What Are Payment Gateways And Payment Processors?

By Author: Sahil Verma
Total Articles: 160
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Are you prepared to open an online store? While it is an important decision for your company, determining which payment service is best for your eCommerce business can be difficult. To assist you in making that decision, this post will explain online payment gateways and payment processors, as well as what merchant accounts have to do with it all.

Payment gateway

A payment gateway is required to accept online payments. A payment gateway, in essence, allows merchants to accept payments online; it is a merchant service that facilitates eCommerce transactions. It's frequently referred to as the online equivalent of a physical POS in a physical store. A payment gateway acts as a buffer between your website and the payment processor, allowing payment information to be securely transmitted to the payment ecosystem and authorized. A payment gateway is required because sending payment information directly from your website to your payment processor is not secure.

When a customer enters their payment information online, the payment gateway encrypts and secures the information. Transactions with the best payment gateway ...
... can take place via an integrated shopping cart or an API. A typical eCommerce transaction is shown below:

On a merchant's eCommerce website, a customer enters payment information.
The payment gateway then encrypts the data and sends it to the payment processor.

The payment processor forwards the transaction information to the card brand.

The card company sends it to the issuer, who will either approve or decline the transaction.

The result is returned to the card brand by the issuer.

The payment processor receives it from the card company.

The authorization response is sent to the payment gateway by the payment processor.

It is forwarded to the website by the payment gateway.

The response is then relayed to the cardholder and the merchant.

The process takes seconds, and the consumer knows right away whether or not their online transaction was successful.

Following the approval of an online transaction, the following steps (also known as settlement) must be taken:

The merchant receives their funds by submitting all of their approved authorizations to the acquirer (via their payment processor) for settlement in a "batch."

Within 1-2 business days, the approved funds are deposited into the merchant account, and the transaction is submitted to the card brand.

After that, the card brand debits the issuer's account and pays the acquirer.

The transaction will then be posted to the cardholder's monthly credit card statement in order for the issuer to request payment.

Security

In-store transactions have become much more secure as a result of EMV, leading to an increase in online fraud. PCI-compliant payment gateways aid in the prevention of online fraud by filtering out fraudulent transactions using anti-fraud tools such as AVS (Address Verification System).

A payment gateway requires a merchant account, which is provided by a payment processor.

Payment processor

Payment processors negotiate processing, set-up, and payment equipment rates and open the merchant account. They act as a go-between for merchants and acquirers. They may also supply the technology and hardware (traditional terminals) that allow the merchant to process credit and debit card transactions such as sales, authorizations, and refunds.

The payment gateway encrypts and transmits the data to the payment processor, as shown in the eCommerce transaction path above. The same process occurs in a typical in-store transaction but without the online payment gateway India (authorization).

Merchant accounts

A merchant account is a type of required bank account that is required to accept credit cards – whether online or in-store. You have two choices: own your own merchant account or use a joint one.

Different types of payment processors

Merchants can get their own dedicated merchant accounts from some payment processors. Other payment processors are aggregators, which group together several merchants and allow them to process payments through a single merchant account. Payment gateways are frequently used as aggregators. Read Merchant account providers vs. processing aggregators for more information on the benefits and drawbacks of each payment processor type.

Turnkey payment providers

If you want to sell online, you'll need a payment gateway in addition to merchant services. Previously, merchants had to obtain traditional terminals, merchant accounts, and payment gateways from various vendors. However, if you're a modern multichannel merchant who wants to accept payments online, in-person, and possibly even on the go, you're in luck. There are now turnkey payment providers who will set you up with a merchant account and all of the necessary payment tools, including payment gateway services, to accept credit card payments – allowing you to work with just one vendor and get all of your payment solutions in one place.