What’s the difference between a payment processor and a payment gateway?

By Brandon Banks

When it comes to adding payment functionality to your software, it can be easy to get overwhelmed by the different options available. Payment processors, payment gateways, merchant accounts… it can all start to feel like a foreign language. Let’s start with the basics.

What is a payment processor?

A payment processor is the intermediary between your business and payment networks (i.e. credit card companies, banks, etc.).

Even though it only takes a few seconds for a consumer to swipe a card — or hit “checkout” on their online shopping cart — there’s a lot of complicated steps to transfer money from the consumer’s bank account to the business’s bank account. A payment processor gathers all the technology and services necessary to complete those steps into a single platform.

Without a payment processor, your business would need to accumulate the necessary technology and services yourself. You’d be responsible for ensuring the each piece of technology or software is compatible with the others, and that every step of the process actually works. You’d also carry much of the liability if something went wrong.

Popular payment processors

What is a payment gateway?

A payment gateway is a type of technology that facilitates payment processing. It serves as the bridge between payment processors and your business account (aka merchant account).

The actual functionality of a payment gateway is quite technical and complicated. The most important thing to understand is that payment gateways enable businesses to securely accept, process, and authorize a payment transaction online. This is an essential link in payment processing, one that can make or break a successful transaction.

Popular payment gateways

*Many payment processors also have a proprietary payment gateway.

Do you need both a payment processor and a payment gateway?

The short answer is yes, you need both.

Many — but not all — payment processors and platforms have a built-in or proprietary payment gateway. Other solutions (like Nexio) have integrations for multiple payment gateways so you can pick the one that makes the most sense for your business.

How do payment processors and payment gateways work together?

Payment processing is similar to taking the subway. Your customer’s payment information is the passenger, the payment processor is the actual train, and the gateway is the turnstile at the station.

A payment processor is like the train because it’s the backbone of the journey. It transports your customer’s payment information from point A to point B. The processor takes care of the heavy lifting, like encrypting sensitive data and communicating with the bank. It’s the behind-the-scenes workhorse that makes sure your customer’s payment gets where it needs to go.

A payment gateway is like a turnstile because it’s the point of entry and exit for the payment. The gateway is the interface between your business and the payment processor. It’s what your customer interacts with directly and allows them to enter their payment information. The gateway also acts as a security checkpoint, making sure only authorized transactions can pass through.

Without the train, the passenger has no transportation; without the turnstile, the passenger cannot even enter the station. Together they form a seamless path that takes passengers from start to finish with ease.

This is why both the payment processor and payment gateway are essential for an effortless transaction.

How do you pick the right payment processor and gateway for your business?

There are numerous payment processors and payment gateways ranging from basic services to custom solutions with a dedicated account manager. In order to find the right fit for your business, you should consider the following:

  • Business type — Standard businesses (or merchants) have different payment needs than SaaS companies, which have different needs than service providers like doctors and lawyers. You want to work with a processor that has experience with similar businesses to ensure your payment needs are covered.
  • Business industry — Many people don’t realize how much of an impact business industries have on payment processing. Processors often specialize in different industries since the payment needs and challenges can vary drastically. Working with a processor that doesn’t understand your industry can result in decreased revenue, held funds, and terminated accounts.
  • Processing volume — How much revenue you bring is a big factor when deciding what payment processor to work with. Processors that work with large processing volumes typically have more technology and services that could be too expensive for business with small processing volumes.
  • Ambition for growth — Your payment processor should be able to offer payment solutions that can grow with your business. Too many business owners and executives block their growth potential by not thinking about the future.

Ultimately, understanding your business’ needs and researching carefully will help ensure that you get the best payment processor or gateway for you. It’s always a good idea to weigh a few possible options before settling on one.

Nexio’s payment solutions

With Nexio, you’re not just buying the technology to facilitate payments, you’re partnering with a team of experienced professionals that help you maximize the value of the technology. We’re invested in helping you achieve your business goals and will help guide you to make strategic decisions and changes at the time that makes the most sense for your business.

Whether you’re looking for payment processing services, embedded payment solution, or payout provider, we can curate a solution that meets your unique needs and goals. Contact us today to see what Nexio can do for you.