What is a payment gateway and how to choose the right one?

A payment gateway is a service that assists businesses in initiating and receiving payments. Usually, it's a web server linked to a company's website or POS system, enabling various avenues to receive payments, including online, in-app, or in-person.

When choosing a payment gateway, your options include selecting one from a bank, or a provider that can connect to one or multiple payment processors.

Many people confuse a payment gateway with a payment processor. A payment processor is the party behind the gateway that connects to various card networks.

Payment gateway options

Online payment gateways cater to both websites and apps, serving the function of initiating payments. However, different types of payment gateways offer different functionalities, features, and channels. Choosing one that is suitable for your industry or business needs is paramount.

For instance, subscription-based enterprises will most likely want a gateway that can facilitate recurring payments. SaaS platforms or marketplaces might prioritise embedded payment capabilities. Industries like airlines and gambling often seek high-risk payment gateways built to accommodate their specific risk profiles. Online retailers might require an ecommerce payment gateway to manage high-volume transactions efficiently.

Payment flow

The payment workflow consists of multiple steps. For the customer making a payment, this only takes a few seconds. But in the background, various parties interact to provide a smooth flow.

Let's have a look at a simplified process of the payment flow: 

1. When a customer makes a purchase, the business transmits the customer's payment details to the payment gateway.​​

2. This gateway then communicates this information to the payment processor, which shares it with the card scheme.

3. The card scheme subsequently relays it to the issuer, initiating checks to ascertain whether the transaction should be approved or denied.

4. The decision regarding the transaction progresses through the card scheme, payment processor, and gateway, ultimately reaching both the business and customer.

5. Upon payment approval, the funds transition from the customer's bank to the acquirer (sometimes referred to as the merchant account) and then to the business's bank account.

Depending on your business, there are different factors to consider when choosing the best payment gateway. Let’s look at the most important ones when choosing between different payment gateway providers in the UK.

What to consider when it comes to pricing

For many businesses, saving costs is a priority. This makes it essential to choose a gateway with a pricing model that suits your business needs. 

Different gateways have different pricing models and fees—some based on a percentage, others a fixed rate per transaction. A fixed fee could be more cost-effective if your business processes many transactions.

It’s also important to remember that some payment gateways charge one-time fees like setup or integration costs. They might also offer extra features like 3D Secure, fraud protection, or optimized authorization, that might influence the overall cost but benefit your business.

Security and compliance

 Security and compliance are central to protecting your business and customers. The payment gateway should hold specific certificates and conform to measures to protect payment information. The ones you should expect are:

• Payment Card Industry Data Security Standard (PCI): This is necessary for businesses that accept credit card payments. Businesses must adhere to 12 security standards when handling credit card data, including accepting, transmitting, processing, and storing it.

• Payment Services Directive 3 (PSD3): If you accept payments in the European Union (EU), your gateway needs to follow these new regulations on payment authentication. However, they haven’t been implemented yet, which means that Payment Services Directive 2 (PSD2) and Strong Customer Authentication (SCA) still apply.

• General Data Protection Regulation (GDPR): This regulation ensures that personal data is only used for purposes for which the customer has consented. Businesses must follow the GDPR to accept payments in the EU.

International payments

 If you accept international payments, you must ensure your payment gateway can accommodate this. Your options are through cross-border transactions or local acquiring, which offers higher authorisation rates.

You also need to ensure your gateway offers the payment methods your customers want. This is a critical aspect of enhancing the customer experience. It could also be relevant to check if the gateway can accept foreign currencies and the associated fees for your international payments.

Regulations vary across countries. For example, Australia has specific authentication rules, while Japan is set to introduce new 3DS regulations by 2025. Your chosen payment gateway must adhere to the local regulations in all the regions where you intend to process payments.

Payment gateway integration

There are different ways to integrate with your gateway. You can directly integrate with a gateway using one or multiple payment gateway APIs or, if available, link it with your e-commerce platforms through plugins. 

Choosing a provider that is both a gateway and payment processor can help you drive more value for your business. Adyen is a payment gateway, processor, and acquirer in one platform. This means we offer the same functionalities as a payment gateway, allowing our customers to initiate payments. There is only one API to connect to and one contract for almost 100 markets, reducing complexity for businesses that want to process payments with us.

Since we’re a financial technology platform offering various solutions for enterprise businesses to enhance payments, we also provide solutions like authentication, risk management, and authorisation optimisation - all in one platform. This means we can gather data from all processes and make more informed decision-making. This leads to improved performance such as higher conversion rates and higher auth rates.

Our single-platform setup creates a smooth transaction flow, in which each part can easily communicate. This is an essential part of creating effortless payments, resulting in high authorisation rates and increased revenue for our customers.

Do you want to enhance your payments? Discover more about what it means to accept payments with Adyen.