What Exactly Are Payment Gateways & How Do They Work?

March 6, 2024

Catrin Gillespie

Head of the DACH Business Unit

It’s no secret that online shopping is now the norm, but while the transition has been easy for the shopper, retailers (particularly SMEs) have often faced difficulty. Today, understanding how payment gateways work is essential for businesses of all sizes; those who are used to vending only via their brick-and-mortar store need to learn fast. From small local merchants to large e-commerce retailers, having a secure and efficient payment processing system is crucial for success. 

So, in this blog post, we’ll delve into the fundamentals of payment gateways and explore how they facilitate online transactions. Whether you’re a micro-merchant, SMB, cannabis business, or even a property trading company, this guide – How Do Payment Gateways Work – will help you navigate the world of payment processing with confidence.

How It Works: In a Nutshell

The payment gateway gathers payment details like credit card info, billing address, and transaction amount securely from the customer’s device.It conducts security checks to authenticate the transaction, ensuring the credit card’s validity, funds sufficiency, and transaction accuracy while also employing fraud prevention measures.The gateway facilitates the electronic transfer of funds from the customer’s bank to your merchant account via the banking network.It sends an authorization request to the customer’s bank, seeking approval for the transaction. Upon approval, it receives an authorization code.The payment gateway confirms the successful transaction, allowing you to fulfil the order. The entire process occurs in seconds, ensuring a seamless payment experience.

Accepting All Types of Payments as an E-Commerce Business

As an e-commerce business, offering a variety of payment methods is essential to cater to the diverse preferences of your customers. By accepting all types of online payment, including credit cards, debit cards, digital wallets, and bank transfers, you can provide a seamless checkout experience and potentially increase your conversion rates, too. 
Achieving this is simpler than you might think – you’ll just need a robust payment gateway that supports multiple payment methods and integrates seamlessly with your e-commerce platform – like Fibonatix! With us, you can effortlessly accept all types of online payment, like PayPal, Apple Pay, Google Pay etc, ensuring convenience for your customers and maximising your sales potential.

Ready to offer a seamless experience for your customers?

Discover more about Fibonatix’s card processing solutions

Secure Online Payment Transactions: Keeping Your Customers’ Details Safe

Ensuring the security of your customers’ payment details is paramount for any e-commerce business. With the increasing prevalence of online fraud and data breaches, safeguarding sensitive information like bank details is a top priority. 

Payment gateways play a crucial role in securing payment transactions by:

  • Encrypting data during the checkout process, preventing unauthorised access to customers’ financial information. Bank authorization processes further enhance security by verifying the legitimacy of transactions. 
  • Prioritising PCI compliance, meaning that e-commerce businesses can adhere to industry standards and mitigate the risk of data breaches. 

With Fibonatix, you can rest assured that your customers’ details are safe and protected throughout the payment process. Compliance with The Payment Card Industry Data Security Standard (PCI DSS) is paramount.

Types of Payment Gateways

A payment gateway is, quite simply, how any online payment works. That being said, payment gateways can come in various forms, each catering to the unique needs and preferences of different businesses and customers.

  1. Hosted Payment Gateways: These gateways redirect customers to a third-party payment page to complete transactions. This setup offers enhanced security as sensitive payment information is handled by the provider’s secure servers. Although it may reduce control over the checkout process, it’s a convenient option for small ecommerce businesses starting with limited technical resources.
  1. Self-Hosted Payment Gateways: These gateways allow merchants to host their own payment pages (often referred to as a checkout page). While providing more control over the checkout experience, they require additional security measures and PCI compliance, as the merchant handles sensitive customer data directly.
  1. Integrated Payment Gateways: Integrated gateways are deeply integrated into a merchant’s website or application, offering another seamless checkout experience. Payment gateway integrations often require technical expertise, but provide more control and customisation options.
  1. API Payment Gateways: Application Programming Interface (API) gateways also enable customisation, allowing businesses to integrate payment processes directly into their software or application. This type is suitable for those looking for complete control over the payment flow and user experience.
  1. Mobile Payment Gateways: These gateways cater specifically to mobile transactions, enabling swift and secure payments via mobile devices. They often support contactless payments and offer convenience for businesses with a mobile customer base.

Payment Gateways vs. Payment Processors

Still asking yourself, ‘how do payment gateways work’? Comparing a payment gateway to a payment processor may provide some more clarity! Understanding the difference between payment gateways and payment processors is crucial for e-commerce businesses. While both are essential components of online payment processing, they serve distinct roles in the transaction process.

