Payment processors and payment gateways are critical parts of the infrastructure powering e-commerce. Learn their differences and where they fit in the online payment process.
Every other day a budding entrepreneur somewhere in Kenya considers starting an online business. A big part of their homework is figuring out how they will accept customer payments on their website.
The process of accepting customer payments directly on your website or app may take only a few seconds, but it involves several steps and players.
In the few seconds between a customer submitting their card information, getting payment approval, and redirecting back to your website, the payment gateway, payment processor, card network, issuing bank, and the acquiring bank will all play some part.
As a merchant, it’s essential that you know what goes on in the background when customers checkout on your online store, especially since the process involves transmitting customers’ personal financial information.
Of particular importance is understanding the role played by the payment gateway and the payment processor, two entities that are often confused with each other.
This article will clear the payment processor vs payment gateway confusion. We will also briefly explain the roles of the other players in the online payment process.
Let’s go.
What is the difference between a payment processor and a payment gateway?
Payment processors and payment gateways play different roles in the online payment process. A payment gateway verifies a customer’s payment information and communicates to the customer whether the payment has been approved or declined. The payment processor takes the payment information from the payment gateway and routes it to the merchant’s bank to facilitate the payment.
A payment gateway is the equivalent of a POS (point of sale) terminal in a supermarket. So a POS machine is for in-person or card-present payments, while a payment gateway is for online or card-not-present transactions.
Both the payment gateway and payment processor are involved in the online payment process, but each plays its own role.
The payment gateway serves as the customer’s interface, where they enter their payment information to start the payment process and where the process ends when the payment is confirmed or declined. The payment processor works in the background and does the actual payment processing.
The role of a payment gateway in the digital payment process
The payment gateway is the customer-facing part of the online payment process. It's the customer interface or the page with the form the customer enters their card information.
On a website or app, the payment gateway takes over the checkout process when the customer indicates their intention to pay.
For example, when paying your Dstv subscription online in Kenya, the PayU payment gateway that Dstv uses takes over when you hit the Pay Now button from the Account page.
On some websites that use an integrated payment gateway or one that is built into the e-commerce platform, the payment gateway interface is embedded in the checkout process.
On other websites, like Dstv, that use third-party payment gateways, the gateway’s interface opens as a separate page that the customer will be redirected to and automatically redirects from after the payment has been processed.
WooCommerce and Shopify have are examples of e-commerce platforms with integrated payment gateways. However, those payment gateways are only supported in selected markets.
Then there are third-party payment gateways like IntaSend and PayU, as in the case with Dstv, that you have to integrate with your online store using an API. In this case, your website checkout page and payment gateway are separately hosted platforms that use the API to communicate with one another.
Understanding the role of a payment processor in the online payment process
The payment processor’s role is to take the payment request forwarded by the payment gateway and communicate it with the acquirer, which is the e-commerce website or online store’s bank, so that the payment can be processed.
The role of a payment processor can be played by a third-party financial institution, the acquiring bank, or the payment gateway itself. Essentially, the payment processor transmits the payment information - the payment amount and the card details - received from the payment gateway to the acquirer.
The acquirer is the merchant-facing bank. It is the bank with which the e-commerce merchant maintains a business or merchant account into which customer payments are deposited after settlement.
To get a clearer understanding of the roles payment processors and payment gateways play, we are going to break down the whole process of online payments:
Payment processor vs payment gateway - How online payments work.
An online payment is where a buyer and seller exchange money as payment for a good or service via the internet. It is the electronic transfer of funds via the internet to seal a transaction between a consumer and merchant.
For an online payment to occur, the buyer and the seller do not have to meet face-to-face. The buyer does not have to physically present and swipe or dip their card into a POS machine.
Online payments can be completed using different payment methods, with the common options being debit and credit cards, mobile money wallets like M-Pesa, and digital wallets like PayPal.
Here is how a typical online payment works:
1. Customer checks out on an online store.
After a shopper in your store selects a product and clicks the buy button to make the purchase, they will be taken to the checkout page, which summarises the payment and collects their shipping details. They will also be able to review the shipping cost and delivery details.
2. Payment gateway authenticates payment information.
If the customer is satisfied with the shipping conditions and final cost, they will choose the payment method they want to use and then tap the Pay Now button. That will redirect them to the payment gateway.
