Payment gateways vs payment processors: What's the difference?

Key takeaways

• A payment gateway captures, encrypts, and transmits payment details from your checkout to a payment processor.

• A payment processor verifies the transaction with the customer's bank, authorises payment, and moves funds to your account.

• You need both to accept payments online. Airwallex combines gateway, processor, and acquiring into one platform, letting you accept payments in 180+ countries via 160+ local payment methods.

If you're setting up online payments, you've probably seen two terms that sound similar but do very different jobs: payment gateway and payment processor. The short version is simple. The gateway captures payment data at checkout. The processor moves the money between banks.

That difference matters because it affects your costs, your security setup, and how you choose a provider.

Below, we'll break down what each one does, how they work together, and how to choose the right setup for your business.

What is a payment gateway?

Think of a payment gateway as the digital version of a card terminal in a physical shop. It's the checkout page where your customer picks a payment method, enters their card details or eWallet credentials, and clicks "pay." That's the front-end experience they see.

Behind the scenes, the gateway handles the security-critical part. It checks the payment details, encrypts them so they can't be intercepted, and sends the data securely to a payment processor. Many gateways also use tokenization, which replaces sensitive card numbers with a unique token. Think of it like a hotel key card: it gets you into your room, but it doesn't reveal your personal details to anyone who finds it. The benefit is straightforward. Your site never stores raw card data, which significantly reduces your security risk.

So, while your customer sees a simple checkout page, the gateway is doing a lot of work to keep their payment information safe as it moves to the next step.

What is a payment processor?

A payment processor verifies transactions and moves funds between accounts. Once the gateway sends over the encrypted payment data, the processor takes over. It routes the information through the relevant card network, such as Visa, Mastercard, or others, and communicates with the customer's issuing bank to check whether the payment details are valid and the account has sufficient funds.

You can think of the processor as a messenger going back and forth between your bank, the customer's bank, and the card network to confirm that everyone agrees the payment should go through. Once the payment is authorised, the processor instructs the customer's bank to transfer the money to your merchant account. It also sends a signal back to the gateway to confirm the transaction is complete, so your checkout page can show a success message.

Now that you know what each one does, here's how they differ.

Key differences between payment gateways and payment processors

The gateway is the front door. It's what your customer interacts with. The processor is the back office. It's what your bank interacts with. Both are essential, but they work at different stages of the payment journey and handle different responsibilities.

These roles are different, but they're meant to work in sequence. Let's look at what that actually looks like in practice.

How payment gateways and processors work together

Here's what happens when a customer buys something on your site.

Say a customer is browsing your online store for a pair of new running shoes. They find the perfect pair and decide to buy them. Here's how the process unfolds:

• The customer makes a payment: On the checkout page, the customer enters their payment details — credit card number, expiry date, and CVV — and clicks pay.

• The payment gateway sends the data to the payment processor: The gateway verifies, encrypts, and transmits the payment information securely.

• The payment processor verifies the transaction: The processor checks that funds are available in the customer's bank account and that the transaction can be authorised.

• The payment processor moves the funds: The processor instructs the customer's bank to transfer the money to your merchant account.

• The payment processor confirms completion: The processor sends a signal back to the gateway once the transaction is successful.

• The payment gateway confirms the purchase: The checkout page displays a confirmation message to show the customer their purchase is complete.

Even though payment processing involves multiple parties and systems, the whole thing happens in seconds from the customer's point of view. But not every setup works the same way. The type of provider you choose changes how these pieces fit together.

Payment service providers, merchant accounts, and how they fit together

So far, we've talked about gateways and processors as separate parts. But when you start setting up payments, you'll also hear about payment service providers (PSPs) and merchant accounts. Here's how they fit together.

What is a payment service provider?

A payment service provider bundles the gateway, processor, and merchant account into one platform. Instead of hiring a separate architect, builder, and electrician, a PSP is more like a design-build firm that handles everything under one roof.

This bundled approach makes setup much simpler. You sign up with one provider, integrate once, and you're ready to accept payments. Most modern payment platforms, including Airwallex, work this way, which is why you don't always hear the terms "gateway" and "processor" used separately when you're comparing providers.

