Payment Gateway: Definition, Types, and Consideration to Choose the Right One

A payment gateway is a middleman between your eCommerce store and the customer. The payment gateway collects money from customers and sends it to your bank account or another designated payment processor.

The best way to think about a payment gateway is like a bank account. But it goes beyond that; it’s also an interface with APIs that lets you accept payments via credit card, debit card, or other methods.

Types of Payment Gateways

There are two types of payment gateways:

  • Direct 

The merchant directly receives the customer’s credit card information from them, typically via email or an online form.

  • Indirect (third-party) 

The merchant doesn’t capture any credit card information from the customer, but a third party does. There are several different types of indirect gateways that merchants can choose from including PayPal, Amazon Pay, and Authorize.net

What it Means to Use a Payment Gateway

When you use a payment gateway, your customers’ credit card information goes through the gateway instead of directly to your bank account. 

This means that there’s no manual reconciliation required at the end of the month — you don’t have to worry about manually entering transactions or trying to reconcile them with your bank account.

It also means that you don’t need special software or tools for processing payments — all you need is a simple web browser and an email address (or phone number) where people can send their payment information in order to process it.

Payment gateways can be set up by anyone, even small businesses without any experience setting up online stores or processing payments themselves. 

They’re often offered by companies like PayPal and Stripe, which have a lot of experience with this kind of thing, as well as some other services like Braintree, which offer more traditional solutions but do not handle credit card processing themselves.

Important Payment Gateway Considerations

 When choosing a payment gateway, there are several considerations to consider.

1. Does it accept all types of payments that matter to you?

2. Is the merchant account required to accept credit cards?

3. Is there any recurring fees associated with using the payment gateway?

4. What is the processing fee (in percentage) for each transaction? This will depend on how many transactions you make per month and what type of currency you are using as your currency for transactions.

5. Do you need to verify your customers’ identities before they can process their payment through your payment gateway?

Final Advice

Remember, payment gateways often require you to purchase additional software licenses or subscriptions, so think through whether those costs make sense for your business before setting up your service.

Summary

What is a payment gateway? How does it work, and how can you set up one for your business?