What is a payment gateway? (And why you might need one)

A payment gateway is a technology that securely processes online payments by transferring card details between a customer, a business, and the bank. 

This is essential if you’re an online business accepting payments via card, digital wallet, or other methods.

In the following sections, we dive deep into what payment gateways are, how they work, and why they matter.

What Is a Payment Gateway?

A payment gateway is the virtual “middleman” for online transactions. It enables online payment processing by securely transmitting payment details between the customer, the merchant, and the relevant financial institutions. 

Once a shopper makes a payment, the gateway encrypts and transfers secure payment data from the website or app to a processor or acquirer. 

The acquirer then routes the authorisation through the card network to the issuer. 

A payment gateway is the “virtual” equivalent of a physical card terminal that helps merchants accept payments online. It’s a core element of e-commerce payment gateways and other digital payment solutions.

Payment Gateway vs POS Terminal: What’s the Difference?

Both a payment gateway and a POS terminal enable payments, but they operate in different environments and provide different functions. 

A payment gateway is specifically used for online payment processing. 

Payment gateway characteristics include:

• Designed for digital payments;
• Uses payment data encryption and fraud protection tools for payment gateway security;
• Supports multiple payment methods and creates payment versatility;
• Enables recurring payment models and cross-border payments with currency conversion capabilities;
• Often includes comprehensive reporting and analytics dashboards.

On the other hand, a POS terminal is a physical device that helps businesses accept payment in person. The shopper can either tap, insert, or swipe their card or device at the point of sale.

POS terminal characteristics include:

• Used in physical locations; 
• Processes card-present transactions, which typically have lower payment processing fees;
• Relies on chip-and-PIN or contactless for transaction processing;
• May be connected to broader POS systems for inventory and sales tracking.

In a nutshell, a payment gateway is for remote and online payments, while a POS terminal is for face-to-face transactions. Both can be used together as part of a unified payment setup. 

For example, through payment gateway integration and POS systems, companies can reach full payment acceptance optimisation. This creates more flexibility for customers across channels and naturally improves the customer experience. 

How Does a Payment Gateway Work?  

A payment gateway processes transactions in two main stages – authorisation and settlement.

Authorisation stage includes the following:

1. Your customer lands on your e-commerce website or mobile app, chooses the product they would like to purchase, and then proceeds to checkout to complete the payment.
   
2. The payment page that will be displayed, usually contains fields for entry of the customer’s debit or credit card details. For example, some of the required information will include the cardholder’s name, card expiration date, PAN number, and CVV number.
   
3. This is where the payment gateway comes into play. It tokenises or encrypts all the submitted card details, performs checks for fraud, and sends the card data to the acquiring bank.
   
4. The acquiring bank securely transmits the transaction details to the relevant card network (e.g., Visa or Mastercard), which routes the authorization request to the issuing bank.
   
5. The card network may apply risk scoring or provide fraud insights (such as Visa Advanced Authorization or Mastercard Decision Intelligence), but it does not make the authorization decision. The issuing bank evaluates the transaction – including any risk data – and determines whether to approve or decline it.
   
6. Now it’s time for the issuing bank to do its job. First, it will perform fraud screening and will then authorise or reject the transaction based on whether there are sufficient funds in the customer’s account.
   
7. Next, whether the payment is approved or denied will be communicated back from the card schemes to the acquirer. 
   
8. Then, the acquiring bank will send the same message to the payment gateway, which will then convey the message to the merchant.
   

Then come the steps from the settlement stage:

9. If payment is approved, the acquirer will collect the payment amount from the issuing bank and will transfer the funds into the merchant’s account – also known as settlement.
   
10. In the end, if the payment is approved, the merchant may display a page for payment confirmation.
    
11. Alternatively, if payment has been declined, the customer will be asked to provide another payment method. 

Through this process, the payment gateway ensures secure, real-time communication between all involved parties. As a result, online payment processing becomes fast and optimally secure.

Key Features of a Payment Gateway 

Modern payment gateways are built with a range of features designed to support security, efficiency, and scalability. 

Some of the core features to look for are:

• Encryption and tokenisation – Protects sensitive card data through advanced payment data encryption, ensuring secure transactions.
  
• Fraud screening tools – Built-in checks help detect and prevent suspicious activity, supporting safer merchant services.
  
• 3D Secure authentication – Adds an extra layer of verification, improving security and minimising fraud-related chargebacks.
  
• Multi-currency support – Enables international payments with built-in currency conversion.
  
• Reporting and analytics – Access to analytics dashboards and detailed reports to track performance and optimise payment operations.
  
• Recurring payments support – Allows businesses to manage subscriptions and automated billing, improving the overall consumer experience.

Considering these features, it’s safe to say that payment gateways not only process transactions but also make them safe and help support business growth. 

Types of Payment Gateways

There are three main types of payment gateways – redirects, hosted, and fully integrated. 

Let’s look at each one in turn. 

Redirects

This type of payment gateway method takes the customer to a payment service provider’s hosted checkout page or the payment method’s site to handle the processing and payment. It essentially becomes a “redirect”.

While this offers a level of simplicity for small retailers, it can also mean less control for the merchant and an extra step in the payment process for the customers.

Hosted (Checkout On-Site, Processing Off-Site)  

With hosted payment gateways, the front-end checkout will occur on your website. However, the payment processing will take place through the back-end of the payment gateway provider you’ve chosen.

Again, this offers an element of simplicity to your customers, but you have no control over any “quirks” that the gateway may have. 

Fully Integrated (On-Site Payments)  

With fully integrated payment gateways, businesses collect and handle payment data on their own servers during checkout. The customer remains on the merchant’s site throughout the payment flow, and payment details are then transmitted to a payment gateway or processor for authorization and settlement.

