At Remitly, we’re in the business of money. If you’re an entrepreneur, small business owner, or freelancer, finding the right payment solution is crucial to your success. Sales, security, and customer satisfaction all depend on the payment methods you offer.
If you’re a new business owner, you might find the terms “payment gateway” and “payment processor” confusing, often using them interchangeably. But they’re not the same thing. Each plays a different role in moving money safely from your customer to your business.
Understanding the difference helps you make smarter choices about your payment setup. In this article, we’ll explain what each does, highlight key differences, and help you figure out which one best fits your business needs.
What is a payment gateway?
A payment gateway is the technology that captures and transfers payment information from your customer to the processor. You can think of it as the “front door” of payment processing, the digital point of sale that customers interact with directly. It’s like the online version of the card reader at a checkout counter.
The main functions of a payment gateway include:
- Capturing customer information
When a customer is ready to buy, the gateway provides a form to enter details like their credit card number and billing address.
- Secure data transmission
The payment gateway encrypts sensitive data to protect it from breaches. This involves SSL encryption (Secure Sockets Layer), which creates a safe connection between the website and server. Gateways also follow PCI (Payment Card Industry) compliance, a set of mandatory standards for handling credit card information.
- Authorization of transactions
Once encrypted, the data is sent to the processor or the merchant’s bank, starting the transfer of funds.
Some examples of payment gateways that you’ve probably heard of, or even used as a customer, are Stripe Checkout, Square Online, and PayPal’s hosted payment pages.
What is a payment processor?
A payment processor is the service that handles the actual movement of money between accounts, taking funds from your customer or sending them to you. Payment processors work behind the scenes to communicate with banks and card networks.
- Transaction authorization: When the payment processor receives information from a card reader or a digital payment gateway, the transaction will begin.
- Secure data transmission: The payment processor shares the purchase details with the customer’s bank or card network, like Visa or American Express.
- Verification and approval: The bank or card network checks the customer’s account and approves (or denies) the transaction.
- Fund transfer: If the payment is approved, the money will be transferred from the customer to your business.
Payment processors are essential for completing payments. However, because they’re not seen in action, they’re not as widely recognized as payment gateways. A few popular ones are Chase Paymentech, First Data, and Worldpay.
Key differences: gateway vs processor
Payment gateways and processors work together to complete card transactions, but they’re still separate. Think of them as two halves of the payment puzzle: one interacts with the customer, while the other moves the money. Having these two separate steps helps increase security for both you and your customers.
| Gateway | Processor | |
| Function | Works as an interface, allowing a customer to start a transaction. | Handles the transaction behind the scenes. |
| Customer interaction | Customer-facing (forms, checkout pages, card readers). | Not customer-facing, but a middleman technology to provide payment information to banks and credit card companies. |
| Security role | Helps to protect sensitive customer data, like names, billing addresses, and card numbers. | Helps to prevent fraud and ensure safe and secure money transactions. |
| Integration | Used on websites, apps, and e-commerce sites. | Used during any sale where a credit or debit card is used as payment, whether online or in a physical store. |
Despite the differences between payment gateways and processors, most businesses will need both services to accept payments.
Do you need a gateway, processor, or both?
Figuring out the best combination of technologies to support your business and its future goals can be tricky. The right setup depends on how your business accepts payments.
E-commerce businesses
If you’re selling products or services online, you’ll almost always need to have both a payment gateway and a payment processor. The gateway collects customer details, and the processor moves the money.
Brick-and-mortar stores You may only need a processor if you already have a point of sale system that works for you. For example, this could be a card reader at your checkout counter.
Service-based businesses
This depends on how you get paid. If your clients can pay you online, then you’ll need both. If you only make sales in person, you may only need a payment processor and a card reader.
All-in-one solutions
There are several companies that provide all-in-one solutions for accepting payments, making setup simple for small businesses. Companies like Square and Stripe provide both payment gateways and payment processors so that you can accept a range of different payment types.
If you’re unsure about which combination of technologies you’ll need, ask yourself:
- Do my customers pay online, in person, or both?
- Do I want to expand into e-commerce in the future?
