Payment Gateway vs PSP vs Payment Processor – What’s the Difference?

Introduction

Many businesses experience significant challenges due to hidden fees, complex integrations, and security vulnerabilities in their payment systems. Inefficient payment solutions can lead to delayed transactions, increased operational costs, and compromised customer trust. The need for clarity in choosing the right payment infrastructure is more critical than ever.

This blog is designed to provide a clear and detailed comparison between a Payment Gateway and a Payment Service Provider (PSP).

We will cover:

What Is a Payment Gateway?

A Payment Gateway is a tool that helps process online payments safely. It works like a digital bridge between your website (or app) and the bank, ensuring that customer payments are sent, checked, and completed securely.

How Does a Payment Gateway Work?

Here’s a detailed, step-by-step explanation in simple terms:

1. Collecting Payment Information:
   • When a customer is ready to pay, they enter their payment details (for example, their credit card number, expiration date, and security code) on your website.
2. Encrypting the Data:
   • The Payment Gateway scrambles the payment information using encryption. This means that the data is turned into a secret code so that unauthorised people cannot read it while it is being sent over the internet.
3. Sending an Authorisation Request:
   • The encrypted data is sent to the bank or payment processor. The purpose is to check if the customer’s payment can be accepted (for example, if there are enough funds on the card).
4. Receiving a Response:
   • The bank or processor reviews the request and sends back a response:
     • Approval: The bank confirms that the payment is valid.
     • Decline: The bank rejects the payment, perhaps due to insufficient funds or a suspected issue.
5. Completing the Transaction:
   • Once the payment is approved, the Payment Gateway sends a confirmation to your website. The funds are then moved to your merchant account according to the bank’s processing schedule.

Key Features of Payment Gateways

Payment Gateways have several important features designed to protect and speed up online transactions:

• Strong Security:
  Uses encryption and other security measures to protect sensitive payment details during transmission.
• Fast Processing:
  Quickly checks and approves payments, which helps reduce wait times and keeps the checkout process smooth.
• Multiple Payment Methods:
  Supports various types of payments, such as credit/debit cards and digital wallets, giving customers more options.
• Easy Integration:
  Can be added to websites, mobile apps, and even physical point-of-sale systems, ensuring a consistent payment experience across platforms.
• Compliance with Standards:
  Follows industry rules (like the Payment Card Industry Data Security Standard, or PCI DSS) to help ensure that all transactions meet strict security requirements.

Payment Processors

What Is a Payment Processor?

A Payment Processor is a financial service that handles the actual movement of funds between the customer’s bank and the merchant’s bank after a transaction is approved. It plays a critical role in ensuring that payments are transferred securely and efficiently.

Unlike a Payment Gateway, which only authorises transactions and transmits payment data, a Payment Processor is responsible for executing the transaction and ensuring that the merchant receives the funds.

How Does a Payment Processor Work?

Here’s a simple breakdown of the process:

1. Transaction Initiation
   • When a customer makes a payment (online or in-store), their card details are entered, and the request is sent for processing.
2. Authorisation via the Payment Gateway
   • The payment gateway encrypts and forwards the payment details to the processor.
   • The processor contacts the card network (Visa, Mastercard, etc.) to check if the transaction is valid.
3. Issuing Bank Response
   • The cardholder’s bank (issuing bank) reviews the transaction and either approves or declines it.
   • If approved, the issuing bank sends a confirmation back through the network.
4. Settlement & Fund Transfer
   • Once approved, the Payment Processor initiates the transfer of funds from the customer’s bank to the merchant’s bank.
   • The settlement process may take anywhere from a few hours to several days, depending on the payment method and provider.

Key Features of Payment Processors

• Secure Fund Transfers
  • Ensures that payments are processed accurately and securely between banks.
• Card Network Connectivity
  • Works with major card networks (Visa, Mastercard, American Express, etc.) to facilitate transactions.
• Fraud Monitoring
  • Uses advanced fraud detection tools to identify suspicious activities and prevent chargebacks.
• Multi-Channel Processing
  • Supports in-store, online, and mobile payments for a unified payment experience.
• Compliance with Industry Standards
  • Must comply with regulations such as PCI DSS (Payment Card Industry Data Security Standard) to ensure secure transactions.

What Is a Payment Service Provider (PSP)?

A Payment Service Provider (PSP) is an all-in-one solution that not only processes payments but also offers additional services to help businesses manage their transactions more effectively. Unlike a Payment Gateway, which primarily focuses on securely authorising payments, a PSP combines multiple functions—such as payment processing, fraud detection, reporting, and even merchant account management—into one service.

How Does a PSP Work?

Here is a simple, step-by-step explanation of how a PSP operates:

1. Collecting Payment Information:
   • When a customer makes a payment, the PSP collects their payment details in the same way a Payment Gateway does.
2. Processing the Transaction:
   • The PSP handles the entire payment process. It not only encrypts and sends the data for authorisation but also manages the movement of funds from the customer’s bank to the merchant’s account.
3. Offering Additional Services:
   • Beyond processing payments, PSPs typically provide extra features such as fraud prevention tools, recurring billing options for subscriptions, and detailed transaction reporting. These added services help businesses manage and analyse their payment activities more efficiently.
4. Completing the Transaction:
   • Once the transaction is approved, the PSP ensures that the funds are transferred into the merchant’s account, all within a unified system that simplifies financial management.

