There’s often confusion surrounding the difference between a payment processor and a payment gateway. In this article, we’ll try to clearly define the differences between the two, as well as define other possible solutions merchants may provide as an option for checkout.
What is a Payment Processor?
A Payment processor is the middleman between the customer, the merchant, and their two banks. They handle the communication and transfer of funds between all parties involved.
Example/s of common Payment Processors:
- Chase Paymentech
- First Data Merchant Services (FDMS)
- Heartland Payment Systems
- Global Payments
What is a Payment Gateway?
A payment gateway is the terminal (or online digital terminal) that accepts the credit card information, encrypts the information and sends it to the financial institutions for approval, and then informs the customer and merchant of any approved or failed transactions. Traditional point-of-sale (POS) terminals are the physical representation of this, whereas online payment gateways handle card-not-present (CNP) transactions. Functionally, however, the two play nearly the same role, just one being virtual and the other being physical.
Example/s of common Payment Gateways:
- Amazon Payments
Other eCommerce Payment Options:
Buy Now Pay Later (BNPL)
Recently, there has been a surge in a new kind of fast-checkout option for consumers, commonly referred to as Buy Now Pay Later. These are typically short-term installment loans, most of the time using a “Pay in 4” model, breaking up the total cost of the product into 4 monthly payments.
Even though there are leading companies dedicated to BNPL options, many companies are starting to create their own BNPL options, especially for e-commerce options.
Example/s of common BNPL solutions:
Another common option for online payment is through digital wallets. A digital wallet is a software-based system that stores the customer’s payment information making it easier to manage and purchase online goods. They can also store more information about a customer such as their name, email address, phone number, billing address, and shipping address, making the checkout process quicker and easier.
Because a digital wallet just simply securely stores your information, it should be stated that they are not considered a payment gateway, because they will typically utilize the payment gateway on the e-commerce website, much like a credit card uses a POS terminal in a physical store.
Example/s of common Digital Wallets:
- Cash App
- Amazon Pay
- Android Pay
- Apple Pay
- Google Wallet
- Walmart Pay