Digital Wallet vs. Payment Gateway vs. Payment Processor

The more established the e-commerce sector becomes, the more merchants choose the digital world to develop their businesses. However, setting up an e-commerce business can be tricky sometimes, particularly when it comes to choosing the best payment options to use for the online store.

Most of us have heard terms such as digital wallet – or e-wallet, payment gateway and payment processor before. As they are all connected to online payments, it is common to see people using them interchangeably, and that causes confusion for merchants venturing into the e-commerce world. In this article, we explain their definitions and main differences.

 

What is a Digital Wallet?

Also known as an e-wallet, a digital wallet is the online equivalent of a physical wallet. It refers to an electronic device or online service consumers can use to make electronic transactions. Users can securely store their bank information and card details in the e-wallet system. Additionally, they can also fund their wallet account and use that money for payment transactions.

E-wallets can be used for online purchases as well as for user authentication. They can store complete user information including credentials, transaction history, and personal details. In addition, digital wallets can also be used in conjunction with other mobile payment systems.

Popular digital wallets include PayPal, Apple Pay, Android Pay and Samsung Pay. The first one has a major difference: it works on a variety of devices and platforms. The other three, on the other hand, are currently device or operating system specific. In Brazil, popular wallets also include PagSeguro, Stelo, and Mercado Pago.

 

What is a Payment Gateway?

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.

 

What is a Payment Processor?

A payment processor is responsible for providing all the payment processing services working as a middleman between the e-commerce store and the card acquirers or banks. It can act both as a payment gateway or as a payment intermediator.

When acting as a payment intermediator, the payment processor provides a full service: technical payment processing and money collection. In this scenario, the payment processor is responsible for all the contracts with card acquirers and banks and for the settlement of the funds collected, massively reducing the bureaucracy for merchants. In this article, we have discussed in more detail the pros and cons of a payment processor.

 

Digital Wallet vs. Payment Gateway vs. Payment Processor

Generally, digital wallets are stored on the client side and are fully compatible with most e-commerce websites. However, businesses can create a server-side digital wallet to store their customers’ details on their servers.

This type of wallet is becoming increasingly popular among large players due to the security, efficiency, and added utility they provide to the buyer. The information stored is input by the user and contains details such as shipping address, billing address, payment methods (including credit card numbers, expiry dates, and security numbers), among others.

Regardless of its type, a digital wallet is a payment method. A payment gateway or payment processor, such as PagBrasil, on the other hand, works as a channel for the payment transaction between the buyer and the seller. Therefore, consumers can choose to pay via digital wallet, but the website will still need the gateway or payment processor to complete the transaction.