What is a Payment Switch – The Basics

Merchants accepting digital payments must learn how different elements work to provide customers with the best solutions. A payment switch is one of the systems merchants use to facilitate transactions. Although confused with a payment gateway, a switch handles different tasks. Learning more about the role of a payment switch gives you a better perspective on the integration of different transaction options.

What is a Payment Switch?

In payment processing, switches allow communication among payment service providers (PSPs). The software handles the intricate parts of a transaction, like approving or refusing payments and validating accounts. While a payment gateway takes care of the main functions, a switch is responsible for the minutiae. Although it operates independently, the technology is embedded into a gateway. Switches use merchant-driven rules to route transactions between acquirers and PSP endpoints. The ability of a payment switch to dynamically route transactions enables merchants to quickly respond to outages by shifting to a backup acquirer. The payment structure determines if a switch is simple (pass-through) or complex (omnichannel). You can build a switch or get it off the shelf.

How does it Work?

Payment switches function by connecting to the backend of different banking software. A gateway consists of multiple merchant accounts linked to their acquirer banks. When a customer inputs a payment request, a switch uses BIN (bank identification number) to pinpoint the merchant’s acquirer bank and the buyer’s issuing bank. Payment processing progresses depending on whether the transaction is approved or rejected. BIN allotment is one of the merchant rules the switch applies to route payments. It can also route by the time of day, amount, lower cost, and retry of declined transactions.

Besides settling payments among the different providers involved in a transaction, a switch ensures all parties receive feedback, as well. After identifying the PSP where the routing would go, the switch formats and completes the transaction. Next, it receives feedback, which after formatting, sends a response to the provider. A switch comes with tokenization and encryption tools to guarantee PCI-DSS compliance.

The Benefits of a Payment Switch

Dynamic routing is the biggest advantage payment switches offer to your business. It improves payment acceptance performance. Varied acquirers have different acceptance rates, depending on certain variables. In the instance of slow performance, a switch alters the transaction to find a faster alternative, consequently, reducing cases of payment failures.

Switches are highly scalable. The system is flexible enough to extend and support new payment methods. Hence, if looking to accept other payment options for your business, you can add it to the switch without worrying about astronomical integration costs and complicated processes. Your customers can have enough payment alternatives to choose from, which boosts sales.

Thanks to the presence of BIN allotment on a switch network, transactions are secure. The technology offers effective fraud management. Customer and business safety is always a concern when dealing with digital payments. A payment switch is PCI-DSS compliant, enabling it to encrypt customer data. Switches also provide tokenization features.

Switches decrease outages, a big concern for any merchant. Since you can retry transactions with a different acquirer if the first one fails, you can reduce cases of rejected payments. By avoiding constant time-outs, you guarantee consistent response times to buyers.

The Difference Between a Payment Switch and a Payment Gateway

At this point, you can tell that switches and gateways don’t mean the same thing. However, learning their differences gives you a better perspective. The two systems vary in core functions. A switch handles all the nitty-gritty of payment processing. It covers multiple banks, gateways, and payment channels to process and complete transactions. A gateway fulfills secondary tasks, which entail passing information from the buyer’s card to the issuing bank. Additionally, it ensures funds get to the merchant’s account safely. Whereas a gateway protects the merchant and customer, the switch looks out for the various payment service providers participating in a transaction. At a glance, these operations might appear similar, but they are not. A switch dynamically routes transactions, while a traditional gateway us pre-defined or static connections that don’t shift easily.

Can they Work in Sync?

Although they carry out different functions, gateways, and switches must work together. A switch is the heart of a gateway; the latter is only able to do what it does because the former exists. The best way to describe the relationship between the two systems is to think of a gateway as a railroad and a switch as the railroad switch, responsible for routing trains to where it needs to go. Combining the two technologies allows merchant accounts and PSPs to benefit from seamless payment processing. Buyers and merchants depend on payment gateways for secure transactions, while payment service providers and banks rely on switches for meticulous profiling and settlement of transactions.


So, now you grasp how a payment switch works and how it differs from a payment gateway. Payment switches facilitate fast and secure digital payments, which are crucial factors that every merchant should aim for. Both switches and gateways perform critical roles and for the foreseeable future, will remain integral to payment processing.