Payment gateway vs payment processor vs payment aggregator: Know the differences

12 November, 2024

Synopsis

• A payment aggregator, payment gateway, and payment processor play a vital role in managing online transactions but are distinct in their own ways.

• A payment aggregator is the middleman between customers, businesses, and financial institutions for smooth online payments.

• A payment gateway accepts or declines the transaction while a processor facilitates it.

• You must know the differences between a payment aggregator, payment gateway, and payment processor to discover the right solution for your business.
  
  

Introduction

Digital payments have emerged as the new normal for a vast population. Customers want to send and receive payments online. Consequently, businesses actively seek ways to simplify payments using different digital payment solutions.

If you are new to the business space, it can be challenging for you to find and source a payment provider. You will often come across the terms - payment aggregator, payment gateway, and payment processor. The three are vital links in the payment processing chain, and as a business owner, you must know what they are, how they work, and how they differ.

What is a Payment Aggregator?

The payment solution allows customers to make and businesses to receive online payments. Merchants can use a payment aggregator to accept payments through many methods like Credit Cards, Debit Cards, bank transfers, e-wallets, Unified Payments Interface (UPI), e-mandates, and cardless Equated Monthly Instalments (EMIs).

A payment aggregator partners with several processing entities, including direct banks, acquiring banks, alt credit products, and issuers of wallets, and brings them to a single platform. As a result, it enhances the customer checkout experience by allowing customers to pay using their preferred payment method.

What is a Payment Gateway?

A payment gateway facilitates the process of executing electronic payments online. It is the online version of a physical Debit and Credit Card reader.

The gateway transfers data from the entry point, such as a website, mobile device, or Point of Sale (POS) terminal, to the payment processor to keep the payment lifecycle going.

Gateways help business owners save time and effort by eliminating the need to input any payment-related information received manually. Moreover, they give flexibility in the payment types your customers can use.

There are two types of payment gateways - traditional payment gateways and digital payment gateways. A traditional payment gateway allows merchants to accept payments online. The payment information is manually entered into a mobile app, eCommerce website, or hosted payment platform.

A digital payment gateway creates a virtually frictionless purchasing experience. These gateways simplify in-store purchases, integrate payments with existing software solutions, and accept Near-Field Communications (NFC)-based tapped transactions.
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What is a Payment Processor?
 
A payment processor is a service or company that acts as an intermediary to facilitate electronic payments between customers and businesses. It processes and authorises Debit Cards, Credit Cards, and digital payment methods to secure the movement of funds from the customer’s account to the merchant’s account.

After an online purchase, the payment gateway approves or declines the payment based on various parameters and transfers the transaction data. However, it does not process the payment itself. A payment processor is responsible for processing the payment.

Payment processors verify the customer’s payment details, check for fraud, ensure compliance with required regulations, and eventually authorise or decline the transaction. The business must pay a fee, a percentage of the transaction amount or a per-transaction fee, to the payment processor for its services.

Key differences between payment aggregator, payment gateway, and payment processor

Before choosing a payment aggregator, payment gateway, and processor for your company, it is vital to understand the difference between an aggregator, gateway, and processor. Here’s a table highlighting the differences based on key parameters.

Payment gateway:

• Meaning: The payment gateway facilitates communication and securely transmits payment information between the customers, merchant, and payment processor. It accepts or declines the transaction between the customer and the website.

• Working: A payment gateway collects, encrypts, and verifies Credit Card details.

• Usage: A payment gateway is a point for validating cards and preventing fraud.

• Best suited for: It is ideal for Card-Not-Present (CNP) and e-commerce store transactions.

• Things to look for: The payment gateway must provide a variety of payment methods.
  
  

Payment processor:

• Meaning: The payment processor facilitates transactions by authorising and processing payments and ensuring a secure funds transfer between the customer and the merchant’s bank.

• Working: A payment processor facilitates communication between the customer, the business, the issuing bank, and the acquiring bank.

• Usage: A payment processor is an intermediary between companies and financial institutions for processing Credit Card transactions.

• Best suited for: It is ideal for point-of-sale and face-to-face transactions.

• Things to look for: The payment processor must prevent fraud, be compatible with software, and ensure Payment Card Industry (PCI) compliance.
  
  

Payment aggregator

• Meaning: The payment aggregator is an interface connecting businesses, customers, and financial institutions to complete online payment transactions.

• Working: The payment aggregator sends the transaction details to the bank, conducts a fraud check, requests funds from the customer’s bank after transaction approval, and settles the funds.

• Usage: The solution streamlines end-to-end payment processes by offering multiple payment methods.

• Best suited for: It is ideal for accepting various payment methods like Credit Cards, Debit Cards, UPI, e-wallets, bank transfers, and cardless EMIs.

• Things to look for: The payment aggregator must prioritise security and compliance with industry standards and offer features like fraud detection, encryption, tokenisation, etc.
  
  

Payment aggregator vs payment gateway vs payment processor - Choosing the right solution for your business

There is no right choice between a payment aggregator, payment gateway and payment processor for businesses that accept debit, credit, prepaid, or gift cards online or offline. It depends on your business’s specific needs and preferences. Some payment gateways provide payment processing services, too, allowing you to bundle the services.

At brick-and-mortar stores, the payment gateway is integrated into the POS hardware. On the other hand, e-commerce stores have two options for payment gateways:

• Integrated payment gateways: These are built into the e-commerce store. Customers enter their card details and proceed with their transactions on the merchant’s website. The system is also known as white-label payment gateways.

• Third-party payment gateways: This payment gateway redirects the customer to an external terminal during checkout. The customer must enter the card details outside the merchant’s website. After completing the transaction, the customer returns to the merchant’s website.

A payment gateway is enough if you need a simple and secure solution for card-based transactions. A payment aggregator, on the other hand, enhances customer convenience by offering a broad range of payment options.

You must decide whether you require a native or third-party payment gateway. Your website developer may have integrated one within your website. Do inquire before proceeding.

You must also check if you can get a bundle from a payment solution provider. Several payment gateway companies offer merchant accounts, making setup easier and the solution more cost-effective.

Conclusion

A payment aggregator, payment gateway, and payment processor are essential components of the digital payment ecosystem. But they serve different functions in handling electronic transactions. Understanding payment aggregator, payment gateway and payment processor differences is vital for businesses that handle online payments, as they ensure smooth, secure, and efficient execution of transactions.

Learning about payment aggregator vs payment processor vs payment gateway helps businesses make a better choice and ensures a seamless and secure customer checkout experience. This choice can impact the efficiency of transactions, the level of security, and ultimately, customer trust and satisfaction.

In summary, while a payment aggregator, payment gateway, and payment processor are integral to online transactions, they serve different but complementary roles. The aggregator consolidates multiple merchant accounts into one to simplify the payment process. The processor handles the behind-the-scenes financial operations, while the gateway ensures that transaction data is transmitted securely and efficiently. Together, they enable businesses to conduct electronic transactions smoothly and securely.

HDFC Bank’s SmartGATEWAY aids in streamlining online business transactions and payments. It is the perfect choice for your digital-first business to send and receive payments seamlessly and with the best transaction success rate.

Disclaimer: *Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.