How the Payment Gateway Process Works for Online Payments

The volume of online payments in global retail exceeded 7.5 trillion dollars in 2025, with over 60% of these transactions passing through digital channels. For business, understanding the mechanics of money flow determines the ability to maintain margin. Any online sale triggers a complex chain of interactions between the merchant’s website, banks, and payment networks. By reading this article, you will understand exactly how this mechanism functions and why its configuration affects conversion.

What is a Payment Gateway and Why Do You Need It?

Every second of waiting at checkout reduces the likelihood of completing a purchase. A payment gateway is a mediator between the merchant’s website and the bank, performing encryption and routing of data, is called a payment gateway. This technological link receives the client’s «payment details», converts them into a secure format, and sends them further down the processing chain. Payment gateway is a technology, which operates at the intersection of the user interface and banking infrastructure, remaining invisible to the buyer when correctly configured. To receive funds directly from the client’s account, a bank transfer payment gateway is often used.

Understanding the Core Payment Service

A payment gateway performs three basic functions. The first is intercepting data from the order form. The second is that gateway encrypts information according to PCI DSS standards, turning the card number into a token. The third function is transmitting the encrypted package to the processor. The gateway does not store money and does not make a decision about credit approval. Payment gateway acts exclusively as a dispatcher. Version 2.0 of the payment card industry data security standard tightened the requirements for SDK. Absence of certification from the provider increases the risks of leaks of payment information and payment data.

Why Every Online Business Needs a Payment Gateway

Accepting cash or manual invoicing works only offline. Therefore, e-commerce uses a tool capable of linking dozens of banks in seconds and checking the validity of the payment method. Payment gateway is a digital bridge between the buyer’s cart and the acquiring bank. Therefore, modern gateways use built-in transaction scoring algorithms. They analyze more than 100 parameters and block suspicious operations before authorization. Absence of such a filter in an online store increases the chargeback rate. To process the payment safely, reliable infrastructure is required.

Step-by-Step: How Does a Payment Gateway Work?

The payment processing process takes fractions of a second. During this time, information completes a cycle from the customer’s browser to the issuing bank and back. The standard scheme includes three stages, each requiring gateway participation. To accept and process electronic payments, the system goes through all steps.

Step 1: Customer Authentication and Data Encryption

The customer fills out the form and clicks “Pay.” Payment gateway encrypts the data, including the card number, expiration date, and CVV. The TLS 1.3 protocol is used. The gateway creates a digital signature of the request and sends it to the processor. With 3D Secure 2.0, the issuing bank may request biometrics or a code. The decision on additional authentication is made based on risk analysis. All exchange happens via API; there is no reload of the payment page. Customers enter their payment details once per session.

Step 2: The Role of the Payment Processor and Acquiring Bank

After the gateway transfers the data, the payment processor comes into play. Its task is to determine the transaction route. The processor sends the request to the card network Visa or Mastercard, which forwards it to the issuing bank that issued the card. The issuer checks the availability of funds and makes an approval decision. The response returns along the chain. Smart routing is applied: systems evaluate the cost of sending the transaction and the probability of success, choosing the optimal path. Payment gateway sends requests instantly.

Step 3: Authorization, Response, and Final Settlement

After receiving confirmation from the issuer, the gateway sends the customer the status. Authorization happens, and funds on the card are frozen. The actual movement of money happens at the settlement stage. At the end of the day, the processor collects approved transactions into a batch and sends it to the clearing system. Money is debited from cardholders’ accounts and credited to the seller’s merchant account minus fees. The cycle from authorization to receiving funds takes 24–72 hours.

Payment Gateway vs. Payment Processor: Key Differences

Entrepreneurs often confuse these concepts. These are different links in one chain. The difference between payment gateway and a payment processor is significant for choosing a payment solution.

The Difference Between a Payment Gateway and a Processor Explained

Payment gateway is the storefront and the front door. It is responsible for the interface, encryption of incoming data, and communication with the website. Payment processor is the engine and the logistics center. It does not see the interface, but it negotiates with banks, performs reconciliation, and initiates the transfer of funds. Processor works with card networks and is responsible for interbank settlements. The gateway does not send money; it sends messages about it. The terms payment gateways and payment are often used together, but the functions are separated.

How They Connect to Your Merchant Bank Account

To credit revenue, a merchant account is required, a special account for accepting cashless payments. It is opened by the acquiring bank. In the classic scheme, the gateway sends data to the processor, the processor interacts with the acquirer, and the acquirer credits the money. In 2026, most providers offer aggregated solutions, combining the functions of gateways and processors. In such a model, the merchant account is opened by the aggregator, and the seller receives funds to the corporate account after consolidation.

Exploring Different Types of Payment Gateway Solutions

The market offers four architectural approaches. The choice depends on the team’s technical expertise, branding requirements, and work with international transactions. To process payments effectively, understanding the specifics of each type is required.

