Payment processor vs. payment gateway

If your business accepts card payments, you’ve likely come across the terms payment processor and payment gateway. While they are often used interchangeably, they serve different roles in the transaction process.

Understanding the difference is crucial for choosing the right payment setup—whether you run an e-commerce store, a hospitality venue, or a multi-location business.

This article will break down:

• What payment processors and payment gateways do
• The key differences between them
• How to determine which one your business needs

Let’s start by defining each.

What Is a Payment Processor?

A payment processor is the service that handles the movement of funds between the customer’s bank and the merchant’s bank. It ensures that transactions are authorised, processed, and settled securely.

How It Works:

1. A customer initiates a payment by swiping their card, tapping their phone, or entering payment details online.
2. The payment processor verifies the transaction by checking the card’s validity and ensuring sufficient funds.
3. The bank either approves or declines the transaction.
4. If approved, funds are transferred from the customer’s account to the merchant’s account.

Where Payment Processors Are Used:

• EFTPOS machines & card terminals (in-store purchases)
• Online transactions (through a linked payment gateway)
• Mobile & contactless payments
• Subscription & recurring billing services

Examples of Payment Processors:

• Venue Smart
• Stripe
• PayPal
• Square
• Adyen

What Is a Payment Gateway?

A payment gateway is the technology that securely captures and encrypts customer payment details before sending them to the payment processor.

It acts as a secure bridge between the customer and the payment processor, protecting sensitive financial data from fraud and unauthorized access.

How It Works:

1. The customer enters their card details on a website or taps their card on a POS terminal.
2. The payment gateway encrypts the information to ensure security.
3. It sends the encrypted data to the payment processor for approval.
4. Once the transaction is processed, the gateway sends a confirmation to the customer and merchant.

Where Payment Gateways Are Used:

• E-commerce checkouts
• Mobile app payments
• Card-not-present transactions (e.g., phone payments)
• Recurring online subscriptions

Examples of Payment Gateways:

• Stripe
• PayPal
• SecurePay
• WorldPay

Key Differences Between Payment Processors & Payment Gateways

Do You Need a Payment Processor, Payment Gateway, or Both?

The right payment solution depends on how your business accepts payments and the level of security, flexibility, and efficiency you need.

When You Only Need a Payment Processor

If your business primarily operates in physical locations and only accepts in-person payments (e.g., through EFTPOS machines or card terminals), a payment processor is sufficient.

• Example: A restaurant with a countertop EFTPOS terminal where customers tap or insert their cards to pay.
• Why? The processor handles all communication between the customer’s bank and the merchant’s bank.

When You Need a Payment Gateway & a Payment Processor

If your business accepts online payments, you need both.

• Example: An e-commerce store or a service business accepting online bookings with upfront payment.
• Why? The payment gateway secures and encrypts card details, while the processor handles fund transfers.

When You Need an Integrated Omnichannel Solution

If your business operates both in-store and online, a fully integrated payment solution with both a processor and a gateway is essential.

• Example: A hospitality chain that accepts EFTPOS in-store, online orders via a website, and mobile payments through an app.
• Why? A unified system ensures a seamless customer experience, real-time financial tracking, and efficient reconciliation.

How to Choose the Right Solution for Your Business

Not all payment providers offer the same level of service, security, or flexibility. Here’s what to consider when selecting the best option:

1. Business Model & Payment Methods

• Retail & Hospitality: Require fast, secure in-person transactions with low processing fees and reliable EFTPOS terminals.
• E-Commerce & Subscription Services: Need a robust payment gateway with strong encryption, fraud prevention, and seamless checkout experiences.
• Multi-Channel Businesses: Require both to ensure customers can shop online, pay in-store, and use mobile wallets without friction.

2. Security & Compliance

• Look for PCI DSS compliance, tokenization, and fraud prevention features to protect customer data.
• A secure payment gateway is non-negotiable for businesses processing online transactions.

3. Cost & Transaction Fees

• Consider the cost per transaction and whether a flat-rate, percentage-based, or tiered pricing structure makes the most sense for your business.
• Some providers charge separate fees for the payment processor and the gateway, which can increase costs—look for a bundled solution if needed.

4. Integration & Support

• Your payment provider should seamlessly integrate with your existing POS system, website, or mobile app.
• Access to real support matters—especially for businesses with high transaction volumes. Digital-only solutions often lack human customer service, making troubleshooting difficult.

Want To Streamline Your Payment System?

Understanding the difference between payment processors and payment gateways is key to choosing the right payment solution for your business.

For businesses looking for a tailored, secure, and fully integrated payment solution, Venue Smart offers both payment processing and payment gateway services, backed by expert support. Contact Venue Smart today to find the right solution for your business.