Understandingpaymentgatewaysandpaymentprocessors

In some cases, most modern business owners and operators must conduct e-commerce transactions for their business.

You may have heard of payment gateways and payment processors during the online payment process. At first glance, the two phrases appear to be synonymous. But in fact, it's not. In fact, payment gateways and payment processors are two completely different things.

In order to optimize the security and customer experience of your online payment process, understand exactly what these two different services are and what they mean for your online presence.

This is a more careful analysis of their role in accepting customer payments and transferring transaction balances to your account.

Four key roles.

Before understanding the specific functions of internet payment gateway and payment processors, it is important to clarify four aspects of any transaction that a participating business conducts.

The two most obvious roles are you, the business, and the customer. Here are the two parties that start the transaction: the customer is willing and able to pay for your service or product. When buying online, a customer initiates a transaction, specifies the product or service she wants to pay for, and enters payment information.

The other two main areas involved in transactions are customer and merchant bank accounts. The customer's bank account is held by the issuing bank. The merchant's bank account is called the merchant account, and the host bank is called the receipt bank.

When a customer transacts with your business, it all involves the customer, the issuing bank, the merchant, and the acquiring bank.

Payment processor

A payment processor is a service that communicates transaction information between merchants, issuers, and acquirers.

In a traditional retail purchase, where the customer presents the merchant with a physical payment card, a payment processor is all that is needed to complete the transaction.

Payment processor services typically provide point-of-sale or point-of-sale (pOS) interfaces for brick-and-mortar businesses. This interface is often referred to as a credit card processing terminal.

The terminal is responsible for verifying the authenticity of the physical payment card provided by the customer. Modern credit cards use EMV chip technology and use an encrypted code to guarantee the authenticity of the card. A real EMV chip card issued by the bank, coupled with a matching identification of the customer, is sufficient to verify the authenticity of the payment card.

Modern credit card processing terminals must be able to read the EMV chip as an authentication point for payment processors.

Once the customer's payment card is authenticated and the customer approves the transaction, the payment terminal will send the transaction details to the issuing bank. The card-issuing bank will approve or reject the transaction almost immediately. Once the card-issuing bank approves the transaction, the payment processor sends a message to the receiving bank and payment terminal notifying all parties that the transaction was successful.

If the card issuing bank rejects the transaction, the payment processor sends this information to the payment terminal and prompts the merchant to reject the payment card.

Payment Gateway

A payment gateway is very similar to a payment processor, it is a tool that transfers payments between the customer's bank and your bank. But the main difference is that it is mainly used for e-commerce or cardless transactions. In other words, it is essentially a point-of-sale terminal for online transactions.

Be careful when choosing a payment gateway.

When customers want to initiate a transaction online, they have to do it differently because they don't show the merchant a physical card. This important difference is that payment gateways have become a necessity.

The payment gateway verifies the customer's digital credentials before forwarding the transaction information to the payment processor, in much the same way that a payment terminal verifies a physical payment card.

Virtual transaction authentication is an existence, and virtual transaction authentication is a more sensitive process. Customers expect instant approval for online purchases; therefore, payment gateways have a tough job to do: verify customer credentials in seconds and prevent card fraud.

The key role of SSL encryption.

Luckily, payment gateway technology delivers impressive success rates and customer expectations.

Get the job done securely -- or special encryption methods, namely Condom Connection Layer (SSL) encryption, without exposing the customer's personal information to potentially malicious third parties. This means that the customer's sensitive data cannot be deciphered when the payment gateway forwards it from the customer's computer to the card-issuing bank.

Once the data reaches the issuing bank, the payment gateway will decode the encrypted data and present it to the bank in a usable form. The issuing bank then authenticates or rejects the information entered by the customer. Banks sometimes consider other information, such as the physical location of the claiming computer and the recent activity of a particular customer, before validating customers and payment cards.

Once the card issuing bank confirms the authenticity of the customer's request, the payment gateway will securely pass the transaction details to the payment processor using SSL encryption technology, and then complete the transaction as above.