Payment Gateway vs Payment Processor: Key Differences You Need to Know

Choosing the right payment processing setup is crucial to the success of your online business. A record high 92% of consumers in the US made a form of digital payment last year.¹ To tap into that business, a seamless payment process can help ensure a smooth checkout experience and encourage customer loyalty.

You’ll need a payment gateway and a payment processor to accept payments. While they might sound the same, they have different roles in handling digital transactions.

This article explains the difference between a payment gateway vs processor and the factors to consider for your business.

Key Differences Between Payment Gateways and Processors

Payment gateways and payment processors have different roles in payment transactions:

• A payment gateway collects and encrypts customer payment data for transfer to a payment processor, which moves money between banks, authorizes transactions and sends confirmation to the payment gateway.
• A payment gateway is customer-facing, while a payment processor operates on the back end to move money.
• A payment gateway encrypts and protects sensitive customer data, while a payment processor verifies transactions and ensures compliance with industry standards.
• Some payment gateways charge a monthly fee, whereas payment processors typically charge transaction fees.
• A payment gateway uses tools like card verification value (CVV) checks and address verification. A payment processor helps to manage refunds, disputes and chargebacks.

When to Use a Payment Gateway vs Payment Processor

• Use a payment gateway to collect customers’ payment information through a website, app, or card reader.
• Use a payment processor to transfer payments from your customers’ accounts to your business bank account.

If you run a small business, choosing a provider that offers both services (such as PayPal, Square, or Stripe) can simplify the setup process and reduce costs.

What Is a Payment Gateway?

A payment gateway is a software tool that collects customers’ credit card details for a purchase, either through an online form on a merchant’s website or a point-of-sale terminal in person. The gateway encrypts the data and transfers it securely to the payment processor to complete the transaction. The payment gateway notifies the merchant of the transaction approval or rejection response it receives from the payment processor. The merchant’s website or POS system displays the appropriate message to the customer.

In this way, the payment gateway acts as a bridge between the customer, the business, and the payment processor.

Payment gateways often provide easy integration options, such as plugins, application programming interface (APIs) and pre-built modules to help businesses start accepting online payments quickly. Some provide multi-currency and multi-language support for international payments.

There are different types of payment gateway. Third-party gateways redirect customers to an external checkout page and send them back to the merchant’s website once the transaction is completed. Integrated payment gateways, also known as white-label gateways, are built into the merchant’s e-commerce platform, so that customers remain on the merchant’s website.

Payment gateway software can ensure compliance with the Payment Card Industry Data Security Standard (PCI DSS) and provide enhanced fraud protection with tools like CVV checks and address verification.

Some ecommerce shopping cart platforms include a payment gateway. And some payment gateway providers also provide merchant services.

Examples of payment gateway providers include:

• Adyen
• Authorize.net
• Braintree (owned by PayPal)
• Shopify Payments
• Stripe

Some companies offer both payment gateway and payment processing services as part of an integrated package. Braintree, Stripe, and Adyen are payment processors that provide payment gateways.

What Is a Payment Processor?

A payment processor facilitates transactions by transmitting data received from a payment gateway to the card network (such as Visa or Mastercard) and the customer’s issuing bank. It can also handle other digital payment methods such as Apple Pay or Google Pay wallets.

Acting as an intermediary, a payment processor ensures that the customer’s identity is verified and notifies the payment gateway whether the transaction is approved or declined. If the transaction is approved, the payment processor moves funds securely from the customer's bank account to the merchant's acquiring bank, which holds the merchant account. The transaction is processed within seconds, while the settlement of funds typically takes a few working days to complete.

Payment processors charge service fees that are typically calculated either as a percentage of each transaction amount or per transaction. Some high-volume merchants can negotiate better pricing.

Payment processors provide a range of services in addition to transaction processing such as fraud detection, refund and chargeback management and regulatory compliance. Some also provide merchant accounts and point-of-sale systems including card readers and terminals.

Examples of payment processors include:

• Adyen
• PayPal
• Square
• Stripe
• Worldpay

Factors to Consider for Your Business

When choosing between payment systems, keep these key factors in mind:

• Your business model: consider your setup needs. Do you need an online gateway for ecommerce payments, a POS system, or both? Do you want to use a third-party checkout or native gateway? Would you prefer to use a payment gateway provider that also offers a merchant account?
• Transaction fees and costs: compare different providers’ transaction fees, monthly charges, and chargeback fees. Some payment gateways charge fees in addition to the processor’s fees.
• Security and compliance: choose a gateway that offers fraud protection features like CVV checks and ensure your payment processor offers PCI DSS compliance.
• Integration: decide the degree of integration with your website, shopping cart, or invoicing system. Some payment solutions offer plug-and-play options while others require developer support.
• Customer experience: opt for a setup that delivers a seamless, fast checkout process as this can increase the number of consumers who complete purchases.
• International payments: if you sell to customers abroad, be sure to choose a payment gateway and processor that allows you to accept foreign credit cards and currencies.

Discover Wise Business: The Easy Way to Receive Payments in Multiple Currencies

Whether you're launching an ecommerce store or expanding your payment options, understanding the difference between a payment gateway and a payment processor helps you set up an efficient and cost-effective system for secure payment processing.

Whichever option you choose, you’ll need to connect a business account to withdraw your payments. This is where choosing the right option can make a big difference to your cash flow.

If you need to accept international payments from customers, a Wise Business account can help save you time and money. Wise is not a payment gateway, but a Money Services Business (MSB) provider and a smart alternative to banks. You can send and receive payments at the mid-market rate without hidden fees or monthly subscription charges.

If you sell through an online or physical store, you can transfer funds to Wise from your payment gateway provider, such as Stripe. Then, you can move the funds to your Wise Business account to convert payments into your local currency if needed. In this way you’ll receive payments at the mid-market exchange rate, saving you money on the mark-ups charged by other services.

Get a Wise Business account today 🚀

Wise Business provides an invoicing tool to create professional invoices. These contain your Wise payment details, making it easy for customers to pay you. You can also use the request payment feature to send customers a Wise payment link so they can pay you easily.

Your Wise account details also work with Amazon globally. If you sell on multiple Amazon marketplaces, you can withdraw your earnings in different currencies directly into your Wise account. This way, you can avoid high currency conversion fees.

All sources checked March 2025.

	Editor & Business Expert:
	Panna is an expert in US business finance, covering topics from invoicing to international expansion. She creates guides and reviews to help businesses save time and make informed decisions. You can read more useful business articles on her author profile.

	Author:
	Nicole is a professional journalist with two decades of experience in writing and editing, she has also run her own freelance business for the past five years. Her expertise spans the financial and technology industries, including payment processing and small business banking.