In the digital world today, online payment processing and digital payments have become quite the norm. While business owners find this to provide a seamless payment experience, it also has created a lot of ease for the consumer at checkouts.
Companies looking to increase their profits going forward in business must look for more digital pathways for payments such as payment processors and payment gateways.
Let us take a detailed look at both of them.
What is a Payment Processor?
Payment processors are used by retailers to manage customer transactions through various channels, including credit cards, debit cards, and bank accounts. Payment processors are a type of technology that makes financial transactions easier. As a type of intermediary between the bank account and the store, it is a company that manages credit card transactions.
It transmits card data to the partner banks and payment networks from wherever customers touch, swipe, or input their card information. A processor facilitates the flow of payments and has the authority to approve credit card transactions to ensure that merchants get paid on time. Some payment processing providers provide card-acquiring bank, customer support, security solutions, assistance with PCI compliance, and other value-added payment processing services.
Payment processing is combined by certain firms with hardware and point-of-sale software. The number of sales and payment options your business accepts will be a major factor in determining the best solution.
When to Use Payment Processor?
If all of your sales are made in person, you need a payment processor. There is an exception if your point of sale system or POS system is virtual and only accessible through a computer. A payment processor should be a part of every business that takes payments online. As mentioned earlier, a payment gateway cannot operate without a payment processor.
If you run businesses where payment is made immediately in person such as restaurants, brick-and-mortar stores, grocery stores, etc. payment processor is required for you.
Advantages of Using Payment Processors
So let’s look at the top five benefits that payment processors could offer to a business like yours:
1. Accept Debit and Credit Cards
Your business today can not operate without the ability to accept credit cards. Reliable payment processing is on a short list of requirements for the majority of organizations’ efficient functioning.
2. Provide Different Methods of Payment to your Clients
Alternatives are what customers want, especially when it comes to payment options. Credit and debit cards are a crucial part of payment, but they are by no means the only important ones. Today’s consumers want to use a wide variety of alternatives, such as using their smartphones as mobile wallets for payments.
3. Adding Payments to your System Integration
Many specialized systems are employed in the business. Integrations that allow different business systems to talk to one another are essential to boosting corporate productivity and maintaining business sanity. Top payment processors seamlessly connect business operations like accounting, billing, customer relationship management, and others with payments.
4. Prices and Direct Relationships
Value-added resellers package payment processing with other company services. Independent sales organizations (ISOs), merchant service providers (MSPs), and eCommerce vendors all offer payment processing, however, they are not directly connected from the origin. These and other third parties commonly resell the services of a payment processor as a part of their business services package as part of the vast variety of value-added services they provide.
5. Flexibility to Expand with your Company
Like your business, payment alternatives are quickly evolving. Leading payment processors assist companies like yours in keeping up with the market’s constant changes. For early-stage small firms, many third-party services that resell or package payment processing are created.
What is a Payment Gateway?
The payment gateway provider serves as the point of sale for transactions made through credit card transaction or online. It is an online payment service provider or virtual terminal to integrate payments from customer’s banks to issuing bank.
To make sure the transaction goes successfully, a payment gateway securely sends transaction data to a merchant account payment processor. The payment process can start if a payment gateway accepts a transaction between your company and a customer. Payment gateways are excellent for credit or debit card transactions that don’t require physical cards because they essentially act as digital points of sale.
Online retailers need a payment gateway in a similar way that actual credit card terminals are required to take card payments. This is done so that payment and bank account information from customers may be safely collected.
When to Use Payment Gateway?
Payment gateways are used for online payments received by a business. The purchaser uses a credit card to make the transaction using an online store or virtual terminal.
The issuing bank account verifies the legitimacy of a transaction and determines whether the buyer can pay for the entire transaction’s cost. The issuing bank account then notifies you of the transaction’s approval or denial through the payment gateway.
Typically, you can work with credit card processors of your choice to construct a payment gateway. Often, this is the most cost-effective approach to installing a payment gateway. Typically, if you use your merchant account provider, you won’t have to pay a setup fee for your merchant account payment gateway.
Advantages of Payment Gateways for Business
1. Deliver a Better Customer Experience
Usually, you can build a payment gateway in collaboration with the credit card processing business of your choosing. Compatibility problems decrease by setting up a payment gateway through your merchant account provider. This is frequently the most economical way to install a payment gateway. Typically, there won’t be a setup cost for your payment gateway if you use your merchant account provider.
2. Reduce the Number of Abandoned Shopping Carts
Next on our list of benefits of various payment channels is the decrease in cart abandonment rates. This has a very negative effect on the revenue of the merchants, thus anything that can be done to assist them in reducing these prices would ultimately enhance their revenue.
3. Increased Revenue
Due to a lack of preferred choices, 16% of small businesses lose consumers, and 38% of those customers were unable to complete a transaction because their chosen method of payment was not accepted. With online credit card payments, you can improve your credit card payments.
4. Expand your Reach
Having a range of payment methods can help a business become global, which is one of the main advantages. As we previously mentioned, depending on the gateway, there are restrictions on collecting money in various nations. Furthermore, some payment gateways are exclusively used in a particular nation.
5. Support your Operations
No matter how efficient a payment gateway is, there will inevitably be downtime. When this happens, customers could run into difficulties while paying online. If consumers have a bad checkout experience, they have the choice to completely give up and never try again.
6. Satisfy your Client’s Needs
Unquestionably, one of the biggest benefits of having a variety of payment gateways is that it lets businesses cater to customer preferences. Different gateways offer various benefits for various locations.
7. Obtain Insightful Data
One of the most underrated benefits of having several payment gateways is the capacity for organizations to acquire a variety of data and obtain analytical information from numerous sources.
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Payment Processor Vs Payment Gateway: Difference
| Payment Processor | Payment Gateway |
|---|---|
| Lets you accept payments without setting up multiple payment integrations. | A tunnel to accepting credit card payments from clients. |
| It provides software compatibility, PCI compliance, and fraud prevention. | It provides international payment support, multiple payment modes, swift integration, pricing, and easy checkout options for transactions. |
| It is a mediator between the merchant, acquiring bank, the payment gateway, issuing bank, and the client. | You can conduct multiple transactions with gateway authorization. |
| Authorizes transactions and facilitates funds transfer and settlement. | Lets you safely transfer funds from bank account to the payment processor. |
Conclusion
To process online payments, an e-commerce company must select one of the two payment options. It’s crucial to choose the right payment gateway technology to protect the client’s sensitive information.
The most typical application of a gateway is for online sales of products and services, however, in the contemporary payment environment, technology has advanced significantly to offer customers a smooth shopping experience across all sales channels and devices.
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
