Despite being used interchangeably, there are fundamental distinctions in what they are and how they work.
Both solutions are related to the evolution of the payments market. The emergence of new agents and technologies has an impact on the creation of services consistent with their needs. This is the case with innovations in digital billing systems, driven by e-commerce and SaaS companies.
Payment gateways and payment service providers (PSP) integrate merchants, customers, banks issuing credit cards and acquiring sales figures. However, they do so in different ways. To present the benefits of each, we first need to understand what they are.
The fundamental difference is that gateways are technical solutions, tools that process the transfer of payment information from the merchant to the banks. A simplified way to view this would be to see the gateway as the online equivalent of Point of Sale (PoS) machines.
PSPs are payment intermediaries that bridge the gap between merchants and banks. They offer both technical processing (gateway) and financial processing (effective transfer of values). This double action allows a PSP to run only the gateway service, which encourages confusion of meanings.
Another specificity of payment service providers is that they maintain a contractual relationship with issuing and acquiring banks. Thus, the merchant’s contract with the PSP includes different credit card companies, in addition to other payment methods, such as debit, bank-issued invoice and pix. In the exclusive gateway service, the sale is settled by the banks themselves and the merchant must maintain contracts directly with each issuing and acquiring bank.
The key to understanding the benefits and disadvantages of each modus operandi is to keep in mind the clear difference between a payment tool and a service provider.
Gateways are APIs (Application Programming Interface), modular software. That is, the program allows different functions to be added or removed through the coding of complementary APIs. If, on the one hand, the tool provides high customization capacity, it also requires this be complemented with fraud prevention software, reconciliation and the addition of other payment methods.
For the very reason that it is just the API, contractual relations with banks are needed. In this model, the control and responsibility for the payment transaction is in the hands of the merchant company.
When choosing a partner with a PSP, the merchant opts for centralization. Here, the payment service provider is responsible for the operation. The merchant company obtains the gateway system, its complementary APIs, as well as different payment methods in a single package, with only one contractual relationship.
In exchange for this facility, the PSP receives higher amounts per transaction. While gateways work with fixed rates per transaction, payment service providers operate with fixed and variable rates. Settlement, done by the PSP itself, occurs on the date determined in the contract. However, there is a possibility of anticipation with attractive conditions.
So, what is the best solution for my company? Invest in a complete PSP package or just the gateway service? The choice depends on the company’s legal and technological capacity, in addition to its sales volume and whether or not there is an internal payment team.
Although large players often choose to use gateways offered by third parties or to build their own to reduce costs in direct negotiations, PSPs offer increasingly robust payment gateway solutions and present themselves as a Full-Service alternative that is very interesting, especially for global scale merchants. These global companies will be able to expand business without having a legal presence in all countries for which they operate, and the PSP is responsible for connecting with local buyers and acting as MoR – Merchant of Record. Merchant of Record is the entity authorized and held responsible by a financial institution for processing the consumer’s credit and debit card transactions. The MoR is also the name that appears on the consumer’s credit card statement.
Finally, the diversification of payment methods used in e-commerce in the various global markets also contributes to PSPs gaining traction, with the major players offering payments not only on cards, but using interbank systems for transferring funds (for example, PIX, SPEI, SEPA, ACH, Trustly, Techprocess) and connection to the various local wallets.
In emerging markets where specificities of means of payment are greater, such as Brazil, where a quarter of the population is coming late to the process of banking and use payments in cash and bank-issued invoice, PSPs gain relevance. In order to guarantee access and acceptance of cross border payments from global merchants for this diverse customer base, the support and possibilities provided by a PSP are essential.
Bexs develops APIs with local payment methods and exchange solutions tailored to international digital businesses operating in the Brazilian market. Click here to access our page.