How To Understand The Terminology Related To Online Payments
When it comes to payment solutions, there are many terms used to describe various parts of the platform. Sometimes these terms can be confusing, especially if you are not used to the world of online payments. Many of these terms are distinct, although they have very small differences between them, and they all refer to a service, application or company that functions as a financial intermediary between your customer and your website. So, here we describe some of the most common terminology used when it comes to online payments.
Payment Gateway: The payment gateway is an online payment technology that helps to receive the request for online payment from your own website, and it then directs it to the processor for payment. Thus, the payment gateway can also be described as the digital counterpart of the PoS or Point of Sale machine where you would typically swipe your physical credit card.
Payment Processor: The payment processors are special types of online payment services that will validate your customer’s credit card details or bank details. These details will usually belong to the credit card of your supporter, donor, member, etc. The payment processor will check if the customer has enough funds to make the payment. If there are sufficient funds, then the processor will authorize the transaction and the funds will get transferred from your customer’s account.
The transaction status will also be sent back to the mobile payment gateway or online gateway, which will then send back a transaction status update or message back to your own website. The processor company might also provide your company with the equipment needed to receive in-person funds, such as a card swiper.
Payment Provider: The payment provider or service provider refers to the company which operates the gateway for payment, or processor services. In some cases, the provider might operate both of these services.
Payment Service Or System: In cases where a payment provider offers various types of gateways for payment, along with different pricing and features, each type of gateway is referred to as online payment services or payment systems. As an example, PayPal is a service provider for payments, which offers many different payment systems and services.
Merchant Account: The merchant account is a very important term to understand correctly when it comes to online payment technology. Once a transaction online is completed successfully, the funds get transferred from the customer or purchaser’s account into your own merchant account. This account is a special type of account in the bank, which is used specifically to hold the funds that are received from both debit and credit card transactions.
In order to be able to accept payments online, you will need to set up a merchant account with the help of your payment provider. The funds that keep accumulating in your own merchant account will eventually need to be transferred into the bank account registered for your organization, on a regular basis.
Gateway vs. Processor: Many people use these two terms interchangeably, but in the world of online payment services, the gateway is the one that authenticates the payment from the customer, while the processor is the actual mechanism that communicates between the merchant and the bank.