What exactly is a payment gateway?

A payment gateway is a system that a payment service provider uses to process payment requests.

The payments industry is a complex system in which all players collaborate to allow consumers to purchase goods or services by simply inserting a card at a physical retail store or entering payment credentials into a website.

What happens after a consumer initiates a transaction involves the consumer's bank, the merchant's bank, and the intermediaries, all of whom play an important role in protecting the system and getting transaction data where it needs to go.

Simply put, the payment gateway serves as the payment system's entry point. The gateway is used to capture and encrypt card and transaction data and is located between the merchant and the processor. The gateway bundles that data and sends it to the processor on the merchant's behalf for routing to the card network and issuing bank.

In a physical retail store, the gateway can act as an intermediary between the POS terminal software and one or more payment processors, routing transaction messages from one location to another. During site transactions, it is served by an integrated API.

Many businesses now provide gateway services, and processors and merchantsaas payment gateway acquirers include payment gateways in their suite of acquiring services.

Payment gateways originated in e-commerce. When the first e-commerce sites launched, they discovered that integrating a stable and reliable payment processor infrastructure was difficult and time-consuming (it took a year or more to become certified), so the need for innovative new technology to connect and certify each processor while allowing e-commerce merchants to integrate more modern interfaces faster and easier was the original prototype and application of payment gateways.

Payment gateways have evolved into SDKs and flexible APIs over the last 20 years, adding tokenization and other capabilities that extend to many specific market segments and verticals. There are dozens, if not hundreds, of payment gateways available today, each with its own set of features and functionality.

Payment gateway services can be included in a payment service provider's bundled solution to offer to its own sub-merchants. Alternatively, it can choose to be gateway agnostic and implement the necessary technology integration to support the gateway of its sub merchant's choice.

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