Payment Processor vs. Payment Gateway: What You Need to Know

Payments are a’changing. From doubloons to digital wallets, we’ve come a long way. That being said, modern day payment processing can be complicated, particularly where credit cards are concerned. If you’re a business researching for a payment solution, you’ve probably heard the terms “payment processor”  and “payment gateway” come up. Here’s what you need to know about each. 

What Is a Payment Processor?

A payment processor is a service that enables you to execute a transaction by passing data through your business, your bank, and your customer’s bank. in other words, it allows you to accept credit card payments. In brick-and-mortar shops, you’ve seen these in the form of credit card terminals and POS systems. 

(Did you know that many small and local businesses are still using outdated credit card payment processing solutions, and it could be hurting your business?)

Visa introduced the world’s first credit card terminal in 1979. This switch from paper logistics to electronic communications spread like wildfire in the 1980s, but this evolved with the arrival of the internet. In the mid-nineties, internet-based businesses needed a different kind of payment processor. 

New companies sprung up to meet this need by creating consumer-facing tech, and they became known as payment gateways.  

What Is a Payment Gateway?

Essentially, payment gateways are like virtual payment processors. They allow you to accept payments online. So, whereas a payment processor facilitates a credit card transaction, a payment gateway approves (or declines) transactions between you and a customer. 

Historically, payment gateways have been used for eCommerce websites but with advancements in mobile technology and digital security, the landscape is changing. The credit card processing industry is seeing a plethora of new digital solutions crop up, many of them geared toward or compatible with mobile devices. 

Digital apps like Venmo and wallets like Apple Pay are creating additional customer convenience and keeping businesses from having to invest in hardware. So what’s right for your business?

Payment Processor vs. Payment Gateway Pros & Cons 

Now that you better understand payment processors versus payment gateways, you may be wondering which is right for you. There are a few things to take into account:

Payment processor (i.e., terminals and POS systems) pros: 

• Familiar and trusted 

Payment processor cons: 

• Requires hardware (POS system)
• Older systems more susceptible to fraud 
• Can accept limited forms of payment

* Pssst, see why you should never, ever rent a terminal from credit card processing companies.

Payment gateway pros: 

• Rapid deployment 
• Multiple payment options (apps, online, text etc.)
• A better, more encompassing customer experience 

Payment gateway cons: 

• Glitches can take a considerable amount of time to troubleshoot
• Not everyone is comfortable sharing payment details online
• Not all payment gateways allow for card-present transactions

If you have an eCommerce site you’re going to need a payment gateway. If you’re strictly brick-and-mortar, you probably just need a payment processor. But what if you don’t want to invest in all the hardware? Fortunately, there are contactless payment out there that make use of the technology you’re already carrying in your pocket.

If you’re interested in seeing how payment processing can be made easy, download our fluff-free, easy-to-read fact sheet. At a glance, you can discover a simpler way of processing payments.