What is a payment gateway
A payment gateway is the piece of software that sits between a customer entering a card and the business actually getting approved to charge it. Every business that takes a card online, and most that take one at a counter, is running one, whether or not anyone at the business has ever used the term.
What a payment gateway actually does
Three things happen almost instantly every time a card is used. The gateway captures the card details and encrypts them so raw numbers never sit unprotected. It routes that encrypted information to a payment processor for authorization. It then sends the approval or decline back to the checkout page or terminal so the sale can finish.
Payment gateway versus payment processor versus merchant account
These three terms get used interchangeably, but they are not the same thing. The gateway captures and routes the transaction. The payment processor is what actually communicates with the card networks and gets the transaction approved. The merchant account is the business bank account that holds the funds before they settle into the business own account. Most providers bundle all three into a single product today, which is part of why the terms blur together in everyday use.
Types of payment gateways
- Hosted gateways. The customer is redirected to a payment page hosted by the gateway provider, then returned to the business site once the sale finishes.
- Integrated or API based gateways. The checkout stays fully on the business own website, with the gateway working in the background through code, sometimes reached simply by asking a provider for API access.
- Self hosted gateways. The business collects and briefly handles the raw card data itself before passing it along, which comes with a much heavier PCI compliance burden and is rarely the right fit for a small or mid sized business.
What a payment gateway actually charges
Gateway charges usually show up in a few separate pieces rather than one flat number: a per transaction fee every time a card is run through the gateway, a monthly gateway or account fee regardless of volume, and sometimes a PCI compliance fee tied to the annual security questionnaire. Some providers publish these clearly, others fold them into a single blended rate that is harder to compare.
Businesses on a surcharge or dual pricing program often see gateway charges disappear from their own side of the ledger entirely, since the fee is presented to the paying customer at checkout instead of being deducted from the sale. For the fuller picture of every fee in a typical transaction, not just the gateway piece, see the payment processing fees breakdown.
What to look for in a payment gateway
Price is only part of the decision. A gateway worth using should hold current PCI compliance, integrate cleanly with the point of sale or website platform already in place, give clear real time reporting on every transaction, and support a surcharge or dual pricing program if the business wants the option to pass the card fee to the paying customer instead of absorbing it. Not every gateway supports that last piece, and it is worth asking about directly rather than assuming. For a look at the different types of companies that sell and support these gateways, see payment processing companies.
For a setup built specifically for a website rather than a counter, see how online payment processing works end to end. If you are choosing a gateway for the first time or replacing one that is charging too much, get in touch and we will help you compare it against what you have now.