What is a merchant account?

A merchant account is a special type of account that holds funds after a card payment is approved but before they're settled into your regular business account. Think of it as a holding bay at a port. Goods (funds) arrive there first and get checked before they're released to their final destination.

With traditional setups, you'd need to apply for a merchant account separately, and that involves paperwork and underwriting. With modern PSPs, the merchant account is bundled in, so you don't need to worry about setting one up yourself.

Standalone setup vs all-in-one PSP

When you're choosing how to accept payments, you've got two main options: put together separate providers for each function, or use an all-in-one PSP. Here's how they compare:

For most businesses, an all-in-one PSP is the fastest way to start accepting payments without the hassle of managing multiple vendor relationships.

Checkout implementation options

Whether you use a standalone setup or a PSP, you'll still need to decide how to set up the checkout experience. The three main options are:

• Hosted checkout: A pre-built, secure checkout page managed by your provider. Customers are redirected to complete payment, then sent back to your site. This is the fastest option to set up, and it reduces your PCI compliance burden because card data never touches your servers.

• API-based checkout: Your developers build a custom checkout flow using the provider's APIs. This gives you full control over the experience, but it needs more technical resources and a higher level of PCI compliance.

• Payment Links: Shareable URLs that let you collect payments without building a website. They're ideal for freelancers, service providers, or businesses that need a quick way to invoice customers by email or messaging apps.

Airwallex offers all three options, so you can start with a hosted checkout and move to a fully custom API integration as your needs change.

Security and PCI compliance

If you accept card payments, you need to meet PCI DSS requirements. PCI DSS, the Payment Card Industry Data Security Standard, is a set of security standards designed to make sure all companies that accept, process, store, or transmit credit card information maintain a secure environment.¹ Think of it as a health and safety code for payment data. Meeting these standards protects your customers and helps keep your business out of trouble.

The good news is that gateways and processors both help you stay compliant.

How gateways protect payment data

Payment gateways handle the security-sensitive moment when a customer enters their card details. They use encryption to scramble the data during transmission, which makes it unreadable to anyone who might intercept it. Tokenization adds another layer by replacing card numbers with tokens that are useless to fraudsters.

Many gateways also support 3D Secure authentication, which adds an extra verification step, like a one-time code sent to the customer's phone, for higher-risk transactions. This shifts liability for certain types of fraud away from your business. Our gateway includes AI-driven fraud prevention that analyses transactions in real time, helping you block suspicious activity before it turns into a chargeback.

How processors detect and prevent fraud

While gateways focus on protecting data at the point of entry, processors monitor transactions as they move through the system. They use real-time monitoring to flag unusual patterns, like a sudden spike in high-value orders from a new region, and velocity checks to catch repeated failed attempts that might point to card testing.

Automated decline rules let you set thresholds for what gets approved, reviewed, or blocked. The practical benefit is clear: fewer chargebacks, less time spent on manual review, and more confidence that the payments hitting your account are legitimate.

Using a hosted checkout or all-in-one PSP significantly reduces your PCI compliance scope, since sensitive card data never touches your own servers.

How to choose a payment gateway and processor

You need both a gateway and a processor to accept payments online. The real choice is whether to get them from separate providers or from one platform that bundles everything together.

Questions to ask when evaluating providers

When you're assessing a payment service provider, it helps to ask yourself a few questions:

• Do you sell to customers globally? If you do, look for a provider that supports multiple currencies, local payment methods, and regional compliance.

• What's your average transaction volume? Different providers use different pricing models, and their fee structures can vary based on things like transaction volume.

• Do you need more than just payment processing? Think about your other requirements, such as FX, transfers, or spend management. Some payment service providers offer these features too.

• How quickly do you need to access your funds? Settlement times vary between providers. Some can settle transactions instantly or on the same day, while others may take several days.

• Do you need integration with other tools? If you rely on accounting software such as Xero or NetSuite, check whether the provider offers integration with these tools. Also check whether they offer integrations with eCommerce marketplaces or CRM tools that you may already use.

• What level of reporting and insights do you need? Advanced analytics can help you optimise conversion rates, monitor chargebacks, and improve financial forecasting.

