What is a payment processor vs payment gateway?

A payment gateway, as the name suggests, is the service that opens up the flow by helping businesses initiate payments. 

They can be provided by a business’ bank, or standalone as a separate service connecting to one or multiple payment processors. Some focus on only one type of payments, for example ecommerce or in-person payments. But the best way to keep agile and minimise integrations is to pick a gateway that has the capabilities to process multiple payment types.

A payment processor comes next; a company that acts as a mediator by processing transactions on behalf of a business’ bank. 

Operating in the background, a processor ensures the payments are compliant with the standards and rules of the country in which the business is operating. The payment gateway sends information of the transaction to the payment processor, which connects directly to the payment network to authorise and clear/capture the payment. 

But here’s the part that makes both clearer.

While a payment gateway is the initiator for business’ payments, a payments process takes control of the technical side of processing payments on behalf of an acquiring bank. 

Usually, a payment gateway and payment processor are two separate systems. But having a single solution that has both can bring a host of benefits for your business, including increased efficiency and reliability.

A surprising amount of steps take place in just the few seconds in which payment processing is occurring.

We’re going to walk you through them: 

1. Once a payment is initiated, the business forwards the customer’s payment information (e.g. cardholder details) to the payment gateway. 

2. The payment gateway adapts the information to meet the proprietary standards sharing it with the local payment processor. 

3. Next, the payment processor passes this information onto the card payment network, which shares it with the customer's bank to carry out checks, for example if there are sufficient funds in the account.

4. Depending on the results of these checks, the customer’s bank lets the card network know whether the transaction is approved or declined. 

5. This message is passed onto the payment processor by the card network, and it is then sent on to the payment gateway, which relays this information back to the business and customer to finalise the purchase. 

6. The funds are transferred from the customer’s bank account to the acquiring bank, then to the business’s bank account and is typically initiated before close of day.

As a single-platform solution, we bring a payment gateway, payment processor and an acquiring bank all together in one place for online and in-person payments. By using Adyen for all your needs, you simplify and improve the experience for both your business and your customers. Because we cover it all, that means you have only one contract with one party, eliminating any third-party interactions to improve your performance. 

And with our experts around the world we offer a direct connection to global and local card networks. So you can enjoy lower transaction fees and higher authorisation rates.

Hopefully this overview of the full payments flow, showing how funds are transferred from a customer’s account into your business account and the key actions for this.

Just to recap, we’ve summarised our key terms: 

• Payment gateway: the party initiating a payment 

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

• Acquiring bank: the party in charge of settling money into the business’s bank account

Adyen has a whole host of payment-related services and features, including: 

• Global acquiring

• All relevant global payment methods

• Revenue optimisation

• Risk management

• Authentication

• In-person payment terminals

• Tokenisation

• Customer donations with Adyen Impact

Get in touch here to learn more about how we can help your business.