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

People new to payment processing often meet dozens of new terms as they take their first steps down this road. A payment gateway, payment processors, and a merchant account do not mean squat to them. And what is more, they often view these terms as interchangeable. However, they are not.

Though these terms bear a direct relation to payment processing, they all mean different things. And to help you out, we have written this short article. It explains each term and let you see the connection between each one of them in the online payment processing business.

What is a payment gateway?

A payment gateway is “software we use to transfer transaction data from the merchant to the acquiring bank. This software serves as an interface between the payment form on the merchant’s website and an acquiring bank”.

Along the way, all the information is encrypted to prevent any information leak.

We strongly recommend every merchant searching for a reliable payment gateway to make sure that the payment gateway he is about to use is compliant with the PCI DSS standards.

A payment gateway is the system inside of which information flow takes place. The information is shared between an issuing bank, a merchant, a card holder, and an acquiring bank. Even though typically transactions take less than 10 seconds to complete, the information flow consists of nine steps.

Who is a payment processor?

A payment processor or a Payment Service Provider (PSP) is a company or a financial institution chosen by a merchant to process his online payments including credit and debit card payments as well as those conducted via alternative payment methods.

Each payment processor uses special software to process, store, and analyze the merchant’s transactions.

Payment service providers serve as mediators between a cardholder, a merchant, an acquiring bank, a payment gateway, and an issuing bank. They help customers conduct online payments in seconds without having the merchant develop their own software for payment processing.

Choosing a right payment processor is vital to your business. Not only good PSPs guarantee pleasant customer experience but also increase your conversions with improved and simplified payment gateways.

What is a merchant account?

A merchant account is an agreement between a merchant and an acquiring bank that allows the former receive and process credit card payments. As we have mentioned it in our previous article, getting a merchant account is essential for all those willing to reach out to a broader audience. More and more people are willing to pay for goods and services not with cash but with credit cards – and that’s why a merchant account is a must!

Acquiring a merchant account is the starting point of every online merchant. So, before you dive into business, consider shopping around and comparing your options: there are numerous merchant account providers out there, but your goal is to choose the best-fitting one.

To make sure you’re making the right choice, pay attention to several details.