What is a payment gateway?

 What is a payment gateway?

A payment gateway is basically software that encrypts a customer's credit card information and sends it to the issuing bank for approval when the customer makes a purchase online or in a store. This transaction determines whether a customer's purchase is approved or declined.

However, a payment gateway is not a merchant account. A merchant account is what a business or merchant needs to be able to accept credit cards or payments through digital wallets (like PayPal). Although some payment gateway providers also offer a merchant account as part of their services, most payment gateways are standalone products.


How does a payment gateway work?

A payment gateway can be added to a website or point-of-sale system (POS) to process credit card or digital wallet payments. When a customer swipes their card or enters their payment online, the payment gateway encrypts their data and sends it to the bank that issued the card. When the transaction is approved, the merchant executes the order. This process usually takes only a few seconds.

Security is the key to payment gateways. If customers do not feel they can trust the merchant taking their payment information, they may decide against making a purchase.


How much do payment gateways cost?

Most payment gateways offer purchase-based pricing, with 2.9% plus $0.30 per transaction being a typical industry rate. Some also charge monthly gateway subscription fees ranging from $25 to $30 per month.

In addition to secure data transmission, payment gateways typically offer revenue reporting, account update and fraud protection features, as well as integrations with third-party e-commerce platforms.


Are payment gateways worth the cost?

Any business that wants to accept payments with credit cards or digital wallets (other than PayPal) needs a payment gateway. Because transaction fees can vary, it's important for sellers to choose both a merchant account and a payment gateway that offers fees that will not cut into their profit margin.


How we chose the best payment gateways

For this test, we looked at more than a dozen payment gateways. At the top of our list were the providers that support the most payment types. We weighed these features against cost, because not every business needs to offer every type of payment option to its customers.

Integrations were also important in our review, and we made sure the software worked smoothly with major e-commerce and POS systems. Because the benefits that a payment gateway offers a merchant can be negated if a customer does not feel safe sharing their payment information, we made sure to select gateways with a good reputation and security features. As customers look for easier ways to pay and businesses look for easier ways to sell, payment gateways will provide the security and capabilities both need.

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