Payment Gateway vs. Payment Processor: The Difference

A payment gateway authorizes customer credit cards; payment processors complete card transactions.

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A payment gateway is a place on a merchant’s website where customers securely enter credit card information. A payment gateway also verifies that a customer’s card is legitimate. A payment processor transmits card data from a merchant’s point-of-sale system to card networks and banks involved in the transaction.

Many payment gateway providers also offer payment processing services, which makes it possible to bundle the services.

Payment gateway vs. payment processor: Which do you need?

All businesses that accept credit cards, debit cards, prepaid cards or gift cards either online or in person need a payment processor. Only e-commerce businesses need a payment gateway.

There are two types of payment gateways:

  • Third-party payment gateways. These send customers to an external gateway during checkout, meaning a customer submits their card information outside of the merchant’s website. Customers are redirected back to the merchant’s website after completing the transaction.

  • Integrated payment gateways. These gateways are built into the merchant’s e-commerce platform, so customers submit their card information and process their transactions on the merchant’s website. These are sometimes called white-label payment gateways.

    U.S. Department of Commerce International Trade Administration. Selecting Payment Gateways. Accessed Jul 15, 2022.

Payment gateways may or may not charge a monthly fee. You’ll always pay fees for processing services, whether they’re packaged with your gateway or come from a different provider.

Fees for each transaction come out of the merchant's sales. The total fee, called the merchant discount rate, is generally 1% to 3% of the purchase.

For example, on a $100 sale, the merchant would receive $97 to $99.

How to find a payment gateway or payment processor

First, make sure you understand your basic setup needs. Then, be a strategic shopper.

Basic setup needs

  • To accept credit and debit cards, you’ll first need a place to receive the funds. You can get that by either opening your own merchant account, which is a special type of bank account for receiving card payments, or by using a payment service provider that lets you use its merchant account.

  • Next, you’ll need to hire a payment processor to handle the work of routing your card transactions through the financial system so you get paid.

  • Then, you’ll need a way to take card payments from customers. If you sell in person, you’ll need a cash register or point-of-sale system, which should include a card reader so people can pay you. If you sell online, you’ll need a payment gateway so that people have a place to enter their card information in order to pay you.

How to shop for options

  • Decide whether you want a third-party or native payment gateway. Your e-commerce platform might have one built in, or you may need to find one on your own that integrates with your website.

  • See what you can get as a bundle from your current providers. Many payment gateway providers offer merchant accounts, for example, which may mean easier setup and lower fees.

  • Remember that costs for payment processing are often a percentage of the transaction plus a fixed fee per transaction. Sometimes providers offer discounts to businesses that bring them a high volume of transactions, so shop around.

  • Consider whether you want to receive international payments. Most gateways and processors have no problem with major card brands and networks, but they might have restrictions on foreign credit cards and other currencies.

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