The global ecommerce market is projected to grow from $25.93 trillion in 2023 to $83.26 trillion by 2030. As more customers shift to online shopping, businesses increasingly need to provide easy, secure online transactions.

Payment gateways play an important role in this process. Payment gateways can affect the customer experience and your ability to accept payments in all of your target markets.

Below, we’ll explain what payment gateways are, how they work, and what factors you should consider when selecting the right payment gateway for your business.

What’s in this article?

• What is a payment gateway?
  
• How does a payment gateway work?
  
• Benefits of using a payment gateway
  
• How to choose a payment gateway
  
• How Stripe Payments can help
  

What is a payment gateway?

A payment gateway is a technology platform that acts as an intermediary in electronic financial transactions. It enables in-person and online businesses to accept, process, and manage a variety of payment methods, such as credit cards, debit cards, and digital wallets.

A payment gateway is the digital equivalent of a physical point-of-sale (POS) terminal. When customers shop online, instead of physically swiping, inserting, or tapping their card on a machine, they enter their card details on a website or app. The payment gateway is the service that encrypts these details and forwards the encrypted transaction data to the relevant payment processor. The processor sends a request to the customer’s issuing bank, which either approves or declines the transaction. The payment gateway receives the response and confirms the transaction to the customer and the business.

Payment gateways allow businesses to accept electronic payments securely. They facilitate the transfer of information between a payment portal, such as a website or mobile app, and the frontend processor or acquiring bank.

There are two main types of payment gateways: hosted payment gateways and integrated payment gateways. With a hosted gateway, the payment process is conducted on the payment gateway provider’s platform rather than on the business’s website, while an integrated gateway collects payment details directly on the business’s website.

Payment gateways accept different forms of digital payments, including debit and credit cards, electronic checks, and digital wallets. Their primary role is to ensure the secure transmission of sensitive information, such as credit card numbers, from the customer to the business and from the business to the payment processor.

How does a payment gateway work?

Payment gateways are necessary for businesses that conduct sales online or accept electronic payment methods. Here’s an overview of how they facilitate secure, easy payment acceptance:

• Encrypts payment data
  As soon as a customer enters their payment details online, the payment gateway encrypts that sensitive data. This protects the business and the customer from potential fraud.

• Forwards data on for processing
  The payment gateway forwards the encrypted transaction data to the payment processor. The payment processor sends a request to the customer’s issuing bank to confirm there are sufficient funds for the transaction. The issuing bank either approves or declines the transaction and conveys the decision to the payment processor.

• Confirms payment success
  The gateway receives the response and notifies the business if the payment went through.

• Fraud prevention
  Payment gateways also play an important role in fraud prevention. They use tools and technologies, such as IP tracking and geolocation, to identify and block suspicious activities.

Benefits of using a payment gateway

The right payment gateway can benefit a business in many ways. Beyond facilitating transactions, payment gateways can also improve the customer experience and refine financial processes. Here are some of the potential benefits of using a payment gateway:

• Enhanced customer experience
  Ecommerce customers typically want an intuitive, simple, and fast checkout experience that allows them to use their preferred payment method. Payment gateways enable convenient and fast transactions, and customers can make payments using a variety of methods—including credit and debit cards, digital wallets, and more.

• Secure transactions
  One of the primary advantages of a payment gateway is the high level of security it provides. Payment gateways use advanced encryption technology to protect sensitive data, protecting the business and the customer against fraud and data breaches.

• Increased sales
  By facilitating online payments, payment gateways can help businesses reach a wider audience, including customers from different geographical locations, which can increase sales.

• Real-time transaction processing
  Payment gateways offer real-time processing of transactions, providing instant feedback on whether the transaction was approved or declined. This speed contributes to the smooth payment experience that customers have come to expect.

• Integration and compatibility
  Generally, payment gateways can be easily integrated with other ecommerce platforms and payment systems. This simplifies the management of online transactions and helps streamline business processes.

• Automated processes
  Payment gateways automate the payment process, reducing the amount of manual work and saving businesses time and resources.

• Fraud detection
  Many payment gateways offer built-in fraud detection tools to identify and prevent suspicious activities.

A payment gateway is more than an instrument for processing transactions. It’s an investment that can enhance customer satisfaction, boost sales, improve security, and streamline business operations. To see these benefits, you need to choose the payment gateway that’s the best fit for your business.

How to choose a payment gateway

Selecting the right payment gateway is an important business decision because it directly impacts the operational efficiency of your transactions as well as the customer experience you provide. The ideal payment gateway should align with your business model, transaction volume, target audience, and the nature of your products or services. Here are several factors to consider when choosing a payment gateway:

• Business model
  Your payment gateway should fit your business model. If your company has a subscription model, a payment gateway that offers recurring billing features will simplify your billing process. If your customers primarily make one-time purchases, a payment gateway that supports one-click checkout can speed up the payment process and reduce abandoned carts.

• Transaction volume
  Most payment gateways charge a fee per transaction. The rate can vary depending on the provider and your business’s transaction volume. Companies with high transaction volume tend to benefit from a payment gateway with tiered or volume-based pricing, while companies with low transaction volume often benefit more from flat-rate or pay-as-you-go pricing. It’s important to understand the fee structure so you can evaluate its impact on your profit margins.

• Target audience
  Your payment gateway should support the payment methods your target customers prefer. Global ecommerce businesses typically need a gateway that accepts a wide variety of local payment methods, compared to a business that only sells within the US and needs a gateway that can accommodate cards, digital wallets, and ACH transfers.

• Integration needs
  The payment gateway needs to integrate seamlessly with your existing software. Businesses selling on ecommerce platforms tend to choose gateways that have simple plugins for the platforms they already use, while hotels require a gateway that can integrate with their hotel management systems. Take inventory of your current software and see how a gateway would fit in.

• Expansion plans
  If you plan to sell internationally, choose a payment gateway that supports multiple currencies and international payment methods. For example, Stripe supports more than 135 currencies, allowing businesses to easily accept payments in most global markets. If you hope to scale quickly, even within one country, you’ll need a gateway that can handle that growth.

Consider your options carefully when selecting a payment gateway. Understand what your business’s online payment needs are right now and how those needs might evolve in the future. Look for a payment gateway that supports those needs and drives customer conversion and retention. For more information about how Stripe supports payments for businesses, including payment gateway functionality, start here.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.