The more the e-commerce market evolves, the more players become part of it. E-commerce platforms, payment providers, logistics services and fraud prevention tools are some of them. However, regarding payment providers, we often hear the terms payment gateway and payment processor (also known as PSP – Payment Service Provider) used as synonyms. This is a common mistake as they both provide different services. Understand how they work and their main differences.
What is Payment Gateway and How Does It Work?
A payment gateway is the online equivalent of POS machines used to charge credit card transactions in physical shops. It is a technical solution that transfers the information between online stores and card acquirers allowing a credit card payment to be completed. Merchants using a payment gateway are required to establish a contractual relationship with banks and card acquirers.
Pros and Cons of Using a Payment Gateway
- One integration: instead of complicated technical integrations with every bank and card acquirer, merchants only need to integrate the payment gateway. In addition, the payment gateway is responsible for adapting its platform to any change made on the bank or card acquirer side.
- PCI DSS compliance: when credit card details are sent directly from the buyers’ browsers to the payment gateway, without running through merchants’ servers, online stores benefit from a reduced PCI DSS compliance scope.
- Direct checkout: contrary to what people might think, a payment gateway doesn’t work as an e-wallet, therefore, a direct checkout is often provided by gateway services.
- Fraud prevention: most payment gateways offer fraud prevention tools. PagBrasil, for instance, offers PagShield without the need to integrate another API, as well as Konduto antifraud services.
- Reconciliation: Although the settlement is carried out directly by acquirers with the merchants, payment gateways often offer additional reconciliation services, with complete transaction reports.
- Reporting: card acquirers usually provide simple reports. A payment gateway, on the other hand, can provide a variety of charts and reports for an in-depth overview of the business.
- Contractual relationship: in order to offer all card labels on their online store, merchants must establish a contractual relationship with different credit card acquirers.
- Risk management: as payment gateways do not filter transactions (unless you have enabled their fraud prevention services), merchants must do the risk management to keep their chargeback rates under control and avoid being penalized by card acquirers.
- Setup fee: a setup fee is charged for the integration with the e-commerce website. In addition, the reconciliation services will also imply addition setup costs.
- Settlement: Brazilian card acquirers pay with a delay of 31 days.
What is Payment Processor and How Does It Work?
A payment processor is the middle man between an online store and card acquirers or banks. A PSP provides a full service with both the technical payment processing as well as money collection. However, sometimes it might also offer the gateway only. In addition, the PSP is responsible for all the contracts with card acquirers and banks and for the settlement of the funds collected.
Pros and Cons of Using a PSP
- One integration for several payment methods: in addition to credit card, PSPs often offer a wide range of local payment methods, such as Boleto Bancário, online banking transfer and debit cards. By integrating only one API, merchants have instant access to all payment methods provided.
- Only one contractual relationship: the merchant only needs to establish a contractual relationship with the PSP to have access to the different payment methods.
- Direct checkout: a direct checkout is essential for a better payment experience and most PSPs offer this option. PagBrasil, for instance, offers direct checkout for integration via API, iFrame and its WooCommerce and Magento extensions.
- Fraud prevention: PSPs often have their own fraud prevention solutions but are compatible with the integration of third party antifraud services.
- Reconciliation: all the transaction reports, for all payment methods, are included in the full service.
- Reporting: merchants have access to detailed reports and charts for a full understanding of the entire process.
- Anticipated payout: most payment intermediaries provide anticipated payouts for installment payments, unlike the credit card acquirers, which make the payouts monthly and charge high fees for anticipating the funds.
- Higher fees: a payment gateway only charges a fixed fee per transaction. A PSP, on the other hand, charges a variable fee in addition to the fixed fee. As PSPs must pay acquirers and banks and still have some profit margin, the fees can be higher than what can be directly negotiated with banks and acquirers. However, it is worth noting that only merchants with a significant sales volume are likely to negotiate better fees with banks and acquirers.
- Settlement frequency: even though Brazilian acquirers pay with a delay of 31 days, merchants can receive the funds on a daily basis for payments made 31 days prior. PSPs, on the other hand, usually have fixed dates for the settlement.
Understanding the differences between these two services is essential when choosing the best alternative for your e-commerce. Overall, a payment gateway is frequently used by businesses with a higher sales volume, while small and medium merchants tend to prefer the full service provided by a PSP, as it simplifies their businesses’ routines. PagBrasil provides both gateway and collection services, including the possibility to easily switch from a collection model to a gateway service. Furthermore, it also offers a hybrid option, where merchants can combine the gateway services for credit cards and collection for the other payment methods.
We are looking for a solution to design or integrate with a payment gateway or PSP
hello, My name is Kyle Miller, I am the CFO of 2mercados and I wanted to know if you guys can offer payment solutions for Forex and also, what are your terms and conditions – or – you can just put me in contact with one of the sales team. thank you for the help !!
Hi dear bian .
I have a question about payment transfer technologies. which technology (like Soap service, FTP, Restful service) is used for transferring payment transactions through the servers ?
Transactions volume are very high , so performance is a critical issue for us .
[…] PagBrasil […]
[…] A payment gateway is the online equivalent of PoS machines. That means, essentially, that a gateway works as a bridge between the website and the card acquirers or banks, providing the technical solution that authorizes card payments. When using a payment gateway, merchants are required to establish a contractual relationship with banks and card acquirers, as well as with the gateway provider. In this article, we have discussed in more detail the pros and cons of a payment gateway. […]
Another specificity of payment service providers is that they maintain a contractual relationship with issuing and acquiring banks. Thus, the merchant s contract with the PSP includes different credit card companies, in addition to other payment methods, such as debit, bank-issued invoice and pix. In the exclusive gateway service, the sale is settled by the banks themselves and the merchant must maintain contracts directly with each issuing and acquiring bank.