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Payment gateway vs. payment processor
In modern commerce, online transactions have become indispensable as many businesses heavily rely on online payments as the cornerstone of their revenue. But how does one navigate the world of online payments? What components ensure a smooth and successful transaction?
If you find yourself pondering about these, you're in good company. We will explore two pivotal elements responsible for online payments: payment processors and gateways. Understanding their roles simplifies and helps you, as merchants, choose the right fit for your business.
What is a payment processor?
A payment processor is a financial entity or a third-party service provider that manages and facilitates the electronic transactions of businesses by handling the authorization, authentication, and settlement of payments. It is an intermediary between the merchant (seller) and the financial institutions (such as banks and card networks).
Payment processors securely transmit data from credit or debit cards, digital wallets, and other sources while enabling successful transactions from the customer's bank to the business account. Essentially, without these processors, online payments wouldn't exist. Irrespective of the electronic payment method, these entities ensure the seamless and successful exchange of funds between parties.
What is a payment gateway?
A payment gateway is a technology that mediates between an e-commerce website, mobile app, or financial institution to enable secure online transactions. It facilitates the authorization and processing of online payments by transmitting transaction data between the buyer, the seller, and the financial institutions (such as banks or card networks).
When a customer purchases online, the payment gateway encrypts sensitive information (like credit card details) and transmits it to the payment processor for authentication and approval. Upon receiving the authorization, the gateway returns a confirmation to the seller, allowing the transaction to proceed. It serves as a virtual bridge, ensuring smooth and secure transactions. A payment gateway can be in various forms like POS, online checkout portal, etc.
What is the difference between a payment gateway and a payment processor?
While both are integral to online payments, their functions differ significantly. Payment gateways facilitate communication, whereas payment processors manage the transaction's technical aspects. Understanding these distinctions is crucial for businesses selecting the right payment tools.
The payment gateway intermediates between the merchant's website, mobile app, or financial institution. It encrypts and transmits payment data, authorizes transactions, and ensures information is routed correctly between the buyer, seller, and financial institutions.
The payment processor manages the transaction by validating, routing, and executing the payment. It handles the communication between the merchant, the customer's bank, and the financial networks to transfer funds safely.
Payment gateway primarily focuses on securing and transmitting sensitive payment data during the transaction process.
Payment processor manages the entire transaction lifecycle, including verification, authorization, and funds settlement.
Payment gateway receives payment information, encrypts it, and forwards it to the payment processor for authorization.
Payment processor authorizes the transaction by communicating with the customer's bank or card network, approves or declines the payment, and initiates funds transfer.
Payment gateway often interacts directly with the customer during checkout, ensuring a secure and smooth transaction experience.
Payment processor typically operates behind the scenes, managing the technical and financial aspects of the transaction without direct interaction with the end-user.
With Payment processors, businesses need to set up a merchant account to utilize payment processors, which might involve more intricate setup protocols.
Payment gateways offer simpler integration solutions such as APIs, plugins, and preconfigured modules, allowing businesses to accept online payments swiftly.
Some service providers like Klasha provide a payment gateway and payment processor services to enable smooth online transactions for merchants and customers. To make it easier, Klasha Pay-ins enable merchants globally to accept payment from Africa in local African currencies and money methods while these merchants receive the equivalent in any currency they choose.
So, if you’re a merchant who wants to expand your business to Africa, Klasha Pay-in is for you.
Workflow between payment gateways and processors
Payment gateways and processors collaborate in a coordinated manner to facilitate online transactions. The two complement each other to provide a secure and successful transaction. Here is the workflow:
Transaction initiation: The payment gateway comes into play when a customer initiates a payment on an e-commerce platform. It encrypts the payment data and securely transmits it to the payment processor.
Authorization and authentication: The payment processor receives the encrypted data from the gateway and begins the authorization process. It communicates with the customer's bank or card network to verify the transaction details and the availability of funds.
Transaction approval: The payment processor signals the gateway upon receiving bank or card network approval. The gateway relays this confirmation to the merchant's website or application, informing them that the transaction is authorized.
Funds transfer: Post-authorization, the payment processor transfers funds from the customer's account to the merchant's.
Transaction settlement: Finally, the payment processor ensures the funds are settled between the various financial institutions involved, completing the transaction.
All through this process, the payment gateway ensures the secure transmission of sensitive payment information. In contrast, the payment processor manages the technical aspects, validation, and funds transfer, working together to complete the transaction smoothly and securely. Their cooperation ensures that online transactions are authorized, processed accurately, and conform to security standards.
How Klasha provides both a payment gateway and payment processing for businesses expanding into Africa
Klasha is a cross-border payment solution provider facilitating transactions to and from Africa. It equips merchants with comprehensive payment gateway and processing features. Through its cross-border payment services, international businesses can seamlessly accept payments from African customers in local currencies and diverse payment methods by integrating Klasha's payment gateway, Pay-ins, into their e-commerce websites or mobile apps.
Klasha consolidates the payment gateway and processor into one unified platform, removing businesses' need to seek and obtain these services individually. This approach yields a multitude of benefits for businesses, such as:
Seamless integration: Klasha strives to remain developer-friendly with our quick and easy integrations. We provide comprehensive APIs, plugins, and ready-made modules to simplify the integration of the payment solution into websites, apps, and e-commerce platforms for businesses. This helps enterprises focus on business operations instead of dedicating time to handling the technical facets of payment processing.
Flexibility: Klasha processes payments in various currencies. As a cross-border payment provider, Klasha enables merchants to scale their businesses into Africa, the second largest continent in the world, by enabling merchants to accept payment in local African currencies while they receive the equivalent payout in hard currencies of their choice like USD, GBP, etc.
Security: Klasha upholds the highest security benchmarks of PCI DSS compliance and employs advanced encryption methods to safeguard sensitive payment information. Integrating the payment gateway and processor roles ensures uniform and reliable security throughout the transaction process.
Analytics dashboard: With the Klasha dashboard, businesses can conveniently access and oversee all transaction data, customer details, and payment analytics. This streamlined approach simplifies transaction tracking and reconciliation, enabling businesses to monitor performance and derive insights for data-informed decision-making effortlessly.