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A payment processor and a payment gateway are two distinct services that collaborate to facilitate
online transactions. A payment processor is a financial institution responsible for managing the
transactions between a buyer’s bank and a seller’s bank. In contrast, a payment gateway is a
technology that securely authorizes and processes payments by transmitting payment data between
the buyer and seller.
To illustrate the difference, consider the analogy of in-person payment methods. When you make a
purchase in a store, you typically use a point-of-sale (POS) terminal and a chip reader. You insert or tap
your card on the chip reader, which collects and verifies your card information. This chip reader then
forwards the data to the POS terminal, which connects with card networks and banks to transfer funds
from your account to the merchant’s account.
In the online context, when you enter your card details on a website, the payment gateway collects and
encrypts this information. It then sends the data to the payment processor, which communicates with
the card networks and banks to complete the transaction, transferring funds from your account to the
merchant.
Both the payment processor and the payment gateway are crucial for ensuring secure, fast, and
accurate online transactions. Without a payment gateway, you wouldn’t be able to verify your card
information during an online purchase. Likewise, without a payment processor, you wouldn’t be able to
initiate or receive payment from your bank. Together, they create a seamless payment experience for
both buyers and sellers.
