What is a Payment Gateway?
A payment gateway is a technology system that enables online payments by securely transferring payment data between a customer, a merchant, and the associated banks.
It captures payment information at checkout, encrypts sensitive details, and forwards the request to banks and payment networks for authorization. After verification, the gateway confirms whether the payment is successful or failed and shares the status with both the customer and the merchant.
Payment gateways are used by websites, mobile apps, and e-commerce platforms to accept payments through cards, UPI, net banking, and digital wallets.
How a Payment Gateway Works
A payment gateway follows a structured process to ensure that online payments are processed securely and accurately. Each transaction passes through multiple systems before it is approved or declined.
Step-by-Step Payment Gateway Process
1. Customer initiates the payment
The customer selects a product or service and proceeds to checkout. At this stage, they choose a payment method such as a credit or debit card, UPI, net banking, or digital wallets.
2. Payment details are encrypted
Once the payment details are submitted, the payment gateway encrypts the information using secure protocols such as SSL or TLS. This prevents unauthorized access to sensitive data.
3. Data is sent to the acquiring bank
The encrypted payment information is forwarded to the acquiring bank, which is the bank that manages the merchant’s account.
4. Transaction is routed through payment networks
The acquiring bank routes the transaction request through relevant payment networks such as Visa, Mastercard, RuPay, or through the UPI system operated by NPCI, depending on the payment method used.
5. Issuing bank verifies the transaction
The issuing bank, which is the customer’s bank, checks the validity of the payment details, available balance or credit, and any security or fraud indicators. Based on these checks, the transaction is approved or declined.
6. Payment status is communicated
The decision is sent back through the payment network and gateway to the merchant and the customer. If approved, the transaction is completed, and funds are settled to the merchant as per the settlement cycle defined by the acquiring bank or payment service provider.
Payment Gateway Examples
To understand how payment gateways are used in real business scenarios, here are a few common payment gateway examples across different use cases.
Website and E-commerce Payments
An online store uses a payment gateway to accept payments when customers complete a purchase. The gateway connects the checkout page to banks and payment networks, allowing the transaction to be authorized and completed securely.
Example: EnKash enables businesses to accept online payments through a single payment gateway that supports multiple payment modes. It integrates directly with websites and apps using APIs and plugins, while also offering real-time transaction visibility and compliant payment processing.
Subscription and SaaS Payments
SaaS platforms use payment gateways to collect recurring subscription payments. The gateway manages authorization, recurring mandates, and automated settlements without manual intervention.
Marketplace and Platform Payments
Marketplaces rely on payment gateways to collect payments from customers and distribute funds to multiple sellers. The gateway ensures secure payment routing and accurate settlement across parties.
Service-Based Businesses
Service providers such as consultants, educators, and logistics companies use payment gateways to accept online payments through checkout pages or payment links.
Payment Gateway vs Payment Processing
Payment gateways and payment processing are closely connected but serve different roles in an online transaction. Understanding the difference helps businesses choose the right payment setup.
Payment Gateway
A payment gateway handles payment data security and authorization during checkout.
Key responsibilities of a payment gateway:
- Collects payment details during checkout
- Encrypts and secures sensitive information
- Sends authorization requests to banks and payment networks
- Returns approval or failure messages to the merchant and customer
Payment Processing
Payment processing refers to the clearing, settlement, and movement of funds between the customer’s bank and the merchant’s bank after a transaction is authorized, involving acquiring banks, processors, and payment networks. This step is handled by payment processors and banking networks.
Key responsibilities of payment processing:
- Routes transactions through card networks or UPI systems.
- Transfers funds between issuing and acquiring banks
- Handles clearing, settlement, and reconciliation.
Key Differences
Aspect |
Payment Gateway |
Payment Processing |
Primary Role |
Secures and authorizes payment data |
Transfers funds between banks |
Visibility |
Visible during checkout |
Occurs in backend systems |
Function Focus |
Data security and communication |
Fund movement and settlement |
Examples |
EnKash, Razorpay |
Visa, Mastercard, UPI systems |
Types of Payment Gateways
Payment gateways can be grouped based on how they are integrated into a website or application and how much control the business has over the payment experience.
1. Hosted Payment Gateways
Hosted payment gateways redirect customers to a third-party payment page to complete the transaction. The gateway provider manages payment security and compliance.
Best suited for: Small businesses and quick setups
Pros
- Easy to integrate
- Security and compliance handled by the provider
Cons
- Customer is redirected away from the merchant’s website
- Limited control over checkout experience
2. Self-Hosted Payment Gateways
Self-hosted gateways collect payment details directly on the merchant’s website and send them to the gateway for processing. Businesses have more control but also more responsibility.
