July 11, 2023

Merchant Services

Payment Gateway Vs Payment Processor: Know The Difference

Merchant Services

To make it short, a payment gateway serves as the POS for online payments, and the payment processor is the POS for physical shops.

The majority of consumers appreciate the payment options an online shop has. Now that businesses extend their shops on the internet, consumers use credit cards, debit cards, or mobile wallets. This ensures that a consumer has flexible choices when it comes to payment methods.

As a business owner, you may have gone through these payment systems and processes. You already know that credit card gateway vs processor has different functions, but both are vital for accepting credit card payments.

This article will further discuss the difference between each when you need them and what roles each play.

What is a Payment Gateway?

Payment Gateways are the merchant's point-of-sale (POS) on online payment transactions. This means only eCommerce platforms need the payment gateway. This collects and authenticates the credit card transaction made by the consumer as he checks out an item from an online store.

The payment gateway does not require the presence of a physical credit card. The consumer enters the details of his credit card into the payment gateway. It completes the payment cycle done by consumers to the merchants. It makes sure that the credit card details entered by the consumer are encrypted and sent to the merchant accordingly.

Once the consumer has made his payment, the merchant's bank will request the legitimacy of credit card details from the credit card company. The payment gateway company checks if the credit card used has enough funds.

Why Do You Need a Payment Gateway?

As a merchant, a payment gateway will save you time and work. You don't need to enter the details manually to process and call a credit card company to process the payment. It will also benefit your customers because of the availability of different payment options. This means your store can cater to all customers, whether they can only pay cash or a card.

Types of Payment Gateways

All e-Commerce businesses are required to have a payment gateway if they want to accept credit card payments. There are two types of payment gateway a merchant can use:

  • Integrated Payment Gateway: Also called white-label payment gateway, this is built within the merchant's store platform. All payment transactions made from a credit card are entered into the platform.
  • Third-party Payment Gateway: An external gateway will open once the payment is initiated. All credit card details will be entered into the third-party gateway and will only revert to the merchant's page once the payment has been authenticated.

What is a Payment Processor?

A payment processor can be a financial institution that handles credit card payments from a physical store and an online store. It works with the help of three parties: the merchant, the credit card company, and the acquirer. The processors set up a merchant account linked to their bank accounts where the payments will be credited. They also provide a physical POS where credit cards are swiped or inserted.

Payment processors work as the median that transmits the credit card details from the merchant to the credit card company. They communicate the transaction approval from the credit card company. Once the transaction has been approved, the payments will be deducted from the consumer's account and transferred to the merchant's account.

The POS the payment processors provides secures every transaction through the credit card's EMV chip. It minimizes the fraudulent use of credit cards since the physical card is used, and the consumer's signature can be double-checked.

Key Similarities

After defining payment processors and gateways, understanding their similarities will help you decide which one you need or which provider you should get.

Both charge the merchant for specific fees. Payment gateways often charge merchants by getting a percentage from their sales. Payment processors charge merchants a per-transaction fee, annual compliance fee, and POS maintenance fee. If you need clarification on the fees your provider charges, you can check them on your contract.

Another similarity is both provide secure transactions for consumers. On a payment gateway, the credit card details are processed with encryption to keep the details secure. For payment processors, the transaction is done through the physical POS. It reads the EMV chip of the card by swiping, tapping, or inserting it.

Key Differences

As mentioned earlier, its key difference is where it is used. Payment gateways are used for online transactions, while payment processors are used in physical stores and require a physical card to complete the transaction. However, both payment systems are required if the merchant processes a Card-Not-Present transaction. This happens when a payment is processed through a phone call.

Choosing a Payment System Provider

For seamless payment transactions, merchants should choose a provider that can fulfill their needs. Merchants should look for a provider to integrate a payment system with their existing payment services. This will save you time and effort in processing contracts and fees.

These providers offer different charging fees. As a merchant, this is another key to look out for. Look for a provider that is transparent with their fees. Usually, these are discussed on contract signing so merchants will not be surprised when they receive their bills or statements.

Also, look for a provider that offers the latest technologies and additional services. As a merchant, you wouldn't want your physical POS to be changed regularly because of updates. Now that contactless payments are becoming popular, you might want to get a POS that can process this payment option. Look for a provider that can do POS maintenance when needed. A damaged POS can make you lose sales, especially if most customers pay with credit cards.


Now that you understand the difference and similarities between both payment systems, you just need to decide where you will use them. It is also essential to get a provider that can help you save on fees. Requesting a quotation from different providers can help you compare their monthly charges.