What is a Payment Gateway?

Credit Card Payment

A payment gateway is the technology that captures and transfers payment data from the customer to the acquirer and then transfers the payment acceptance or decline back to the customer. It validates the customer’s card details securely, ensures funds are available, and eventually gets merchants paid.

How It Works

  1. Collection: The customer enters credit card info on your checkout page.
  2. Encryption: The browser encrypts the data to send it to your server.
  3. Authorization: The gateway sends the data to the payment processor used by the merchant's acquiring bank.
  4. Confirmation: The processor sends the data to the card association (Visa/Mastercard) -> Issuing Bank. The bank approves or denies.
  5. Response: The result is sent back through the chain to the gateway and then your website.

Payment Gateway vs. Merchant Account

Think of it like a physical store:

  • The Merchant Account is the bank account where the money lands.
  • The Payment Gateway is the Point of Sale (POS) terminal or card reader that accepts the swipe.

Many modern services like Stripe, PayPal, and Shopify Payments combine both the gateway and the merchant account into one service (Aggregators).

Popular Payment Gateways

  • Stripe: Developer-friendly, highly customizable.
  • PayPal: Trusted by consumers, easy to use.
  • Authorize.net: Traditional gateway, often used with separate merchant accounts.
  • Square: Similar to Stripe, great for businesses with both online and offline presence.