With the world relying more on online transactions, the need for a more secure system has escalated. To make the online purchases more transparent, both payment gateway and payment processor is involved. However, people often get confused between both and take them for the same thing. They are very different and perform very different tasks to ensure a safe and secure online transaction.
Even though they are completely different, they must be PCI-DSS compliant to make sure the transmission of financial information is safe. The payment gateways need annual audit and certification to the latest security standard.
Credit Card Processing
When a purchase is made through a credit card, there are multiple steps of processing before the transaction is complete and money is transferred to the merchant. The customer provides the card and the necessary details for initiating payment, after which the payment gateway forwards the details to the payment processor. The processor validates the details and forwards the transaction request to the bank network. The bank verifies account credit amount against transaction amount, and if approved, returns approval to the card network, which notifies the payment gateway to show a successful transaction. The bank transfers the required funds to the merchant’s account from the consumer’s account.
Credit card processing is a comprehensive network that includes the payment gateway and payment processor. Each of these components carry out a number of functions, and the basic process for a credit card transaction has been explained above. A little more detail about the components:
Payment Gateway
A payment gateway is a terminal that guards, authorises and processes online payments. It allows the individual to carry out the transaction made from credit or debit card. For security reasons, it is prohibited to transmit the details of the payment to the payment processor. Hence, the payment gateway is required to act as the mediator between the website and the payment processor.
The payment gateway encrypts the data through Secure Socket Layers (SSL) and works with your bank in determining if the payment and card number is legitimate or not. If not, then the transaction is denied.
Payment Processor
These are the financial institutes that work in the background to provide the online payment processing to the merchant. The payment processor works by exchanging the customer’s data back and forth between the merchant, the issuing bank, and the acquiring bank. The payment processor also does a quick check on the credit or debit card to ensure no fraud is taking place. After verifying the card’s details, the payment processor takes the money from the card holder’s account and transfers it to the merchant’s bank account.
To explain in simple words, the payment processor is the system that transfers the information between the parties involved to make sure the payment is smooth.
How they work together?
Whenever you start to make the transaction online, four parties involved:
- The Merchant
- The Customer
- The Issuing Bank
- The Acquiring Bank
Three elements are involved in facilitating the payment:
- Payment Gateway
- Payment Processor
- Merchant Account
When an online transaction is initiated, all three elements work together to complete the transaction. The entire process starts with the customer entering his credit card number. The payment gateway sends the transaction details to the merchant account via payment processor.
Meanwhile, the payment processor checks with the bank if the amount entered is within the limit of the cardholder. If the amount exceeds the limit, then the transaction gets denied. Otherwise, the customer information goes back through the credit card network to the payment processor, then the payment gateway which has stored the result on the website to complete the transaction. The shipment goes through, and the merchant gets the amount paid in their account.
The entire payment is done within seconds while keeping the information of both the merchant and the individual secure from the intruders.