Payment gateway vs. payment processor: what is the difference?

Editorial Team

3 min read
Woman holding credit card

Payment gateway and payment processor are two key links in the payment processing chain. As a business owner, you’ve probably heard these terms and wondered what the difference is.

Let’s start here: There are four parties involved with every credit card transaction:

  • The merchant
  • The customer
  • The issuing bank that issued the customer’s credit card or debit card
  • The acquiring bank that collects the funds from the issuing bank

The role of payment processors and payment gateways differ, yet each is a vital component in accepting credit card payments.

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What is a payment processor?

A payment processor executes the transaction by transmitting data between you, the merchant; the issuing bank (i.e., the bank that issued your customer’s credit card); and the acquiring bank (i.e., your bank). The payment processor also typically provides the credit card machines and other equipment you use to accept credit card payments. To accept credit cards at your business, you’ll set up a merchant account with a merchant service provider.

What is a payment gateway?

A payment gateway is a tool that securely transmits the online payment data to the processor to continue the lifecycle of the transaction. It also authorizes payments for card-not-present transactions, mostly for eCommerce websites. Think of it as an online point-of-sale terminal for your business. 

The difference is a payment processor facilitates the transaction and a payment gateway is a tool that communicates the approval or decline of transactions between you and your customers. 

What’s the difference between a payment gateway and payment processor?

To put it in perspective, the main differences between a payment gateway and a payment processor are:

Payment GatewayPayment Processor
A payment gateway is the technology that encrypts and transmits the payment details from the point of entry to the payment processor. It also communicates the approval or decline back to the merchant or the customer.A payment processor is responsible for relaying transaction details to and from the customer’s card-issuing bank and the merchant’s acquiring bank.
Payment gateways are commonly used for eCommerce transactions, but can also be used to accept payments with a credit card reader, POS system, or software integration.Payment processors are necessary for all card-based transactions, whether the sale happens online, in-person, or through a mobile app.

Payment gateway vs. payment processor: Which do I need?

The most common use of a gateway is to accept payments for goods and services online; however, in today’s payments landscape, gateway technology has expanded to create a seamless buying experience across all sales channels and devices. In addition to eCommerce transactions, a gateway can also be used to integrate payments with your accounting or CRM software or process transactions at a point-of-sale system or on a mobile device.

Not all merchant account providers have a payment gateway. Some providers use a third-party payment gateway, which can be a hassle when you have a dispute. Who should you contact when you have a problem?

It may be best to select a merchant account and a payment gateway from a single provider. Using a payment gateway to securely process integrated payments can reduce errors, speed up transaction processing, and ease reconciliation.

If you don’t want to invest in credit card readers, or if you don’t have an eCommerce website, you can use a virtual terminal to process transactions, as long as you have an Internet or data connection.

Looking for a payment gateway?

We can help you accept payments the way your business needs to. Contact the Clover sales team to find out which Clover or partner solution is right for you.

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