Best suited for: Large businesses with in-house technical teams
Pros
- Greater control over payment flow
- Better customization of checkout
Cons
- Higher security and compliance responsibility
- More complex implementation
3. API-Based Payment Gateways
API-based payment gateways allow businesses to embed payments directly into their website or app using APIs. Customers stay on the same page throughout checkout.
Best suited for: SaaS platforms, marketplaces, and large e-commerce businesses
Pros
- Seamless checkout experience
- Supports multiple payment methods
- High level of customization
Cons
- Requires technical expertise
- Security compliance lies with the business
4. Bank Payment Gateways
Bank payment gateways are offered directly by banks and connect businesses to their banking infrastructure for online payments.
Best suited for: Businesses that prefer direct bank integration and standardised payment flows
Pros
- Direct bank integration
- Strong security controls
Cons
- Longer onboarding process
- Limited flexibility and modern payment options
5. International Payment Gateways
International payment gateways support cross-border transactions and multiple currencies.
Best suited for: Businesses serving global customers
Pros
- Multi-currency support.
- Global payment acceptance.
Cons
- Higher transaction and conversion fees.
- Additional compliance requirements.
Importance of Payment Gateways for Businesses
Payment gateways help businesses collect payments online with security, speed, and reliability. As more customers prefer digital payment methods, a well-integrated payment gateway becomes essential for smooth checkout and consistent cash flow.
Why Every Business Needs a Payment Gateway
- Secure transactions: Encrypts payment data and reduces fraud risk during checkout.
- Multiple payment modes: Supports cards, UPI, net banking, and wallets, improving payment completion.
- 24×7 payment collections: Accept payments 24×7, including weekends and holidays.
- Easy integration: Works with websites, apps, and e-commerce platforms through APIs or plugins.
How Payment Gateways Improve Customer Experience
- Faster checkout: Quick authorization reduces drop-offs at the payment stage.
- Higher trust: Secure payment flows increase customer confidence to complete transactions.
- Better accessibility: Customers can pay using their preferred method without switching platforms.
Role of Payment Gateways in E-Commerce and Websites
Payment gateways are critical for online stores and service websites because they reduce checkout friction and support modern payment flows such as subscriptions, payment links, and UPI-based payments.
Impact on Conversion and Revenue
A stable payment gateway improves conversion by reducing payment failures and cart abandonment. Multiple payment options and secure checkout also increase repeat purchases and average order value over time.
How to Choose the Right Payment Gateway in India
The best payment gateway depends on your business model, payment mix, and operational needs.
Criteria to Evaluate a Payment Gateway in India
- Payment methods supported: Cards, UPI, net banking, wallets, and international payments if required.
- Pricing and fees: Transaction charges, platform fees, and any settlement-related costs.
- Integration options: APIs, plugins (Shopify, WooCommerce), SDKs, and documentation quality.
- Settlement timeline: How quickly funds are credited to your account.
- Security and compliance: PCI DSS alignment, encryption, fraud checks, and risk controls.
- Support quality: Responsiveness during payment failures, disputes, and chargebacks.
Example Use Cases
- High UPI volume businesses: Choose a gateway optimized for UPI success rates and faster settlements.
- E-commerce stores: Prefer plugin support, multiple payment modes, and strong failure-handling flows.
- Subscription businesses: Look for recurring payment support and mandate management.
- Platforms and marketplaces: Prioritize multi-party settlement support and reconciliation visibility.
- Businesses using EnKash: If you want payment acceptance plus visibility and control across collections, EnKash can fit well as part of a broader payments and spend ecosystem.
Security and Compliance in Payment Gateways
Security and regulatory compliance are core requirements for any payment gateway. Since gateways handle sensitive financial data, they must follow strict standards to protect transactions and prevent fraud.
Key Security Measures Used by Payment Gateways
- Data Encryption
Payment gateways use SSL or TLS encryption to protect payment information while it is transmitted between the customer, merchant, and banks. - Tokenization
Sensitive card details are replaced with secure tokens, ensuring that actual payment data is not stored or exposed during transactions. - Authentication Controls
Mechanisms such as OTP-based verification, device checks, and risk-based authentication help prevent unauthorized payments. - Fraud Monitoring
Payment gateways continuously monitor transactions for unusual patterns, failed attempts, and high-risk behavior to reduce fraud and chargebacks.
Compliance Standards in India
Payment gateways operating in India are required to comply with regulatory and industry standards, including:
- PCI DSS for secure handling of cardholder data
- RBI guidelines governing payment service providers
- NPCI rules for UPI-based transactions
Compliance ensures secure payment processing, customer data protection, and uninterrupted payment operations for businesses.
Payment Gateway vs Payment Aggregator
Payment gateways and payment aggregators are often used together, but they serve different roles in the payment ecosystem. The key difference lies in how merchants are onboarded, how payments are collected, and how settlements are handled.
