Initially, it can be difficult to differentiate between a payment gateway and a payment service provider(PSP) because the two terms are often used interchangeably and can sometimes refer to similar or overlapping services. However, there are some key differences between the two that can help to clarify their roles and functions.

A payment gateway is a software application that facilitates the processing of payment transactions between a customer’s bank and a merchant’s bank. The payment gateway typically handles the transfer of information between these two parties, including customer payment details, transaction amounts, and authorization. The payment gateway provides the necessary encryption and security protocols to protect the payment data during transmission.

A payment service provider(PSP) on the other hand, is a broader term that can refer to a company or organization that offers a range of payment-related services to merchants and other businesses. These services can include payment gateway functionality, as well as other services such as fraud prevention, chargeback management, recurring billing, and more. Payment service providers may also offer support for multiple payment methods and currencies, as well as integrations with other third-party services such as accounting software or customer relationship management (CRM) tools.

While payment gateways and payment service providers can offer similar functionality, the key difference is that a payment gateway typically focuses specifically on processing payment transactions, while a payment service provider may offer a more comprehensive range of payment-related services. Understanding these differences can be important when choosing a provider to handle your organization’s payment processing needs.