If you’re a merchant looking to take card payments, you might have come across some confusing labels like payment service providers and payment gateways. These sound like they might be the same thing, but in fact, they are different. This article explains what you need to know about these types of merchant services and highlights the critical differences between them.
If you want to accept credit or debit card payments from your customers, you’ll need to sign up with a payment service provider, and in most cases, apply for a merchant account. A merchant account is a special kind of business bank account used to take card payments.
A payment service provider, also known as a PSP or a payment processor, is a third-party company or platform that helps merchants take card payments and other payment methods, such as Direct Debit and real-time bank transfers.
Payment service providers provide a connection between consumers, merchants, financial institutions and credit card networks all around the world. They are a key player in the global payments industry, bringing together all parties involved in a transaction to ensure a seamless payment experience for merchants and customers. This is essential for today’s consumer - the checkout process being too long or complicated is cited as one of the top reasons for cart abandonment.
Here’s an example of how a payment service provider works behind the scenes during online payment.
As well as taking care of the transaction process from start to finish, some payment service providers offer risk management for online payments, transaction payment matching, reporting and fraud protection services.
There are several payment service providers to choose from in the UK, and they each offer different features and pricing options for merchants. These are some of the main ones you might come across:
A payment gateway is a technology or application used at the point of purchase when online payments are processed. It encrypts the financial data used in a transaction and makes the authorisation request so the customer can proceed with their transaction (or not, as the case may be). Then it redirects the customer to the next screen, e.g. back to the merchant’s website.
Here’s where it gets confusing. A payment service provider can also offer a payment gateway. Hence this can be the same company. So, for instance, PayPal, Stripe and Worldpay are a payment service provider and payment gateway.
Payment gateways can work in different ways. There are three main types to know about:
There are pros and cons to each type of payment gateway. For instance, off-site payment processing means less responsibility on the merchant’s shoulders, as customers’ sensitive financial data is handled off-site. But a completely off-site payment gateway, such as PayPal, involves a second step for customers, which means the process takes that little bit longer and isn’t invisible.
The terms ‘payment service providers’ and ‘payment gateways’ are often used interchangeably, so for clarity, let’s summarise the main differences between them:
We often get asked questions like the following about payment service providers and payment gateways:
To accept card payments, you’ll need to use a payment gateway. You can set up a payment gateway in association with your preferred credit card processing company, but the most common approach is to use a payment service provider as it’s often easier and more cost-effective.
Yes, you can. PayPal is one example where you can accept payments without setting up a merchant account. You just need to enter your bank account and debit or credit card details when setting up a PayPal business account.
Many providers will allow you to take card payments over the phone, using a virtual terminal or secure webpage that you can access from your internet-enabled device. You don’t need your own website to make this happen. The payment from the customer goes into your merchant account, just like with online card payments, until it’s processed.
Each one offers something slightly different. To get the best one for your business, you should determine your priorities. As a starting point, consider how many card payments you’ll be taking, whether these are usually local or global, whether you need a full-service provider or whether you need a simple, easy-to-use interface.
It depends on the payment service provider or payment gateway you choose and the expected volume of customer transactions. Each has different fees, which can include initial set-up fees and a monthly recurring fee as well as transaction fees.
As a merchant, you’re responsible for payment security at every step of the purchasing and checkout process. If you intend to process, store or transmit customers’ financial data, you need to ensure you’re PCI compliant.
Payment service providers and payment gateways are also required to be PCI compliant. They can simplify the burden of PCI compliance for yourself through safer card acceptance methods and encryption protocols.
* If you have any other questions not listed here, feel free to ask us directly.
To conclude, both payment service providers and payment gateways are crucial in helping you get set up to take card payments.
The main difference between them is that a payment gateway is a tool that verifies your customer’s financial details, while a payment services provider provides you with a merchant account and, quite often, a full suite of merchant services. A payment service provider can be the same company that provides the payment gateway.
Here at Card Payment Guru, we’re here to guide you towards the best card payment solution, whether that’s a card payment machine for selling in person or helping you set up card payments online.
Simply tell us your payment requirements, and we’ll do all the legwork in finding the best provider for your business needs and budget - free of charge. Get started today.