What is a Payment Gateway and How Does it Work?

A payment gateway is a merchant service that verifies the cardholder’s details and allows the transfer of funds from the customer. It serves as an interface between merchant websites and payment processing banks. Gateways can be used for multiple types of payment. It encrypts customer details in online and offline transactions. In stores, these gateways consist of point-of-sale (POS) terminals that accept credit card information by card or smartphone. There are exclusive gateways to facilitate payment in cryptocurrencies like bitcoin.

These differ from payment processors. Payment processors process customer payments sent to use customer information to collect payments on behalf of the merchant.

Online trading has gained a new perspective in today’s business world due to e-commerce. The use of credit cards, QR codes, and other online transactions led to discrepancies in slower fund transfers. In the next few decades, a drastic fall in cash usage will be observed. In 2022, it is estimated that more than 80% of U.S. purchases will be accomplished using a method other than cash. Additionally, from 2020 through 2025, online payment transaction values will likely grow more than 15%.2 Businesses must be aware of gateway operations that serve as the key to online payment systems.

This blog post will clarify the significance and the components of a payment gateway and its common use cases.