Payment Gateway vs. Payment Processor

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If you're in the market for a top credit card processing solution, you might have come across the terms "payment gateway" and "payment processor." While these are two key, related elements of credit card processing, they are not the same. If you're unsure of the distinction, you're not alone. However, to make an educated purchasing decision about your small business's ability to accept credit card payments, you need to understand the nuances.

This guide will introduce you to payment gateways and myths new zealand phone number search about payment processors, explaining how the two work together. If you plan to accept credit card payments online, you'll likely need both a payment gateway and a payment processor, so understanding each is critical to making the right choice for your small business.


 
Key parties involved in a credit card transaction
When a customer pays you with a credit card, a lot goes on behind the scenes among multiple parties. To understand how you need to set up your credit card processing, you should know who is involved.

Issuing bank: This is the bank that issued the customer's credit card. When the customer uses the card to make a purchase, the issuing bank deducts the amount of the transaction from the customer's account and pays it to the acquiring bank.
Acquiring bank: Also called the merchant account provider or merchant's bank, this bank is in charge of depositing funds from credit card sales into your merchant account. The acquiring bank deducts interchange fees from the purchase amount and pays them to the issuing bank.
Card networks: These are credit card brands such as Visa, Mastercard and American Express. They set the interchange rates – the percentage of each transaction you pay for the ability to accept credit cards.
Credit card processor: This is the entity responsible for coordinating and transmitting the purchase amount and merchant information from the merchant (you) to the issuing bank so it can then pay the acquiring bank.
Payment gateway: A payment gateway is the technology that encrypts credit card information and sends it to the credit card processor.
What is a payment gateway?
A payment gateway facilitates online credit card payments and other transactions where the credit card is not physically present. It is the technology that creates a secure connection between your business's website or browser and the credit card processing company. Payment gateways usually have an interface when you can manually enter credit card information for phone sales; this is called a virtual terminal.

How payment gateways work
The buyer makes a purchase with a credit card through virtual terminal or e-commerce site.
The payment gateway's secure connection is used to encrypt credit card payment data and push it to the acquiring bank.
The payment gateway determines which credit card network is involved and routes the transaction information to the issuing bank.
The issuing bank verifies the authenticity of a transaction and determines if the buyer has enough credit remaining to cover the transaction amount.
The issuing bank sends the approval or rejection of the transaction through the payment gateway to you.