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Payment gateways and payment aggregators are more than industry standards: anyone considering themselves a payments expert should become familiar with these terms. Distinguishing the two is paramount for merchants searching for the right payment solution.
It’s important to note that while these terms are essential to understanding payments, they also have different definitions. A payment gateway is a type of software that communicates between financial organizations. In contrast, a payment aggregator is a service provider allowing merchants to accept and process several payment methods through a single platform.
Below, we’ll explore the key distinctions between payment gateways and aggregators. By understanding the differences, you can become more familiar with how to use both to optimize your business.
What Is a Payment Gateway?
A payment gateway technology allows merchants to accept card-not-present (CNP) transactions. It is the liaison between a customer’s and merchant’s banks, permitting a secure data transfer from one end to another.
Let’s use a relevant example to illustrate the point. When a customer initiates a payment on a website, the payment gateway encrypts the customer’s card information before sending it to the acquiring bank for verification. Once the bank authorizes the funds, the payment is routed to the merchant’s account. This process ensures that all sensitive information is safeguarded against fraud.
What Is a Payment Aggregator?
Simply put, a payment aggregator, also known as a payment service provider (PSP), is a third-party facilitator that manages and processes many merchant transactions between customers under one roof. Aggregators generally use their own payment gateways and processors. This allows merchants to receive card payments without holding a merchant account at a separate bank or financial institution.
In essence, PSPs simplify the acceptance of card payments by integrating with multiple payment providers, offering a unified solution for payment acceptance.
In some ways, this allows merchants to be more hands-off with their payment processing. However, this protocol has its drawbacks. While it’s true that payment aggregators are known for efficient onboarding, this process also comes saddled with more rigid parameters. Account holds and termination remain concerns, primarily due to PSPs having a lower capacity for risk than specialized merchant account providers.
What Is the Difference Between a Payment Gateway and a Payment Aggregator?
What are the essential distinguishing factors between payment gateways vs payment aggregators? The primary difference between the two is that one is a company that facilitates payments. The other is technically software that integrates into a website or payment portal.
A payment aggregator is a financial organization that offers solutions to merchants accepting payments online, over the phone, or in person. Payment aggregators also serve as the link between payment processors and businesses with card networks. Both are provided with a merchant account and a payment gateway. Since PSPs tend to offer a ready-made solution, merchants do not need to obtain separate contracts with acquiring banks.
Alternatively, payment gateways can take card-not-present transactions online, in-app, or over the phone. Their software enables merchants to securely accept cards in a virtual space. Communicating with payment processors fulfills transactions after customers have entered their payment details. The card information is then sent to the acquirer through the payment gateway.
Examples of Payment Gateways and Payment Service Providers
We previously mentioned that payment service providers typically offer payment gateways as a part of their services. Therefore, almost all PSPs can act as payment gateways, though the inverse of this is not necessarily true.
Examples of popular payment service providers include PayPal, Stripe, and Square. These are three popular, trusted names with no shortage of brand recognition. In contrast, two of the best payment gateway options are Authorize.net and NMI. Authorize.net is ideal if you require a gateway with sophisticated features. On the other hand, NMI may be a better fit if you require some versatility with your payment processing. There is plenty to like about both options; it’s a question of which is better for your business needs.
Which Do You Need for Your Business?
Payment gateways vs payment aggregators: now that we’ve defined both, which one do you need?
Regardless of your chosen route, a payment gateway can significantly boost your business strategy—the only question is how you will implement it. Before deciding to go with a payment gateway or a payment aggregator, you must examine each option with careful attention to detail.
For those who desire a quick setup and are comfortable relinquishing a certain degree of control, acquiring a PSP is one way to avoid the added burden of opening a merchant account. On the other hand, opening up a merchant account with a payment gateway allows for specialized solutions and tailored resources. When you apply for reliable credit card processing with PaymentCloud, you’ll benefit from the expertise of our top-shelf account managers, whose job is to know your business inside and out!
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