Hosted vs. API-hosted (Self-hosted) Gateways

The simplest way to start sales is using hosted payment. The customer is redirected to the provider’s page, enters card details, and returns back. The advantage is full removal of PCI DSS responsibility from the merchant, since payment details do not touch the merchant’s server. The disadvantage is a loss of conversion on the redirect.

Self-hosted payment gateway: the form is embedded into the website, data goes to the provider’s server via API, and there is no page reload. This gives maximum control, but requires the business to comply with PCI DSS, because data passes through its infrastructure. API-hosted solution: card input fields are loaded from the gateway domain via iframe, preserving visual control and removing card data from the seller’s servers.

Below is a comparison of parameters for two implementation types:

International Payment Gateways for Global Expansion

When entering foreign markets, a local gateway does not work. A provider is required that accepts multiple payment methods, including regional ones: iDEAL, Boleto, Alipay. International payment gateways are distinguished by the presence of currency accounts and dynamic conversion. The fee for a cross-border transaction can reach 3.5% plus an FX margin up to 4%. Therefore, modern solutions use smart route selection technology: the system determines through which local processor it is cheaper to run the payment. Alternative payment methods also require support.

Using a Payment Gateway vs. a Physical Payment Terminal

Payment gateways and terminals capture card data in different environments. A terminal works in the physical world with the card present; a gateway works in the digital world with the card not present. The difference is in risk level and processing cost. Card-present transactions have interchange of 0.3% in the EU versus 1.5% for e-commerce. A terminal processes data inside a protected module; a gateway transmits it over the internet, requiring complex protection algorithms. Hybrid solutions allow accepting payment through a gateway with QR code scanning. For secure payment in any channel, modern technologies are required.

Selecting the Right Payment Gateway Provider

There are more than twenty selection parameters. Focusing only on the transaction percentage leads to hidden losses on FX or subscription fees. You need to evaluate the total cost of ownership and the match between technical capabilities and the business model. To choose the best payment solution, you need to consider several factors.

Factors to Consider: Fees, Security, and Technical Support

The fee structure includes several layers. The gateway transaction fee is 1.5–3% plus about $0.30 per transaction. Interbank interchange and scheme fees are set by card networks; the provider passes them to the seller. You need to request the pricing model: flat-rate is easier to forecast, interchange-plus is cheaper for a business with an above-average ticket.

The second factor is the security stack. Payment gateways must comply with PCI DSS Level 1. Support for network tokenization increases approval rate. Technical support: absence of a 24/7 channel is unacceptable for a 24/7 business.

Main parameters to analyze when choosing a provider:

• Support for various payment methods. The provider must work with credit and debit cards, local methods, including bank transfers and mobile wallet.
• Technical means for seamless integration. The ability to connect via ready modules or API is required.
• Transparency of pricing. Understanding the structure of gateway fees and settlement timelines is mandatory for financial planning.

Clients expect a secure interface when they enter their payment information.

How to Choose a Payment Gateway for High-Volume Sales

At volumes from 50,000 dollars per month, providers reduce the rate by 0.1–0.3%. A dedicated account manager and cascading routing are required. If the main processor fails, the system switches traffic to a backup.

Evaluation criteria for a high-volume business:

• System uptime at least 99.9%.
• Load balancing and channel redundancy.
• Advanced analytics tools and reports for every payment transaction.
• Customer support includes 24/7 technical assistance. Card payment must run without failures.

For a high-volume model, settlement capacity is important. Some banks impose daily limits. You need to уточнить whether there is a limit on a one-time payout and the size of the rolling reserve. Holding 5–10% of turnover for several months can zero out working capital.

Technical Guide: Integration and Gateway for Your Business

The technical implementation of the payment gateway determines user experience and order processing speed. Interaction between the development team and the provider’s support is required.

Step-by-Step Integration Process for Your Online Platform

After registration, you need to obtain API keys. The developer implements payment gateway solutions on the website using documentation or ready modules. The final stage is test transactions in sandbox to verify the payment process. Customers will be able to enter their payment details in a secure environment.

Documentation Needed for Choosing a Payment Gateway and Merchant Account

Opening a merchant account requires a set of documents. The standard package includes:

• Company registration certificate.
• Tax documents.
• Proof of business and owner address.
• Bank account details for settlement.

International gateways may request transaction history.

Managing Fees and Settlement When You Choose the Best Solution

The fees structure includes a transaction percentage, a fixed fee, and possibly a monthly subscription fee. An additional percentage is charged for international transactions. Settlement timelines are from T+1 to T+3 business days. Understanding fees allows forecasting cash flow. Alternative payment methods may have special conditions.

Conclusion: Optimizing Your Online Payment Experience

A properly configured gateway reduces abandoned carts due to speed and familiar payment methods. Smart routing and compliance with security standards reduce operating costs. Analysis of the business model, transaction volume, and sales geography allows choosing a solution with a margin of safety.