Whether you are a new merchant trying to accept credit card payments or looking for a better education on payments as a benefit to your business, the entire card payment chain can appear very complex. There are many players in a payment transaction, with each of them providing essential services to keep the process moving. 

Two of these players are the payment processor and the payment gateway. On the surface, the two terms look similar. However, a payment gateway is completely different from a payment processor as they both serve entirely different functions. 

Payment Gateway vs. Payment Processor

For starters, merchants can implement a payment gateway to securely process payments. A payment gateway is just what it sounds like – a secure, streamlined connector between the merchant and their payment processing platform.  

A merchant’s chosen gateway typically needs to be integrated into their selling systems, such as their website or mobile app for eCommerce or within their point-of-sale (POS) for in-store transactions. A payment gateway’s integration will typically secure the customer’s card data before sending to the gateway itself, which will then securely deliver the payment request to the processor. Properly implemented, secure solutions, such as FreedomPay’s in-store P2PE solution or our hosted eCommerce assets help ensure that merchants never have cardholder data on hand, reducing their PCI compliance scope. 

A payment processor takes the transaction information transmitted by the payment gateway and sends it along to the card networks and issuing banks for authorization. The processor is also involved in the end-of-day process where all the transactions of the day are finalized into a settlement file which will form the basis for the actual movement of money from the customers’ accounts to the merchant’s bank. Different processors can have different requirements and capabilities around this end-of-day process, including timeframes for delivering settlement files, when funding is processed, and more.  

Payment Processor vs. Merchant Acquirer

A payment transaction starts at the gateway, then heads to the payment processor before eventually getting to the merchant acquirer, also known as the acquiring bank. Many payment processors also act as the merchant acquirer. However, both a payment processor and merchant acquirer perform very different functions.  

Where the processor does just that, processes the payment, an acquirer allows merchants to accept the funds behind a transaction. The merchant acquirer also plays a role in the settlement of the transaction. Since the payment processor and merchant acquirer are involved in authorization and settlement, it makes sense for some solutions on the market to offer both processing and acquiring services. 

The most important distinction between a payment gateway and a payment processor or merchant acquirer is that a payment gateway is moving the information that allows other players in the payment transaction to move money. The payment gateway does not move money. 

Choosing the Right Payment Solutions

There are many payment solutions on the market offering an all-in-one product – payment gateway, processor and acquirer. Many businesses believe that this is the most efficient, cost-effective and seamless way that a merchant can implement a payment gateway and begin accepting payments. 

In the long run, however, all-in-one solutions can make it harder to customize your payment solutions or switch over to another processor/acquirer. This can lead to locked-in, higher processing fees and a complete system overhaul if you were to make a switch. 

Working with an independent, agnostic payment gateway, like FreedomPay, will offer merchants payment security while also giving them the opportunity to pick the processing and acquiring solutions of their choice. We can provide seamless payment integration with 1000+ selling systems in our network. And as stated above in the attributes of a payment gateway, FreedomPay’s gateway is PCI-validated with point-to-point encryption (P2PE). 

FreedomPay also offers Merchant Centered Acquiring (MCA), the industry’s first independent referral advisory service that enables merchants to find the right payment processor for their business.  

Learn more about FreedomPay and our payment gateway here.