What is a payment processor?
The payment processor conducts the transaction by transmitting data between you (the merchant), the issuing bank (ie the bank that issues the customer's credit card) and the receiving bank (ie your bank). Payment processors also typically provide credit card machines and other devices you use to accept credit card payments. In order to accept credit cards at your business, you will set up a business account with a business service provider.
What is a payment gateway?
A payment gateway is a tool that securely transmits online payment data to a processor to continue the life cycle of a transaction. It also authorizes payment for cardless transactions, mostly used on e-commerce sites. Think of it as an online point-of-sale terminal for your business.
The difference is that the payment processor facilitates the transaction and the internet payment gateway is the vehicle that communicates the approval or rejection of the transaction.
Payment processors and payment gateways. Which one do I need?
The most common use of gateways is to pay for online goods and services; however, in today's payments landscape, gateway technology has expanded to create a seamless buying experience across all sales channels and devices. In addition to e-commerce transactions, gateways can be used to integrate with your accounting or CRM software, or to process transactions on point-of-sale systems or mobile devices.
Not all business account providers have payment gateways. When in dispute, some providers use third-party payment gateways, which can be a hassle. Who should you contact when you have questions?
It is best to choose a merchant account and payment gateway from the provider. Integrated payments reduce errors, speed up transaction processing, and facilitate reconciliation.
If you don't want to invest in a credit card reader, or you don't have an e-commerce site, you can use a virtual terminal to process transactions as long as you have an internet or data connection.