The difference between a payment gateway and a payment processor
Summary: Confused about what’s Phonepe,NTT DATA pay , Gpay, Razorpay, Citruspay etc… This blog will help you understand the difference what’s a payment gateway and a payment processor.
Since ancient times, there have been several methods of finishing transactions. From barter systems to blockchain, there is always an exchange of money happening somewhere. People purchase products or services by exchanging them for several different measurement scales. The digital age has created a similar yet more elaborate mechanism to make transactions and transfers faster, better and more secure.
Online payments gateway have been booming for 2-3 decades. People send and receive cash online, through banks and other merchant platforms. They have shaped the economy in ways innumerable to us.
You may have learned these words as a business person and wondered what the distinction was. The two expressions are not similar, even though they appear to be. In actuality, a payment processor and a payment gateway are completely unrelated.
To understand what they mean and how they work, you must first know these basic terms to understand the whole concept of how these two seamlessly work together.
– The merchant
– You, the purchaser
– Issuing Bank ( supplies a customer’s debit or credit card )
– Receiving Bank ( Collect the money from issuing Bank)
Here the merchant and the customer initiate the transaction. As a merchant, you provide the offer or service that the customer wants to purchase.
There are also the bank accounts of the merchants or the banks, which act as the entities in the transaction process.
Customer + host = Issuing Bank
Merchant Bank + their host = Receiving Bank
Table of Contents
A brief meaning
A payment gateway is a software program that securely encrypts and transmits customers’ personal and financial information to the payment processor. To accept credit card payments and other various payment methods that clients might prefer, a digital business requires a Payment Gateway.
Whereas the payment processor act as the spine of any business. They help accept card transactions and other payments from the customer side and process them by communicating back and forth with the customer’s and merchant’s bank.
Payment gateway and How it works
A payment gateway could be a website, a mobile application, or an IVR system. They automate the payment process between the buyer and the merchant, who is the seller.
Let’s say you’re taking a break from cooking lunch and dinner today. You open your favourite food delivery app to order lunch or dinner. After searching through the endless option of your restaurants, you pick one restaurant and place all the ordered items in a cart.
Then, you are taken to a page that asks for certain payment details. So, you, as the customer, will be entering your debit/credit/net banking details on that page. Later, it tells you whether the process has been approved or declined based on your account balance. Cash is then withdrawn from your account and moved to the merchant’s Bank after processing the transaction.
In this process, the payment gateway is the final checkout page on the app/website where your card/UPI details are entered into. They are the ones in the approval and reject the position of your transaction. The payment processor acts as the messenger that moves between the customer and merchant banks.
So, these are few steps to illustrate their workings.
- From a customer’s phone, the Payment Gateway sends encrypted private information ( card number, CVV, expiry date etc..) to the issuing Bank.
- The Payment Gateway deciphers the encrypted data once it arrives at the issuing Bank and presents it to the Bank in a format that may be used.
- The issuing bank checks either approve or reject the info of the customer.
- The Payment gateway safely transmits the data to the payment processor using SSL encryption after the issuing Bank has finished verifying the customer’s request. After which, the Payment processor takes several steps to complete the process.
The picture below ( taken online ) gives a brief representation of the action of the payment gateway in a normal day-to-day transaction.
Payment processor and How it works
This acts as the messenger between all the banks, such as the merchants, and cardholders, acquiring and issuing banks along with payment gateways.
Steps that take place during payment processor
- The payment processor receives the encrypted data from the gateway.
- This data is sent to the merchant’s account bank.
- The merchant’s bank account sends a verification request to check the identity and validity of the cardholder account.
- Based on the approval or rejection from the customer’s Bank, the decision is sent to the processor, which goes to the gateway.
- Then the gateway notifies the customer of the transaction decision.
- If it’s approved, the customer happily places the order for the food to come.
- When the transaction is finalized, the processor contacts the card issuing Bank to transfer the amount to the merchant’s account safely.
Differences between Payment Gateway and Payment Processor
|Payment Gateway||Payment Processor|
|The application or service known as a payment gateway allows or denies transactions between your website and your customers.
|An institution that performs the transaction correctly gets the amount from customer to merchant.
|Easy online payment by integrating a payment gateway.
|Make sure that the credit card transactions are properly done.|
|They are easily inserted and used for accounting, ecommerce, business accounting.||They make merchant account that allows businesses to take in credit cards.|
|Examples in India: NTT Data pay Citrus Pay, PayUbiz, DirecPay.||Examples in India: PayPal, CC avenue, Gpay, Razor Pay.
Technology has created the best ways to create seamless transactions possible. Using payment gateways and processors in the processes will make your processes swift.
Fintech is yet to blossom a still in the drawing stage in the business cycle. Even though there are advanced payments like blockchain tech, these are going to stay for a longer period due to ease of usage and prevalent use among people.
Is Amazon an online Payments Processor?
Yes, they have their own made and built online system, an online processor.
How long does it take for a transaction to happen with the payment gateway and processor?
It takes just 2-3 seconds to process the transaction. But, if any errors are found, they are delayed for a few too many days.
Who pays payment gateway charges?
The Seller who uses the payment processing services.
Who are the top payment service providers in India?
Razor Pay, Paypal, Paytm, PayUmoney, CCAvenue, Instamojo
Why Do You Need a Payment Gateway?
They are essential for any business that wants to accept online and other forms of payment for the provided service or product.