Payment gateways and payment processors are two critical components of the online payment flow. While they are often referred to interchangeably, these terms refer to distinct components of the online payment ecosystem, each serving unique roles in facilitating online transactions. While it may seem daunting for online business owners, understanding the intricacies of the payment process and the necessary payment systems to have in place is crucial for success in eCommerce, especially considering the ever-increasing popularity of digital services and alternative payment methods. 

What is a payment gateway?

A payment gateway is a piece of technology that acts as a bridge between the customer, the merchant, the acquiring bank, and the issuing bank. When a customer makes an online purchase, the payment gateway securely captures the payment information, encrypts it, and then transmits it to the payment processor. Essentially, the gateway is responsible for authorizing online transactions and securely transferring sensitive payment data, just as a physical POS (Point-of-Sale) machine does in a store.

The difference between payment gateways payment processors

Key functions of a payment gateway

  • Transaction security: payment gateways encrypt and tokenize all payment data that passes through it to ensure secure transmission of information, giving businesses and consumers peace of mind 
  • Authorization: gateways instantly verify whether a transaction can be approved or declined
  • Integration: businesses can seamlessly integrate a payment gateway with their website or application to facilitate smooth, hassle-free transactions 
  • Fraud prevention: gateways employ advanced fraud detection tools to minimize the risk of fraudulent transactions

What is a payment processor?

A payment processor is a financial institution or a third-party company that provides the infrastructure and services necessary to enable the transfer of funds between the customer’s bank and the business’s bank. Payment processors are responsible for routing the transaction data received from the payment gateway to the relevant financial networks and facilitating the transfer of funds.

Key functions of a payment processor:

  • Transaction settlement: payment processors settle transactions by transferring funds between customers and businesses
  • Network communication: processors communicate with various financial networks to process transactions
  • Reporting: an added benefit of payment processors is that they provide detailed transaction reports and analytics to businesses for reconciliation and insights
  • Compliance: processors ensure that industry regulations and standards are upheld, such as PCI DSS (Payment Card Industry Data Security Standard) 

The relationship between payment gateways and payment processors

It is important to have both a payment gateway and a payment processor in place to ensure smooth and secure online transactions. While they each perform different functions, they essentially work in tandem to facilitate online payments. Once a customer initiates an online transaction and the payment gateway sends the data to the payment processor, it is the job of the processor to communicate with the relevant financial networks to authorize and settle the transaction. Once approved, the processor facilitates the transfer of funds from the customer’s bank to the business’s bank, completing the transaction cycle. 

By understanding the unique roles of payment gateways and payment processors, online business owners can gain a more holistic awareness of the necessary components of the online payment process. This will help them make informed decisions about their payment infrastructure and implement safe, secure, and efficient systems that will optimize their payment flow. By doing so, companies will enhance their transaction security, and provide a frictionless payment experience for their customers.

Streamline the payment process with Zota

Payment service providers play a crucial role in supporting online businesses through a secure, simplified, and streamlined payment process. Working with a payment service provider like Zota is the best way to centralize all elements of your payment flow while benefitting from the support of dedicated payment experts. 

Zota’s state-of-the-art payment gateway uses borderless payment technology to enable global businesses to accept payments from customers based anywhere in the world, offering the most widely used payment solutions in each region. Our ‘One Application, One Integration’ methodology is designed to concentrate all necessary payment systems into one secure environment. This grants companies the ability to integrate all the necessary platforms and integrations in an easy-to-use payment hub, the MetaGate

The MetaGate offers Zota’s clients their own dedicated back-office portal, providing transparency into their processing activities and accounting information. This gives them peace of mind, allowing them to focus on growing their business while we take care of the payment process for them. 

By understanding the roles and functions of all the essential components of payment processing, online business owners can make informed decisions to enhance the flow of transactions and their customers’ payment experience, all while safeguarding their financial interests.

At Zota, we’re committed to empowering online businesses with comprehensive payment solutions, combining cutting-edge payment gateway technology with seamless payment processing services. For more information about how Zota’s integrated payment solutions can benefit your online business, feel free to reach out to our team of experts