What is a payment gateway and how does it work?

A payment gateway is a service that helps businesses initiate and accept payments. It connects your website or point-of-sale (POS) system to a payment processor, allowing you to accept payments online, in-app, or in-person.

Payment gateway vs payment processor (and why it matters)

Payment gateways are an important part of processing payments, but they are not the same thing as payment processors. 

The difference between a payment gateway and a payment processor is functional. A payment gateway securely captures payment details from the POS and routes transaction data. A payment processor, on the other hand, manages the network through which your payment travels. 

Some providers bundle both a gateway and processor in one platform. 

Merchant account vs payment gateway

Both payment gateways and merchant accounts are necessary for payment processing. A payment gateway works as an intermediary between the POS and payment processor, while the merchant account works as an intermediary between the customer’s bank and the business's bank account. 

Payment gateway vs payment aggregator

Payment aggregators and payment facilitators (PayFacs) are business models that have historically been used by SaaS platforms. In this model, the company brings multiple businesses under one master merchant account, which allows them to act as a payment processor. 

Payment gateways, on the other hand, are the services that connect a point of sale to a payment processing network. They are a critical part of payment processing infrastructure. 

The core difference between payment facilitators vs. payment gateways is that payment gateways are a tool that payment aggregators and PayFacs can use. 

Your business will use the same payment gateway for online, in-person, and international transactions. However, working with the right partner can give you access to different types of payment gateway services for your checkout experience. The right approach depends on your business model, markets, and how much control you want to have over the customer experience.

In-person payment terminals

In-person payment gateways typically take place through terminals. You can also activate solutions like Tap to Pay, which lets your staff turn mobile devices into a payment terminal. 

Hosted payment gateway

These gateways redirect your customers away from your website's checkout page to a secure page hosted by the payment service provider (PSP). The customer enters their payment details on this external checkout page, then gets redirected back to your site once the payment is complete. 

Integrated payment gateway

Integrated payment gateways connect your point of sale directly to a payment processor. They let the customer enter their payment details and complete the transaction entirely on your site without being redirected.

 This is a common approach for enterprise and ecommerce brands because it supports:

• More control over UX and conversion optimization

• Better support for localization (language, currency, payment methods)

• More flexibility for authentication and risk flows

Integrated payment gateways require more developer support to set up and maintain. For many companies though, the brand experience is worth the extra investment. 

White label payment gateway

A white label payment gateway is a third-party solution that allows a business (like a SaaS platform or marketplace) to apply its own branding to the payment experience. To the customer, it feels like they are paying the platform directly. In reality, the third party handles the complex backend processing and routing. 

International payment gateway

An international payment gateway supports multiple markets with localization features like multi-currency pricing, local payment methods, and region-specific compliance controls

For global enterprises, international payment gateways are important because they mean you don’t need to rebuild your tech stack for every region. They can also help you increase conversion rates, reduce fees, and keep your business safe from fraud.

Payment gateways are the first step in a sophisticated payments processing workflow. At a high level, the payment gateway process looks like this:

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

2. The credit card payment gateway shares it with the payment processor, which shares it with the card scheme.

3. The card scheme shares it with the issuer, which performs checks to determine if the transaction should be approved or declined.

4. The decision regarding the transaction flows through the card scheme, payment processor, and gateway to the POS.

5. If the payment is approved, the funds move from the customer's bank to the acquirer (sometimes referred to as the merchant account) and then to the business's bank account.

Payment gateway architecture varies by provider, but for enterprise businesses, a few capabilities tend to matter most. As you’re evaluating solutions, consider the following parameters: 

Security and compliance

Your 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): Businesses must adhere to 12 security standards when handling credit card data, including accepting, transmitting, processing, and storing it. If you accept credit card payments, it’s critical that you use a PCI compliant payment gateway. 

• Payment Services Directive 3 (PSD3): The gateway needs to follow these new regulations on payment authentication if you accept payments in the European Union (EU). 

• 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.

You should also look for fraud protection in your payment gateway. Some companies, like Adyen, use AI tools to help fight fraud while keeping conversion rates high. 

Payment performance, reliability, and optimizations

Your payment process can make or break a sale. To keep customers moving and happy, you want to make sure your gateway can stand up to anything you throw at it. 

Ask about payment gateway transaction success rates, communications, and how the payment processor ensures payments can always be accepted. Get data to validate claims. An excellent metric to evaluate is the provider’s uptime on high-volume days like Black Friday or Cyber Monday. 

Additionally, ask your provider what they can do beyond simply processing payments. Look for additional features that can help you optimize the entire payments funnel through things like:

• Payment gateway routing

• Payment gateway tokenization

• Payment gateway analytics

• AI payment gateway features

Integration and time to value

There are different levels of flexibility when it comes to integration options. You can either integrate directly through a payment gateway API, or with your ecommerce platforms through plugins, if the partnership exists.

As you’re evaluating, ask questions about: 

• APIs and SDKs that fit your tech stack

• Documentation quality and implementation support

• Options for multiple front ends (web + mobile app) and multiple brands/regions

Also consider payment gateway integration costs in total terms. Remember to account for engineering time, maintenance, and the operational cost of fragmented reporting across providers.

Fees and total cost of ownership

Payment gateway fees can vary based on provider model, markets, and features included. Some gateways charge a percentage-based fee, and some a fixed fee per transaction. Both models have their advantages and disadvantages, based on the number of transactions you process and the amount per transaction. 

Beyond published fees, consider:

• Operational overhead

• Support model and incident response

• The cost of adding new markets or methods

When calculating the potential costs, it’s also important to remember that some gateways charge for one-off costs like setup or integration fees. They might also offer services like 3D Secure payment gateways, protection against payment fraud, or authorization optimization, which may affect the cost but which add real value to your business.

Global expansion: multi-currency and cross-border

Your multi currency payment gateway should grow with you. Check if the gateway can accept foreign currencies, and the associated fees for international payments. Your payment gateway should also comply with all the local regulations where you plan to accept payments.

You also want to make sure your cross-border payment gateway lets customers use their preferred payment methods. Make sure your forex payment gateway provides local payment methods which are, on average, 49% cheaper than credit and debit cards.

A payment gateway is a foundational component of modern digital payments. For enterprise teams, the best payment gateway choice is the one that balances performance, security, and the flexibility to scale globally without multiplying complexity.

At Adyen, we combine a payment gateway, acquirer, and processor into one platform. Our enterprise payment gateways are purpose-built to handle trillions of transactions all over the world. Some of the largest companies in the world trust us to handle their payments, including businesses like Nord Security, Adobe, and others.  

Ready to consolidate your payments into one unified platform that helps you save money and grow revenue? Learn more about what it means to accept payments with Adyen, or contact our team to get started.