The difference: Payment processor vs payment gateway

Discover the difference between a payment processor and a payment gateway, and how a solution that covers both can benefit your business.

6 April, 2023
 ·  3 minutes
In person payment being processed

The card payments world is full of specific terms that overlap and can be difficult to understand.

‘Payment processor’ and ‘payment gateway’ are two examples that often get confused with each other. They fall into the black box of payments, somewhere between a customer making a payment and the money landing in the business’s bank account.

In this article, we’ll open up this black box and help you understand the difference between a payment processor and a payment gateway, their roles in the payments flow, and how a solution that covers both can benefit your business.

What is a payment processor?

A payment processor is a company that processes payments on behalf of a business’s bank.

It usually operates in the background, making sure processed payments comply with rules and standards in the market that the business operates in.

After receiving payment information from a payment gateway, the payment processor communicates it directly to the payment network and authorises and clears or captures the transaction.

What is a payment gateway?

A payment gateway is a service that helps businesses initiate payments.

It provides them with various channels and services for their customers to make payments online. Gateways can be provided by a business’s bank, or exist as a separate service that connects to one or more payment processors.

However, not all payment gateways process all types of payments. Some only focus on ecommerce payments while others focus on in-person payments. To reduce integration complexity and future-proof your business, it’s important to choose a gateway that processes multiple types of payments.

What’s the difference between a payment gateway and a payment processor?

A payment gateway helps businesses initiate payments and a payment processor handles the technical aspects of payment processing on behalf of an acquiring bank.

A payment gateway and payment processor are usually two separate systems. However, having both in one can increase efficiency and reliability of the payment process and improve speed of innovation.

How payment processing works as a whole

Although payment processing is over in a matter of seconds, quite a few steps happen during this time.

Let’s start from the beginning:

  1. After a payment is initiated, the business sends the customer's payment information (e.g. cardholder details) to the payment gateway.

  2. The payment gateway transforms the information in adherence to proprietary standards and shares it with the local payment processor.

  3. The payment processor shares the information with the card payment network, which shares it with the customer's bank, which performs several checks, e.g. if there are enough funds in the account.

  4. Based on the outcome of the checks, the customer’s bank tells the card network whether the transaction is approved or declined.

  5. The card network passes the message to the payment processor, which passes it to the payment gateway, which communicates it back to the business and customer to complete the purchase.

  6. The transfer of funds goes from the customer’s bank account to the acquiring bank and then to the business’s bank account and is typically initiated before the end of the day.

Where does Adyen fit in?

At Adyen, we simplify and improve online payments and in-person payments for businesses and their customers. We consolidate a payment gateway, payment processor, and an acquiring bank in one platform for both online and in-person payments. Managing payments is easy when you only have one contract and one party to interact with to optimize your business performance.

As the acquirer, payment processor, and payment gateway in Australia, our direct connection to global and local card networks enables businesses to benefit from local market conditions. This helps to improve authorisation rates and lower transaction fees.

Explore Adyen’s payment-related services and features, such as:

Want to learn more? Get in touch here.

Card payment being processed

Opening the black box of payments

Now you have a better understanding of the payment processing flow and how funds move from your customer’s account to your business bank account.

Here is a summary of the most important takeaways:

  • Payment gateway: the party that initiates a payment

  • Payment processor: the party behind the gateway that connects to various card networks

  • Acquiring bank: the party that settles the money to the business’s bank account

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