from their wallet into your bank account. Two terms you’ll often see referenced as part of this process include payment gateway and payment processor. Both are important, but there’s a distinction to make between the two. Here’s a closer look at the difference between payment processor and payment gateway to help you select the best option.

What is a payment processor?

There are four parties involved in every transaction:

The business
The business’s bank
The customer
The customer’s bank

Payment details must be securely transferred between these parties to ultimately move funds from the customer’s bank to the business’s bank. It’s the role of the payment processor to transmit data between these four parties to complete the sale. When the business takes a client’s payment details, either from a retail POS or ecommerce checkout page, a payment processor is responsible for moving these details through the system. It serves as a mediator to transmit all necessary data between buyers, sellers, and banks.

What is a payment gateway?

In contrast to a processor, a payment gateway serves as the visible point of sale. On ecommerce sites, it’s typically the online checkout page where a customer fills in their details and clicks the Buy Now button. It puts the infrastructure in place to securely collect your customer’s payment details. A payment gateway also authorises payments in the case of card-not-present transactions. This process involves everything from ensuring the customer has sufficient funds in their account to verifying that the card is still valid.

Once captured and approved, the payment gateway sends the fully encrypted data on to the payment processor to complete the transaction. Payment gateways are typically used for card payments, but they can also accept alternative payment methods, mobile payments, and bank transfers.

Difference between payment gateway and payment processor

The main payment gateway and payment processor difference is the role each plays in payment processing. A payment gateway collects customer payment information and safely encrypts it for approval. It’s a tool used to capture data and approve or decline transactions, while also encrypting it for transmission. A payment processor then takes over and transmits the encrypted data to complete the sale, whether this involves a credit card provider or issuing bank.

Here’s another way to think about the difference between a payment processor and gateway:

The gateway is the public face of payment that your customers see.
The processor works behind the scenes to route data between invested parties.

How to choose between payment gateway vs payment processor

When looking at the difference between payment processors and payment gateways, it’s clear that both serve an important role. A good payment gateway creates a seamless purchasing experience across multiple devices and sales channels. Many fully integrate not only with ecommerce software but also with physical POS systems and mobile payment platforms. Yet to complete the sale, you’ll also need a payment processor to securely transport all captured payment data.

GoCardless takes on both roles. As a payment processor, it facilitates bank transfers and open banking transactions via Direct Debit and Instant Bank Pay features. As a payment gateway, GoCardless offers a public-facing portal that businesses can use to capture relevant payment details from customers.

Rather than selecting a payment gateway vs payment processor from two different providers, you might want to think about the benefits of an all-in-one solution. Modern gateways also come equipped with payment processing capabilities to provide a seamless checkout experience.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.