Also referred to as a payment processor is a company appointed by a merchant to handle transactions from various channels such as credit cards and debit cards for merchant acquiring banks.
For e-commerce transactions, a payment gateway sends card and order details to the merchant processor who then both checks the details received by forwarding them to the respective card’s issuing bank or card association for verification, and also carries out a series of anti-fraud measures.
Once the merchant processor has received confirmation that the credit card details have been verified, the information is sent back via the payment gateway to the merchant, who will then complete the payment transaction. If verification is denied by the card association, the merchant processor sends the information to the merchant, who will then decline the transaction.
In general, a company that wants to accept credit card payments online requires both a payment gateway and merchant processor. In some cases, the payment gateway and merchant processor may be the same company, as is the case with Authorize.net, Stripe, Beanstream, and PayPal.