Service	Category	Description
Instant Payment	PIS (Payments)	Request to Pay-By-Bank for instant transactions.
Payout	PIS (Payments)	Instant refunds and withdrawals.
Bulk Payout	PIS (Payments)	Multiple payments in a single click.
Recurring Payment	PIS (Payments)	VRP (Variable Recurring Payments) and Sweeping.
Transactions Data	AIS (Data)	Real-time bank transaction data retrieval.
Balance Check	AIS (Data)	Access income, expenses, and balance information.
Authenticate	AIS (Data)	Retrieve account details, sort code, IBAN, and BIC.

Key Features of a PSP

• All-In-One Solution:
  PSPs combine the roles of a Payment Gateway and a payment processor, offering a complete system to manage transactions from start to finish.
• Enhanced Security:
  They provide robust security measures, including fraud detection and advanced encryption, to protect both customer and business data.
• Support for Multiple Payment Methods:
  PSPs support a variety of payment options such as credit cards, debit cards, digital wallets, bank transfers, and even emerging options like Open Banking payments.
• Easy Integration:
  Designed to work seamlessly with websites, mobile apps, and in-store systems, PSPs provide a consistent payment experience across all channels.
• Additional Business Tools:
  Many PSPs offer extra features like real-time analytics, detailed reporting, and customer management tools to help businesses make informed decisions.

What’s the Difference?

Step	Function	Handled By
1. Customer initiates payment	Customer enters payment details on a website or POS system.	Merchant’s checkout system
2. Transaction request is secured	Payment details are encrypted and sent for authorisation.	Payment Gateway
3. Authorisation check	The transaction request is sent to the issuing bank for approval.	Payment Processor
4. Funds are transferred	Once approved, the processor moves money to the merchant’s bank.	Payment Processor
5. Business receives funds	The merchant gets paid, and reporting tools track the transaction.	Payment Service Provider (PSP) (if integrated)

Real-Life Examples of Top PSP’s in 2025

Choosing the right payment provider is crucial for businesses that want to offer secure, seamless, and efficient transactions. Below are three well-known payment solutions that have transformed digital payments by providing businesses with the tools they need to accept and process payments globally.

1. Stripe

Stripe is one of the most widely recognised payment platforms, known for its developer-friendly API and extensive integration capabilities. It supports online payments, in-app transactions, and even in-person sales with its advanced payment infrastructure.

Why Businesses Choose Stripe

• Global Reach – Accepts payments in over 135 currencies and multiple payment methods, including credit/debit cards, wallets, and bank transfers.
• Advanced Customisation – Businesses can tailor the checkout experience using Stripe’s APIs, making it ideal for companies that require high flexibility.
• Security and Compliance – PCI DSS compliant with built-in fraud prevention tools like Stripe Radar, ensuring safer transactions.
• Recurring Billing & Subscription Management – Popular among SaaS businesses and online platforms that require automated billing.

Stripe’s combination of powerful APIs, scalability, and global support makes it a preferred choice for e-commerce platforms, subscription services, and international businesses.

2. Finexer

Finexer is a next-generation payment provider that leverages Open Banking technology to offer direct bank-to-bank transfers. Unlike traditional payment providers that rely on card networks, Finexer provides a cost-effective, real-time payment experience that benefits both businesses and customers.

Why Businesses Choose Finexer

• Lower Transaction Fees – By bypassing traditional card networks, Finexer helps businesses save on payment processing costs.
• Faster Settlements – Real-time bank-to-bank transfers improve cash flow, reducing the delay in receiving payments.
• Enhanced Security – Strong Customer Authentication (SCA) and direct banking integrations ensure a secure and fraud-resistant payment process.
• Seamless Integration – Works well with both online platforms and in-store payment systems, offering an alternative to traditional card-based payments.

With the increasing adoption of Open Banking, Finexer is particularly well-suited for businesses looking to reduce costs and improve payment efficiency without compromising security.

3. Worldpay

Worldpay is one of the most trusted names in payment processing, offering solutions for both online and in-store transactions. With a strong reputation in the industry, it serves businesses of all sizes, from startups to global enterprises.

Why Businesses Choose Worldpay

• Comprehensive Payment Support – Accepts a wide range of payment methods, including credit cards, debit cards, digital wallets, and alternative payment options.
• Omnichannel Payments – Enables businesses to manage transactions across multiple channels, including online, mobile, and in-store purchases.
• Risk and Fraud Protection – Equipped with tools to detect suspicious transactions and protect businesses from fraudulent activities.
• Dedicated Merchant Support – Provides businesses with in-depth analytics and customer insights to optimise their payment strategy.

Worldpay remains a strong choice for businesses that need a robust, all-in-one payment solution with strong fraud protection and a global presence.