Payment Gateway Vs. Payment Processor – Forbes Advisor

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You can think of a payment processor as a communication intermediary. It is the service responsible for sending messages between your company, your customers, the customers’ bank accounts and your bank account.

You will need a payment processor no matter what type of business you run. As a bonus, if you operate a physical store, many payment processors provide Point of sale systems that help you collect credit card information during transactions.

Many businesses use a payment processor connected to their merchant account, which means that all of their payments go directly to them. However, you can also use a third-party payment processor which stores payments for many different companies. The upside is a simpler experience with lower fees.

When to use a payment processor

All businesses, whether online or physical, will likely need some form of payment processor if they plan to accept credit card or ACH payments. Here are some examples of when using a payment processor makes sense:

  • You have a physical store that also operates an e-commerce website
  • You have a pop-up shop that moves to different locations
  • You have a dedicated storefront where you can install a permanent POS system

Main payment processors

There are several types of payment processors, including credit card processors and ACH processors. Since most businesses collect payment by credit card, here is our top picks for credit card processing companies.

  • Square deposits funds into your account in one to two business days with fees ranging from 2.6% to 3.5%.
  • Payment deposit uses a subscription pricing model based on your monthly transaction volume, making it ideal for businesses with a lot of transactions.
  • Bandaged offers rates between 2.7% and 2.9% per transaction and accepts all types of mobile wallets as well as ACH debit payments.

Conclusion

When you compare a payment gateway to a payment processor, you can see that they each play different roles. Payment gateways are essential for verifying a customer’s credit card information, while payment processors handle the behind-the-scenes communication that eventually lands in your account. Some companies, such as Stripe, offer both services.

Overall, online stores will likely need both solutions, while brick-and-mortar stores typically only need one payment processor.

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Elaine R. Knight