- Is my customer base mostly local, or do I need to accept payments from anywhere?
Answering these questions can help you decide if you need a gateway, a processor, or both.
How to choose the right solution
Choosing the best payment technology comes down to your business model, budget, and customers’ needs. Different setups work better for different types of businesses.
Consider your business model
Whether your business is online, in-person, or both, there are payment technologies to support you. An online business or hybrid business will often benefit from solutions that support multiple payment types, while an in-person business could have just a payment processor and a point of sale.
Evaluate costs
Accepting payments from credit or debit cards will come with associated fees for you as a merchant. There are individual transaction fees, monthly or annual fees, plus setup costs. Planning for these expenses in your budget helps you avoid surprises.
Check compatibility
If you’re already using an e-commerce platform or shopping cart, check to make sure that any new payment systems you’re considering are compatible with the ones you already rely on.
Review security features
Protecting your business and your customers is non-negotiable. It helps to look for any providers that offer PCI compliance, fraud protection, and data encryption.
Assess customer experience
Don’t forget to look at the checkout from your customers’ point of view. Is it simple to use on a cell phone or other mobile device? Does it support the payment methods your audience prefers? A smooth, reliable checkout makes for happier customers and fewer abandoned carts.
Payment solution companies will be able to provide you with a quote for installation as well as annual, monthly, or transaction fees. Consider contacting a few different companies so you can compare and contrast different quotes and find the best provider for you.
Common misconceptions
Even though gateways and processors work together, there are still a few common myths that cause confusion. Clearing these up can help you make a more confident choice for your business.
Myth 1: They’re the same thing
Although there’s a myth that payment gateways and processors are the same thing, they function in different and independent ways to help support your business, your customers, and your finances. Knowing the difference helps you avoid gaps in your setup.
Myth 2: You always need separate providers
Some business owners think they need to buy both services separately. That’s not always true; as we mentioned, there are plenty of companies that provide these services in tandem. These bundled services can save time, reduce setup headaches, and even help cut down on transaction errors.
Myth 3: Cheaper is always better
Remember that cheaper isn’t always better when it comes to payment processing. Lower fees sound appealing, but with payments, security matters most.
So you’ll want to make sure that you choose a provider with strong fraud protection, PCI compliance, and reliable support. It’s worth the extra cost. A trustworthy solution can also improve customer confidence and protect your business’s reputation in the long run.
Choose your payment solution with confidence
Now that you know the difference between payment gateways and processors, you’re in a stronger position to choose the setup that works best for your business. Remember: the gateway is the customer-facing tool, while the processor makes sure the money actually moves into your account.
For many small businesses, an integrated solution that offers both can simplify setup and keep costs manageable. But the right choice depends on your goals, whether you’re running an online store, managing in-person sales, or planning to expand in the future.
Take the time to think about your specific business needs, researching providers, and requesting quotes. With the right payment solution in place, you’ll not only make payments easier but also build trust with your customers, setting your business up for success.
FAQ
Can I use a payment gateway without a payment processor?
No. A gateway needs a processor to complete the transaction. But some providers bundle both services into one package to make things easier.
How much do payment gateways and processors cost?
Costs vary by provider. Most charge a small flat fee per transaction plus a percentage of the total, and some add monthly or annual fees for higher-volume businesses.
Which is more important for security, the payment gateway or the payment processor?
Both are critical. The payment gateway works to encrypt customer data as it’s shared with the processor. The payment processor is responsible for authorizing and settling funds while preventing fraud.
Do I always need both a gateway and a processor?
Not always. If you sell exclusively in person with a POS system, a processor may be enough. Online businesses almost always need both.
Are all-in-one solutions a good idea?
Yes, for many small businesses. Companies like Square, Stripe, and PayPal provide both services together, saving you time on setup and integration.
Can I switch providers later?
Yes, though it may involve setup fees or contract changes. It’s smart to compare providers every few years, though, to make sure you’re still getting the best rates and features.
How long does it take to set up payment processing?
Most providers can get you up and running in a few days. Complex integrations may take longer, but simple solutions can often be launched quickly.