July 22, 2023
Understanding the Distinction
In the realm of online payments, two commonly used terms are payment gateway and payment aggregator. While both facilitate transactions, there are distinct differences between these two payment processing models. In this article, we will delve into the variances and functionalities of payment gateways and payment aggregators, shedding light on their unique roles in the payment ecosystem.
Payment Gateway
A payment gateway acts as an intermediary between a merchant’s website or application and the financial institutions involved in processing transactions. Its primary function is to securely transmit customer payment data, authorize the transaction, and facilitate the transfer of funds from the customer’s account to the merchant’s account. Key features of payment gateways include:
- Transaction Routing: Payment gateways route transaction data between the merchant, the customer, and the appropriate financial institution. They handle the secure transmission of payment information, encrypting and decrypting sensitive data to protect it from unauthorized access.
- Integration: Payment gateways offer integration options for businesses, enabling them to seamlessly connect their websites or applications with the payment gateway’s infrastructure. This allows for a customized and branded checkout experience.
- Multiple Payment Methods: Payment gateways typically support various payment methods, such as credit cards, debit cards, digital wallets, and bank transfers. They provide a wide range of options to accommodate the diverse preferences of customers.
- Security and Compliance: Payment gateways prioritize the security of transactions and adhere to industry standards, such as Payment Card Industry Data Security Standard (PCI DSS) compliance. They implement encryption, tokenization, and fraud detection measures to protect customer data.
Payment Aggregator
A payment aggregator, also known as a payment facilitator or “PayFac,” streamlines the payment process by allowing businesses to accept payments without directly establishing their own merchant accounts. Payment aggregators serve as intermediaries between the merchant and the acquiring bank. Key features of payment aggregators include:
- Simplified Onboarding: Payment aggregators simplify the onboarding process by enabling businesses to start accepting payments quickly, often with a streamlined application and approval process. This removes the need for individual businesses to undergo extensive underwriting or set up their own merchant accounts.
- Shared Merchant Account: Payment aggregators consolidate multiple businesses under a shared merchant account. This allows smaller merchants or those with low transaction volumes to access payment processing services without the hassle and cost of maintaining a dedicated merchant account.
- Revenue Sharing Model: Payment aggregators typically charge businesses a flat fee or a percentage of each transaction as their revenue. They provide aggregated reports and manage the distribution of funds to individual merchants.
- Limited Customization: Compared to payment gateways, payment aggregators may offer limited customization options for the checkout process. Merchants operate within the predefined parameters of the aggregator’s payment flow and user experience.
Key Differences
- Merchant Accounts: Payment gateways require businesses to set up their own merchant accounts, whereas payment aggregators consolidate multiple merchants under a shared merchant account.
- Onboarding Process: Payment aggregators generally offer a simplified onboarding process, making it easier for businesses to start accepting payments quickly. Payment gateways may involve a more detailed application and underwriting process.
- Customization: Payment gateways provide more flexibility and customization options for the payment experience, allowing businesses to maintain their branding and control over the checkout process. Payment aggregators offer limited customization capabilities due to the shared merchant account structure.
- Revenue Model: Payment gateways primarily charge transaction fees, while payment aggregators often charge a percentage of each transaction as their revenue and may employ a revenue-sharing model.
Payment gateways and payment aggregators serve distinct roles in the online payment ecosystem. Payment gateways act as intermediaries, securely transmitting payment data and facilitating transactions between merchants and financial institutions. Payment aggregators, on the other hand, streamline the payment process by allowing businesses to accept payments without individual merchant accounts, consolidating them under a shared account. Understanding the differences between these two models is crucial for businesses to choose the most suitable solution based on their specific requirements, transaction volumes, customization needs, and desired level of control over the payment experience.
Contacting the experts at The Payment Exchange will alleviate the stress of learning an entire industry. Since 2002 we have helped thousands of businesses stay abreast of the changing landscape, call us today and take it easy at 877-635-8803 or email us at info@thepayx.com today.