Understanding the difference between a payment processor and payment gateway is an important part of setting up your business, especially if you plan on accepting online payments. And yes, to process online payments you need both a payment gateway and a payment processor.
A payment gateway is a system that collects and verifies a customer’s credit card information before sending it to the payment processor. A payment processor then routes a customer’s credit card information between your point-of-sale system and the credit cards network or bank.
Choosing the right payment gateway and payment processor can feel overwhelming when there are so many to choose from these days. As of 2022, Visa has close to 1300 registered independent sale organizations that essentially sell credit card processing to merchants and business owners.
Because of the mind-boggling options available to business owners, it’s no wonder that they sign up with the first one they see. Companies like Square, Stripe, and PayPal have seen the fear in the eyes of business owners and have created the simple solution. They have built both the payment gateway and payment processor directly into their systems. On top of that they offer target marketing such as “start accepting credit cards in 5 minutes” but BUYER BEWARE!
Have you ever heard “you get what you pay for”?
Please don’t misunderstand, these companies have properly working systems, but it’s the little things you need to look out for. One example is they always have higher rates than what a local merchant services company can offer. So you’re losing money right out of the gate.
Also with these companies, you’re not getting a protected legitimate merchant account. They approve everyone up front, but if you do anything to raise an eyebrow then can and will freeze your account without warning. It can often take days or even months to unfreeze an account, if ever.
We strongly advise you to use a company that will take you through an underwriting process. It’s a little extra work up front, but it will prevent a world of headaches down the road!
We’re happy to help navigate this crazy world of payment processing, so please don’t hesitate to reach out.