• What support do they offer? Reliable and timely customer support can make all the difference.

• How do they handle security and PCI compliance? Make sure you understand whether using their solution reduces your compliance burden, and what fraud prevention tools are included.

Understanding payment processing fees

When you process payments online, you're likely to run into several different fees. Having a clear idea of what they are will help you assess the fee structures offered by payment service providers:

• Interchange fees are paid to the card-issuing banks to cover the costs of issuing cards and processing card transactions.

• Assessment fees are charged by card schemes like Visa, Mastercard, American Express, and Discover to maintain the electronic infrastructure that transmits payments.

• Payment processing fees are paid to payment processors for their role in moving transactions through the system. The fee structure can vary depending on factors such as your business's risk profile and transaction volume.

• Platform fees may apply if you sell on an eCommerce platform or marketplace like Shopify, Adobe Commerce (Magento), or WooCommerce. These platforms often charge a fee in exchange for the convenience of having an integrated payment processing solution.

You'll also come across two main pricing models. Flat-rate pricing charges a fixed percentage per transaction. It's simple to understand and predictable. Interchange-plus pricing passes through the actual interchange and assessment fees, then adds a fixed markup. Interchange-plus can be cheaper at higher volumes, but it's more complex to reconcile.

Multi-currency and local payment methods

If you're selling internationally, the payment methods you accept have a direct effect on your conversion rates. From our research with Statista, 94% of shoppers globally say that being able to pay using preferred payment methods is one of the most important aspects of the checkout process when buying online, cross-border.

The more payment methods you support, from credit cards to digital wallets like Apple Pay and PayPal to local options like iDEAL in the Netherlands or Pix in Brazil, the fewer customers you lose at checkout. Multi-currency support matters too. When customers can see prices and pay in their local currency, they're more likely to complete the purchase.

There are costs involved, but expanding your payments online and cross-border can bring meaningful growth to your business and create additional revenue streams.

Accept payments globally with Airwallex

If you're looking for a single platform that handles everything, gateway, processor, and acquiring, Airwallex brings it all together. You can manage secure data transmission, tokenization, fraud detection, payment authorisation, and funds transfer in one place, without juggling multiple providers.

Here's what that looks like in practice:

• Accept payments in 180+ countries via 160+ local payment methods, connecting you with customers wherever they are.

• Display prices in 130+ currencies with automatic currency conversion at checkout, so customers see exact costs in their local currency.

• Get local bank details in 23+ countries through a single Business Account, letting you accept multi-currency payments without opening separate accounts.

• Boost acceptance rates with built-in optimisation tools like automated retries and smart routing that help more payments go through on the first attempt.

Whether you prefer no-code, low-code, or fully customisable solutions, our checkout options let you start accepting payments in minutes.

Explore Airwallex Payments or talk to our team to get started.

Frequently asked questions

Do I need both a payment gateway and a payment processor?

Yes, you need both to accept payments online. The gateway captures payment data at checkout and sends it securely to the processor, which then verifies the transaction and moves funds to your account. Many providers bundle both into one platform, so you don't have to set them up separately.

Is Stripe a payment gateway or a payment processor?

Stripe is both. It's a payment service provider that bundles gateway, processor, and merchant account functions into one platform. Many modern payment providers work this way, which is why you don't always hear the terms used separately.

What's the difference between a payment processor and a payment service provider?

A payment processor handles one part of the transaction by verifying and moving funds between banks. A payment service provider bundles the gateway, processor, and merchant account together into a single platform. PSPs make setup simpler for most businesses because you only need to integrate with one provider.

Is Google Pay a payment gateway?

No, Google Pay is a digital wallet, not a payment gateway. Digital wallets are a payment method that customers use at checkout, like choosing to pay with a card or bank transfer. The gateway is the system that captures and transmits the payment data to the processor, no matter which payment method the customer selects.

Sources and references

• https://www.pcisecuritystandards.org/

The information contained herein is factual information only and isn't intended to imply any recommendation or opinion about a financial product. Airwallex (UK) Limited (Co. No. 10103420) is authorised by the FCA under the EMRs 2011 (FRN 900876).