Payment GatewayPayment Processor
A payment gateway is like a digital bridge that securely authorises and facilitates transactions between merchants and customers. It encrypts sensitive payment data during online transactions and communicates with the payment processor and the customer’s bank to complete the payment process. Essentially, a payment gateway acts as a virtual point-of-sale terminal for online transactions.A payment processor is responsible for the behind-the-scenes processing of transactions. It receives transaction data from the payment gateway, routes it to the appropriate card networks (such as Visa or Mastercard), and communicates with the issuing bank to authorise the transaction. Payment processors also handle tasks like settling funds and managing chargebacks.

In summary, while payment gateways handle the front-end aspects of online payments, such as checkout and encryption, payment processors manage the back-end processing and settlement of transactions.

How Can I Integrate a Payment Gateway to an Existing Business?

Integrating a payment gateway into an existing business is a straightforward process that can significantly enhance your online payment capabilities. Here are the key steps to integrate a payment gateway seamlessly:

Choose the Right Payment Gateway
Integrate with Your E-Commerce Platform
Test Transactions
Go Live
Select a payment gateway provider that aligns with your business requirements, offers the features you need, and provides reliable customer support. Also ensure that PCI-compliance remains a top priority.Depending on your e-commerce platform, you can typically integrate the payment gateway by installing a plugin or using an API that we will provide. Follow our integration instructions, or contact us  for further assistance.Before going live, we’ll support you in conducting thorough testing to ensure that the payment gateway integration is functioning correctly. This will involve testing various payment methods. Once testing is complete and everything is functioning as expected, you can go live with your integrated payment gateway. Make sure to monitor transactions regularly and address any issues promptly to provide a smooth payment experience for your customers.

How Much Does It Cost To Use A Payment Gateway?

The cost of using a payment gateway varies depending on several factors, including the payment gateway provider, your business’s transaction volume, and the specific features and services you require. Please don’t hesitate to contact us directly to learn more about specific fees or our general pricing structures.

Payment Gateways & More: How Can Fibonatix Help My E-Commerce Business?

Fibonatix specialises in providing tailored payment solutions for e-commerce businesses of all sizes, including SMBs, cannabis businesses, micro-merchants, and property trading companies. Here’s how Fibonatix can help take your e-commerce business to the next level:

  • Customised Payment Solutions: Unlike larger payment processing providers that offer one-size-fits-all solutions, Fibonatix understands the unique challenges faced by small and medium-sized businesses. We work closely with you to develop customised payment solutions that meet your specific needs and support your growth objectives.
  • Seamless Integration: Easily integrate our payment gateway into your existing online store. Our intuitive integration process ensures minimal disruption to your business operations and enables you to start accepting payments quickly.
  • Advanced Security Features: Security is paramount when it comes to online payments. Fibonatix’s payment gateway employs advanced encryption technology and robust fraud prevention measures to keep your customers’ sensitive payment information safe and secure.
  • Dedicated Support: We prioritise customer satisfaction and provide dedicated support to address any questions or concerns you may have. Our team of experts is available around the clock to assist you with integration, troubleshooting, and optimising your payment processing operations.

Ready to streamline your e-commerce payment process and enhance your customer experience? Contact Fibonatix today to learn more about our customised payment solutions and how we can help grow your business.

FAQs About Payment Gateways

How do payment gateways work to ensure secure online transactions?

Payment gateways work by securely collecting and transmitting payment details, such as credit card information, from customers to acquiring banks. They perform multiple security checks, including card verification and fraud detection, before authorising the transaction. This process includes data encryption and compliance with PCI standards to safeguard sensitive information.

What is the difference between a payment gateway and a payment processor?

A payment gateway is a digital bridge that authorises and facilitates online payments by encrypting and transmitting payment data. In contrast, a payment processor handles the actual processing of transactions, communicating with card networks and issuing banks to approve and settle payments. The payment gateway manages the front-end checkout experience, while the payment processor handles the back-end financial transactions.What is the difference between a payment gateway and a payment processor?

Can I integrate a payment gateway with my existing online store, and how complex is the process?

Yes, integrating a payment gateway with your existing online store is typically straightforward. The process usually involves selecting a compatible payment gateway, using a plugin or API provided by the gateway, and conducting test transactions to ensure everything functions correctly. Most payment gateways offer step-by-step instructions and support to simplify integration and ensure a seamless experience for your customers.

What are the typical fees associated with using a payment gateway, and how can I manage them?

Fees for using payment gateway solutions can vary based on the provider, transaction volume, and additional services required. Common costs include transaction fees, setup fees, and monthly service charges. To manage these fees effectively, compare different payment gateway providers and consider your business’s specific needs.