Understanding Payment Processors, Gateways & Aggregators

An in-depth look at Payment Processor, Gateway, and Aggregator

Navigating the world of online payments can be complex, but understanding the key components can make it easier. Here’s a comprehensive guide to payment processors, payment gateways, and payment aggregators, including their definitions, examples, differences, pros and cons, and how they can benefit your business.

Payment Processor: A service that handles the transaction data between the customer’s bank and the merchant’s bank. It ensures the transaction is approved and funds are transferred. Examples: Elavon Payments, Stax Payment, World Pay, etc.

Payment Processors

Key Functions:

  • Transaction Authorization: Ensures funds are available in the customer’s account and authorizes the transaction.
  • Data Transmission: Transfers transaction details securely between the merchant, acquiring bank, and issuing bank.
  • Settlement: Facilitates the actual transfer of funds from the customer’s account to the merchant’s account.

Payment Gateway: A technology that captures and transfers payment data from the customer to the acquirer. It is a key component of the transaction process, encrypting sensitive information to ensure the security of the transaction. Example: Authorize.net, Payflow Pro, NMI, etc.

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Key Functions:

  • Encryption: Secures sensitive information such as credit card numbers to ensure that data passed between the customer and merchant remains private.
  • Authorization: Works with the payment processor to authorize the transaction.
  • Integration: Can be integrated into a website or mobile app to facilitate the checkout process.

Payment Aggregator: A service provider that allows merchants to accept credit card and bank transfers without having to set up a merchant account with a bank. They pool payments and manage the funds on behalf of the merchants. Example: Square, Zoho Stripe, PayPal, etc.

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Key Functions:

  • Simplified Onboarding: Easier and faster setup compared to traditional merchant accounts.
  • Fund Management: Collects payments on behalf of merchants and then disburses funds to them.
  • Risk Management: Aggregators manage fraud risk and compliance on behalf of the merchants.

Here is a summarized differential table between payment processors, payment gateways, and payment aggregators:

FeaturePayment ProcessorPayment GatewayPayment Aggregator
DefinitionHandles transaction data between banksCaptures and transmits payment dataAllows merchants to accept payments without a merchant account
FunctionAuthorizes, processes, and settles transactionsEncrypts, transmits, and authorizes transactionsPools payments and manages funds on behalf of merchants
ExamplesElavon Payments, Stax Payment, World PayAuthorize.net, Payflow Pro, NMI, etc.Square, Zoho Stripe, PayPal, etc.
SetupComplexityRequires a merchant account, can be complexIntegrates with processors, moderate setup complexityEasy setup, does not require a merchant account
SecurityHigh-level security and fraud detectionProvides encryption and secure data transmissionManages fraud risk and compliance
CostsMay include setup fees, transaction fees, monthly feesAdditional gateway fees, setup costsHigher transaction fees, usually no setup costs
ProsReliable, high security, supports multiple methodsSecure, integrates with multiple processorsEasy setup, lower upfront costs
ConsCan be expensive, requires a merchant accountAdditional fees, potential integration complexityHigher transaction fees, potential for account holds

This table provides a quick comparison to help businesses understand the key differences and choose the right payment solution based on their needs.

US LLC Formation and Payment Gateway Setup

Forming a US LLC can provide credibility and legal benefits for your business. Once you have an LLC, you can open a business account on platforms like Stripe, PayPal, Payoneer, and Square to manage your business transactions efficiently.

Rocket Wave can help you form your US LLC and guide you through choosing the right payment gateway for your needs. 

Conclusion

Understanding the differences between payment processors, gateways, and aggregators is crucial for selecting the right solution for your business. By leveraging services like Stripe, PayPal, Payoneer, and Square, and with the assistance of Rocket Wave, you can ensure smooth and secure transactions that will help your business thrive globally.

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