Originally Posted by NetwErk GUrl

A gateway is a type of processor. The difference between a gateway and a 3rd party IPSP (Internet payment service provider) is whether the merchant has their own merchant account with a bank, such as Humboldt or Merrick, or if they're accepting payment via use of a payment processor's merchant account. Companies like EPOCH, ccBill, and SegPay are 3rd party IPSPs. Companies like Netbilling and Orbital Pay are companies that will act as an agent to partner you with a merchant account at a bank and then offer you gateway services. My company, CommerceGate / DHD Media, has both of these services and can provide either solution.

With a gateway, the merchant has their own merchant account, and this enables them to take risks with their processing, control the fraud and customer service, and reduce the costs of processing. Gateway services capture the credit data for the merchant and feed it to their account for them. Gateway services can be as little as "card auth and capture only" where the client handles the scrub, the member services, the refunds etc. Gateway services can also be as much as a full service system that covers everything a 3rd party IPSP would do for you, but still allow you to utilize your own merchant account.
Advantages: You have a lot more control over your business, rates are generally cheaper, you manage your own risk and therefore can be riskier if it suits you. You get paid much more quickly with a gateway.
Disadvantages: You manage your own risk, which makes you ultimately responsible for not getting shut down and might lead to a lot more work for your company than an IPSP will. You need to have a much larger volume and a substantial processing history to get a merchant account (at least with the banks I partner to sell accounts for).

With a 3rd party IPSP, you are being boarded as one entity on a large merchant account shared with other boarded entities. The processor holds the account with the bank and protects itself and the account by being very strict with risk and compliance regulations. The processor manages the risk carefully for the benefit of all clients boarded. This type of processing usually manage everything for you for a percentage, so it is very simple and low buy-in for your business.
Advantages: You don't have to manage anything... you make sites and concentrate on your business and the IPSP does everything else payment related for you. The processor keeps your PCI compliance, produces join pages for you, manages the risk, scrub, and customer support, etc. Using an IPSP is effectively work-free because you're paying for full service processing, and hopefully getting it. You're often able to make beneficial partner deals with other clients boarded on the same IPSP as the model lends to cooperation.
Disadvantages: Your money gets to you slower in this system. This system is built for the middle of the road client and is less adjustable or customizable because many clients are boarded together. It is generally more expensive with less freedom.

My company, CommerceGate / DHD Media, can handle both types of business on both sides of the pond. Our US and EU IPSP take a flat rate % for processing, and the fees are dependent upon volume. In the US, we assess a start up fee on behalf of VISA, but we have no start up fees of our own. In the EU the VISA fee is not required. We have a hold reserve to protect everyone on the IPSP. We hold a percentage for 6 months, and then release it weekly after that. Our implementation is pretty straightforward. We have an in-house, dedicated team of developers to assist each integration. We have API available and are integrated into NATS, MPA3, and have integration sets for the most common shopping carts, etc. On our US and EU merchant accounts and gateway services, throwing out quotes becomes much more specialized. The merchant bank will take a percentage for your account, and our Gateway will assess a "per transaction" fee on top of that for gateway services. The fee has a break down depending on what portions of the gateway you need to use (fees for risk, member services, etc), In this business model, there is still a hold reserve but it is the merchant bank that assesses it. Our Gateway only holds to protect ACH or EU Direct Debit processing in this case. Integration is the same in either case.

I hope this letter has been informative. I've generalized a lot but my aim is to be helpful and balanced. It is my opinion that each and every processing type is the "perfect fit" for some businesses and only research and understanding on the client's part will help them find what works for them.

I'll be sending you an e-mail so we can review your numbers over the numbers in your specific case and get you a custom quote.