What is a Payment Gateway? How Do Payment Processors Offer Gateway Solutions?

August 28, 2021
lady processing payment with credit card on payment terminal with christmas lights in background

Payment gateways and payment processors are essential elements to executing online payment facilitation for merchants. But while they are both essential, each has its own specific function. These two functions work together in a streamlined process to create the efficient and safe execution of online and other digital transactions.

Payment Gateways

The primary role of a payment gateway is to authorize transactions between a merchant and a customer. Payment gateways are an encrypted virtual version of a point-of-sale terminal. They integrate with an e-commerce platform to allow merchants to accept online payments by credit or debit card, check, or other digital forms of payment. The payment gateway provides a secure connection between an e-commerce website and a payment processor, sending encrypted payment information via a virtual terminal. 

A customer places an online order and enters card details using a payment gateway. These card details are encrypted using Secure Socket Layer (SSL) encryption and sent from the browser to the merchant’s web server and then on to the payment processor. 

Payment gateways can also integrate with other e-commerce tools, including subscription management software and payment software, allowing merchants to do things like process recurring payments. There are many payment gateways; the top names include PayPal, Apple Pay, Authorize.net, and Stripe Connect.

Payment Processors

Payment processors are the intermediary between the merchant and the banks involved in a transaction. Payment processors provide seamless and secure routing of online payment data for credit or debit cards and other digital transactions at every stage of the purchase, from initiation to settlement.

Once the payment processor receives the encrypted payment information for a transaction via the payment gateway, they forward the transaction details to the issuing bank (the customer’s bank) as an authorization request. The issuing bank receives the authorization request, verifies the credit is available, and then sends a response code back to the payment processor, approving or denying the request. The processor passes this authorization code to the payment gateway, which forwards it onto the interface used to process the payment. Once processed, the merchant can fulfill the order. 

Payment processors also frequently provide merchant services, such as physical payment processing equipment, and assist in creating merchant accounts either in-house or with third-party merchant services providers.

Do I need both?

A business does not always need a payment gateway. If you are a brick-and-mortar store with no online store, you only need a merchant account through a payment processor. But if you have an online store, you’ll need a payment gateway, and payment gateways are always through a payment processor. If you need a payment gateway, you will need a merchant account set up through a payment processor. The two work in tandem to process your online transactions and make sure everyone gets paid. 

human at computer viewing analytics and payment gateway solutions

Payment Processors and Gateway Solutions

Having a comprehensive solution for your online payments streamlines the process and can even help save you money. PayTech Trust offers customized payment solutions and programs to merchants that are simple, convenient, and safe for your customers. Our payment professionals work with each merchant and partner to create customized solutions to meet their unique needs. Contact us for more information on how we can help you.

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