In the world of online/offline shopping, it becomes important to offer your customers safe and secure payment options. This is where payment processors and payment gateways come in handy. The most interesting part is that both these terms are interchangeably used but they are meant for different tasks within the payment process. Therefore, in this blog post, we will talk about how these two elements work in sync to ensure a reliable and smooth transaction.
The payment process starts from the very moment the customer decides to purchase something whether from an online store or a normal brick-and-mortar store. For this, the customers are required to provide their payment details which usually include:
These details are entered on the retailer’s website for online shopping; however, for offline purchases, the information is entered into the point-of-sale (POS) system.
The role of the payment gateway comes just after the customer provides their payment details. It is to safely transmit this crucial information from the retailer to the payment processor. Here’s how it works:
In short, payment gateways act as an intermediary between the retailer and the payment processor while ensuring that the customer’s sensitive payment details are securely transmitted.
Once the encrypted payment data is received by the payment processor, it then starts working on the technical aspects of the transaction. These include:
This step is extremely crucial as it ensures that only authorized and legitimate transactions take place while safeguarding both the customer as well as merchant from any potential fraud.
After the payment processor performs fraud checks and verifies the transaction details, it comes to either of the two outcomes:
After the denial, the payment processor then sends the result back to the payment gateway.
The payment gateway receives the approval or denial from the payment processor and passes this information on to the merchant. Based on the outcome:
This step keeps the merchant updated, enabling them to complete the transaction or address any issues if required.
The final step in the payment process involves settlement. This is managed by the payment processor and involves certain steps:
In short, settlement means that the merchant gets paid for the approved transactions while completing the payment cycle.
In a nutshell, both payment gateways and payment processors play crucial roles for businesses looking to offer smooth and secure payment experiences to their customers. The payment gateway handles the secure transmission of transaction data. On the other hand, the payment processor takes care of authorization and fund transfers. However, together they ensure the smooth completion of the payment process.
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