While this approach offers greater control over the user experience and checkout process, it also significantly increases the merchant’s responsibility for securely handling sensitive data. Because payment information touches the merchant’s systems, the scope of PCI compliance requirements and associated security risks is much higher.

How Can You Use a Payment Gateway?  

The type of payment gateway you choose for your business will dictate how you use it in your everyday sales process.

For e-commerce websites, you can integrate it directly into your checkout page and allow shoppers to pay using different payment methods. 

For mobile apps, you can embed it to enable quick and easy in-app purchases.

For subscription billing, you can use payment gateways to manage memberships, SaaS products, or any ongoing services. 

Essentially, you need to set it up with a payment services provider and enjoy the benefits. Make sure all the licenses and certifications are in place, and you’re ready to sell. 

Criteria for Choosing the Right Payment Gateway  

Some of the most important criteria to look at when it comes to your payment gateway include:

• Fraud protection – This is something you really need to think about, as cybercriminals are getting ever savvier these days. Make sure your customers can trust you, together with the payment service you provide.
  
• Tokenisation – Ask whether there is tokenisation involved when sending and communicating card information. This adds an extra layer of security to the payment process.
  
• Transaction fees – Understand the full cost structure, including payment processing fees and transaction fees. These can vary depending on payment methods, volumes, and regions.
  
• Integrate options – Check how easily the gateway can be integrated into your systems. Many providers offer payment APIs, plugins, or hosted payment gateways for quick setup.
  
• Settlement speed – Find out how quickly funds are transferred to your account after a transaction. Faster settlement can improve cash flow, especially for SMEs in the UK.
  
• Supported payment methods – A good gateway should support a wide range of payment methods, including cards, digital wallets, and local options, to improve customer reach.
  
• PCI DSS compliance – Ensure the provider is fully compliant with PCI DSS standards. This is critical for maintaining customer trust and avoiding compliance risks. Note that the merchant must also validate PCI DSS compliance (e.g., SAQ A or other SAQs) and secure their own website environment, even with hosted solutions.

Evaluating these factors before making a decision can help you get the most out of your investment, grow your business, and keep your customers safe and happy. 

How Much Does a Payment Gateway Cost?

Payment gateway pricing varies by partner, but most follow a similar cost structure. 

With many providers on the market, you’ll need to think about the following costs:

• Setup fees – A one-off charge for account setup or integration (doesn’t apply to all providers);
  
• Monthly fees – An ongoing subscription to access the gateway, receive technical support, or gain access to any advanced features;
  
• Transaction fees – A fee charged per transaction that usually comes in the form of a percentage of the payment plus a fixed amount;
  
• Chargeback fees – Extra costs accumulated as a result of customer disputes;
  
• Cross-border fees – Additional costs for international payments, often linked to currency conversions and cross-border payments.

Ultimately, the total cost will depend on your business model, transaction volume, and the payment methods you plan to accept. 

How to Get a Payment Gateway  

Getting your secure payment gateway up and running doesn’t have to be a pain or a bothersome experience. It just depends on your provider and who you ultimately choose to approach.

The process of setting up a payment gateway for your business usually looks something like this:

1. Apply with a payment service provider – Select a provider that fits your business needs in terms of pricing, supported payment methods, and features and set up your merchant services account.
   
2. Go through KYC and verification checks – Provide business and identity details as part of standard Know Your Customer (KYC) and compliance checks to ensure your account meets regulatory and security requirements.
   
3. Complete the integration process – Connect the gateway to your website, app, or checkout system.

Remember that there are providers like myPOS who charge no monthly, annual, or sign-up fees, offer you a free Visa business card to manage your funds and liquidity and instant settlement of funds, in addition to many other value-added benefits and features. 

Accepting Online Payments With myPOS  

If you’re planning to accept online payments via a payment gateway, you can rely on solutions like myPOS. Our secure online payment gateway is built to support end-to-end online payment processing, all from a single ecosystem. 

With myPOS, you can enjoy pricing that’s typically based on per-transaction payment processing fees, rather than monthly fees. You can gain access to your funds quickly with instant settlement. 

In addition, online and in-person payments can be managed from a single place thanks to our integrated setup. 

Conclusion

Payment gateways are simpler than they seem. A basic understanding of how they work is enough to manage them with confidence.

They act as a middleman in transactions. They reduce fraud and chargebacks, and they give customers confidence to shop securely on your site.

And the best part?  Payment gateways do not have to be expensive. You can add this technology to your online store or mobile app and benefit from secure, smooth payments without excessive fees.

Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.

Frequently Asked Questions

Which businesses need a payment gateway?

Any business that accepts online payments needs a payment gateway. This includes e-commerce stores, subscription services, mobile apps, and businesses using payment links or digital invoices.

What features should a modern gateway include in 2026?

A modern payment gateway should offer payment data encryption, built-in fraud protection, support for multiple payment methods, recurring payment models, cross-border payments and currency conversion, plus analytics and smooth payment gateway integration with your website or platform.

What’s the difference between redirect and fully integrated gateways?

A redirect gateway sends customers off your site to a hosted payment page to complete the transaction. On the other hand, a fully integrated gateway processes payments directly on your site or app via API.

Are hosted gateways safer than fully on-site integrations?

Hosted gateways can be safer from a compliance perspective because the provider handles sensitive payment data encryption and PCI DSS obligations. Fully on-site integrations offer more control and seamless UX but require stronger in-house security and compliance management.

How much does a payment gateway typically cost per transaction?

In the UK, payment gateways often charge a percentage plus a fixed fee per transaction, typically around 1.5% + around 20p for UK card transactions. Keep in mind that rates and cost structures may vary by provider and card type.