Payment Gateway
In a payment setup, the payment gateway handles the technical flow of the transaction during checkout. It manages secure data transmission, encryption, and authorization by communicating with banks and payment networks.
The gateway focuses on transaction security and approval, while other entities handle settlement and merchant management.
Examples: EnKash, Razorpay, Stripe
Payment Aggregator
A payment aggregator simplifies payment acceptance by allowing multiple businesses to operate under a single master account. Instead of each merchant maintaining a direct relationship with a bank, the aggregator manages onboarding, compliance, risk checks, and settlements.
This model reduces setup complexity and speeds up go-live for businesses.
Examples: EnKash, Paytm, PhonePe, Easebuzz.
How the Two Work Together
In most setups, the payment gateway manages transaction authorization during checkout, while the aggregator handles merchant onboarding, pooled collections, and settlement to merchant accounts.
Key Differences: Payment Gateway vs Payment Aggregator
Aspect |
Payment Gateway |
Payment Aggregator |
Merchant Account |
Required with acquiring bank |
Not required |
Compliance |
Managed by the merchant |
Managed by the aggregator |
Settlement Flow |
Direct bank settlement |
Pooled and settled by aggregator |
Integration |
Direct technical integration |
Faster onboarding |
Best For |
Large or complex businesses |
Small and mid-sized businesses |
What is a UPI Payment Gateway?
A UPI payment gateway enables businesses to accept payments directly from customers’ bank accounts using the Unified Payments Interface (UPI). It allows customers to pay using UPI IDs, QR codes, or mobile-based UPI apps, with transactions processed in real time.
UPI payment gateways connect a merchant’s website or app to the UPI ecosystem, routing payment requests through banks and NPCI infrastructure. Once the customer authorizes the payment, funds are transferred instantly to the merchant as per the gateway’s settlement cycle.
UPI payment gateways are widely used across Indian e-commerce platforms, service websites, and mobile applications because they offer high success rates, faster processing, and lower transaction costs compared to traditional card payments.
How to Integrate a Payment Gateway on a Website
Integrating a payment gateway into a website follows a structured process that ensures secure payment collection and smooth transaction handling.
Step-by-Step Payment Gateway Integration Process
1. Choose a payment gateway
Select a payment gateway based on supported payment methods, transaction fees, security standards, settlement timelines, and ease of integration.
2. Register as a merchant
Sign up with the chosen payment gateway and complete the merchant onboarding process. This usually involves submitting business details, bank account information, and required KYC documents such as PAN and GST.
3. Integrate using APIs or plugins
Payment gateways provide different integration options:
- API integration for custom-built websites and applications
- Plugins or extensions for platforms such as Shopify, WooCommerce, Magento, and other CMS tools
4. Test transactions
Use the gateway’s sandbox or test environment to simulate transactions. This helps confirm that payment flows, error handling, and security measures are working as expected.
5. Go live and monitor payments
After successful testing, switch to live mode. Use the payment gateway dashboard to track transactions, settlements, and failed payments, and to monitor for potential issues.
Conclusion
Payment gateways play a central role in enabling secure and efficient online transactions. They connect customers, businesses, and banks, ensuring that payment data is protected, authorized, and processed with accuracy.
From accepting card and UPI payments to supporting e-commerce, subscriptions, and service-based transactions, payment gateways have become essential infrastructure for digital businesses. Choosing the right payment gateway depends on factors such as payment methods supported, security standards, integration flexibility, and settlement timelines.
A well-integrated payment gateway improves checkout experience, reduces payment failures, and supports business growth as digital payments continue to expand across India and global markets.
FAQs
1. What is a payment gateway?
A payment gateway enables secure online payments by handling authorization and communication between customers, merchants, and banks.
2. How does a payment gateway work?
A payment gateway authorizes payments securely during checkout and communicates the transaction result to both the merchant and the customer.
3. How to integrate a payment gateway in a website?
Payment gateways can be integrated using APIs for custom-built websites or plugins for platforms like Shopify, WooCommerce, and Magento. After integration, businesses test transactions in sandbox mode before going live.
4. Which payment gateway is best in India?
The best payment gateway depends on business needs such as payment modes, settlement speed, pricing, and integration flexibility. Popular options in India include EnKash, Razorpay, Paytm, and Cashfree.
5. How to add a payment gateway to a website?
To add a payment gateway, businesses must select a provider, complete merchant onboarding, integrate APIs or plugins, test payment flows, and activate live transactions.
6. How to get a payment gateway?
Businesses can apply directly on a payment gateway provider’s website by submitting business and bank details and completing the required verification process.
7. What is a UPI payment gateway?
A UPI payment gateway enables real-time bank-to-bank payments using UPI IDs or QR codes.
