What’s the difference between a Payment Gateway and a Payment Service Provider?

Opening the Gates

While transactions through your software are seamless to the end-user, there are three tools necessary to complete the process: a payment gateway, payment service provider and merchant account. The payment gateway allows your customers to accept debit and credit cards. There are several benefits to using one, such as:

• Point-to-Point encryption (P2PE) for secure transactions
• Quick transaction processing
• Ancillary products and services (such as Tokenization and Card Account Updater) to help your customers manage their business

Essentially, payment gateways facilitates the sales transaction.

Behind the Curtain

While the gateway serves as direct customer intercommunication, the payment service provider works behind the scenes to facilitate those interactions. Passing financial data between the gateway and the merchant account, the provider ensures all transactions are handled quickly and efficiently.

It’s important to note that sometimes the lines are blurred, and the payment gateway and payment service provider can be the same company.  This just means that the payment processing platform acts as both vs. just the front end or the back end. For more info on this, check out our blog post here on the difference between a full service provider and payment gateway only provider.

Transaction Timeline

The merchant account is the final piece in the puzzle. This allows the merchant (your customer) to interact with credit card companies and accept credit and debit card payments. The entire process can be summed up in a few steps:

1. Customer purchases an item or service
2. Payment gateway/payment service provider accepts transaction data
3. Merchant’s payment processing service receives the same data simultaneously
4. The purchase is approved or denied by the customer’s financial institution
5. The processing service returns details back to the gateway
6. Sales proceed if they are approved by the institution
7. The merchant account accepts payment

All of this happens virtually instantaneous.

Clear as mud?  We’re here to help simplify payment processing for software providers and their customers. Contact us today to learn more.