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What is the difference between a payment gateway, payment processor and a merchant account?

What is a payment gateway?

Let’s consider what is payment gateway and how it works. A payment gateway is a technical solution that allows online business owners to accept payment on the website using bank cards. A payment gateway provides payment authorization and verifies that the entered data is sufficient to complete the payment. This solution protects credit card information by encrypting all the confidential data that it stores. Besides, it builds a secure channel between merchants and customers.

Since a payment provider is just an intermediary between the site and the acquiring bank, one may ask: why do I need a payment gateway?

When a customer makes a purchase, you, as the owner of an online business, have access only to the entered data. But what if the transaction is fraudulent, or the credit card was stolen and used by scammers?

When making online purchases, the risk of fraud is very high. Fraudsters can use banking information to make illegal purchases that will damage your business. At the same time, if too many customers initiate the chargeback procedure, banks simply will not want to cooperate with you and your business will fail.

A payment gateway serves as a reliable protector for customers’ payment data. This service transfers all the necessary information to the bank acquirer and issuer and prevents their theft. In addition to prevention fraudulent transactions, a payment gateway monitors whether there is a required amount on the card, whether the card is expired, whether the credit limit is exceeded, and others.

How does payment gateway work?

The payment gateway working principle is quite simple:

  1. The customer selects the product or service that he wants to buy and goes to the payment page. Most payment gateways offer you various options, both local and global, for your payment page. The PayOp payment platform has more than 300 available payment methods worldwide.
  2. The customer enters their credit or debit card details on the payment page. This data includes a card number, card expiration date, and CVV code. This information is securely transmitted to your payment gateway based on your integration option.
  3. The payment gateway encrypts the received data and performs an initial check for fraudulent transactions. Further, the data is redirected to the acquirer bank.
  4. The acquirer bank transmits transaction information to the payment system (Visa, MC).
  5. Payment systems monitors data and send it to the issuing bank.
  6. The issuing bank, after checking the data, authorizes the transaction. After that, it sends the response (confirmation or rejection of the transaction) back to the acquirer.
  7. The message is transmitted to the payment gateway and then to the seller. If the payment is approved, the amount is debited and the customer receives the goods.

What is a payment processor?

When making a purchase, a payment gateway receives and evaluates card data of customers. But the processing of the payment itself takes place elsewhere. It is for this that there are payment processors or online processors.

A payment processor is a company or financial institution that makes an agreement with a merchant and provides them the ability to receive online payments. Payment processors connect merchants to the payment gateway. Besides, payment processors also provide their own software that helps to process and analyze all transactions.

Simply put, a payment gateway is a software, and a payment processor is a company that provides payment gateway to business owners to make online payments possible.

What is a merchant account?

A merchant account is a special trading account that allows business owners to accept payment cards, as well as bank payments from customers. This service provides merchants round-the-clock accept payments on the site, not limited to the bank hours.

Another advantage of the merchant account is the ability to accept payments from different countries. It allows you to make business not only in the country where the it is registered but also around the world. At the same time, merchants can offer multicurrency settlements.

Why do I need a merchant account?

A merchant account is where merchants’ money stored. Online business owners frequently ask: why money cannot be sent directly to my private bank account? 

Merchant account stores your money until they are approved by all involved parties.

Since customers may be dissatisfied with the service, they can ask for their money back.

Besides, your payment gateway can receive deposits from various separate sources. Merchant account is a perfect way to manage each of these sources; payment gateway gathers them all into one deposit for your bank account that simplifies a reconciliation.

The bottom line

E-commerce has significantly changed the area of online payments. Today, it serves not only for communicating and exchanging information, but also to make business. Payment gateways are a tool that makes online payments possible. Whether you are a big corporation or a small startup – payment gateway is what your business needs.

PayOp – is an international payment processor that helps thousands of merchants to process payments worldwide. With our payment platform you can integrate PayOp payment gateway to your business website within one day. If you have any questions, please fill in our contact form and your personal manager will get in touch with you shortly.

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