If you are using the IntaSend payment gateway and depending on whether your website runs on the Shopify or WooCommerce e-commerce platforms, your customers will be presented with MasterCard, Visa, M-Pesa, and Bitcoin as payment methods.
The payment gateway interface may present as a pop-up or separate webpage. If you choose MasterCard as your payment method, for example, the payment gateway interface will have a form with fields for the card number, expiry date, account holder’s name and surname, CVV number, and email address.
The payment gateway can automatically check if the payment details you entered are correct. For example, it knows all the cards registered on the Visa, Discover, and MasterCard networks and will tell you to enter the correct card number if you mistype it.
After verifying the supplied payment information, the payment gateway will securely transmit it to the payment processor for onward transmission to the acquirer. To protect the payment information from theft or interception, the payment gateway transmits it in tokenised form.
1. Payment processor submits a payment request to the acquirer.
The payment processor will then send the payment request to the acquirer. The acquirer is the bank that represents you, the merchant, in the payment process. It is the acquirer that requests the payment on your behalf.
2. Acquirer forwards the request to the card network.
The acquiring bank will forward the payment request to the card network. The card network, for example, Visa or MasterCard, provides the technology and the network that power online transactions.
So if the customer is paying using a MasterCard debit card, the network through which the request will be made is MasterCard's. The acquiring bank’s role is to acquire the payment from the issuing bank and deposit it into your merchant account.
3. The card network requests payment authorisation from the card issuer.
The card network asks the issuing bank to check if the customer’s account has enough funds or credit to complete the payment. If funds are available, the payment will be accepted and declined if the account has insufficient funds.
The issuer is the customer’s or issuing bank - the one that issued the customer the card they are paying with. It is the issuing bank that authorises or declines the payment.
4. The card issuer sends a payment response to the payment gateway.
The card issuer will communicate its response to the payment request to the merchant through the payment gateway. The payment gateway will show the response to the customer and redirect back to your website.
5. Issuing bank settles payment with acquiring bank.
If the payment is successful, the issuing bank will route the payment to the acquirer. The acquirer, with which you maintain a merchant account, will deposit the funds into your account. This completes the online payment process.
The above steps summarise the process of accepting customer payments on your website or app. In that process, the payment processor facilitates the payment while the payment gateway verifies the payment information, safely transmits it, and communicates the payment response from the card issuing bank.
Payment processor vs payment gateway - FAQs
Is Visa a payment gateway or payment processor?
Like Mastercard, Discover, and American Express, Visa is a payment card processing network. It is not a payment gateway. Visa processes cards registered under its network, which includes physical debit and credit cards, gift cards, prepaid cards, and virtual cards.
What is the difference between a payment gateway and an acquirer processor?
A payment gateway collects payment information a purchaser presents at checkout, authenticates it, and then securely transmits it to the payment processor. It also communicates the payment response back to the merchant.
An acquirer processor is the merchant or online business’s bank that doubles as the payment processor. While a payment processor can be a third party, the acquiring bank can also assume the payment processing function.
What is an example of a payment gateway?
IntaSend is the most familiar example of a payment gateway for merchants in Kenya. Like IntaSend, which also provides a merchant account into which customer payments are settled, PayPal is an example of a payment gateway that people outside Kenya will be more familiar with.
IntaSend is the trusted payment gateway for online transactions in Kenya
The checkout process is an essential part of an online business’s operations. It is the part where you actually get paid. So all the inventory sourcing, product page design and copywriting, SEO, social media marketing, and the other efforts of bringing people onto your product page will go to waste if you drop the ball at checkout.
It is critical that you choose the right payment gateway for your online business. The right choice of payment gateway protects your customer’s payment information against theft and interception by hackers and spyware, records fewer failed transactions and user drops, and lets customers pay with the payment methods they want to use.
IntaSend is the payment gateway of choice for online merchants in Kenya. Our merchant customers have fewer abandoned carts because we provide a seamless shopping experience and offer multiple payment methods, including M-Pesa and Bitcoin.
Our merchants' payments settle in their IntaSend digital wallet, which has tools that help them pay conveniently and do more with their funds. Our business customers can make bulk and scheduled payments through their merchant accounts right from their dashboards. We support multiple currencies and have ACH and M-Pesa among your withdrawal methods.
Sign up for an IntaSend merchant account and unlock a hassle-free way to accept customer payments on your website. We have IntaSend Payments APIs that simplify integration with websites running on WooCommerce and Shopify e-commerce software.
