An Employer’s Guide to Payment Gateways: Best Practices for Employers

By 2026, the global e-commerce market will likely top 8 trillion USD. Businesses that meet consumers’ varied purchasing habits (brick-and-mortar, digital stores, in-app purchases, and so on) will benefit the most. To do this, you’ll likely need a payment gateway.

Whether you’re using PayPal, Amazon Pay, Apple Pay, Stripe, Papaya, or another online payment gateway provider, here’s what you need to know to get the most of this tool.

What is a payment gateway?

A payment gateway is a technology that authenticates and securely transmits payment data to the merchant’s bank and payment processor. In other words, it’s one of the main components that enables the fund transfer from the customer’s payment method to the merchant.

Payment gateways are essential for e-commerce and brick-and-mortar stores because they facilitate safe multi-currency transactions and easily integrate with existing systems through plugins or APIs (software allowing different applications to talk to each other). A few payment gateway examples include Paypal, Apple Pay, and Square, all of which enable online store payments.

Payment gateways are only part of the transaction equation though; the other component is payment processors. While they work together, the tools have different roles.

Payment gateway providers vs payment processor

During a transaction, businesses use both payment gateways and payment processors.

Payment gateways collect the customer’s credit card information and payment data from the merchant and ensures the customer’s information travels securely to the payment processor and the customer’s issuing bank. Payment gateway use integrations that allow businesses to reach as many banks and processors as they need.

The role of payment processors is to move the funds from the customer’s bank to the merchant’s account. Then, once the transaction is approved it connects the customer’s issuing bank with the merchant account to transfer the funds.

Let’s look at an example broken down into steps:

1. A customer buys an item on a site with a credit or debit card.
2. Their information goes through the payment gateway, which encrypts the data for security purposes before sending it to the processor.
3. The payment processor sends a request to the customer’s issuing bank to see that they have enough credit to pay for the purchase.
4. The bank either approves or denies the transaction.
5. The payment processor sends the bank’s answer to the merchant, and if approved, the issuing bank credits the merchant’s account.

The bottom line? Your business may need both payment processors and payment gateways for online sales. If the transaction occurs in-person, your business will use a payment terminal.

Payment gateways vs payment terminals

Payment terminals are a necessity for in-person purchases with credit cards, debit cards, and tap-to-pay/digital wallets.
A payment terminal is the hardware that connects to a point-of-sale (POS) system. Its only purpose is to accept credit and debit card payments at a physical store. Using a payment terminal, customers can slide, swipe, dip, or tap their cards to make purchases.

Whereas POS terminals carry out in-person transactions, online payment gateways allow for transactions in which the buyer and seller don’t meet face to face. Customers enter their credit card information on the website, in a checkout form, or on a mobile app and the payment gateway verifies and sends the information to the processor and issuing bank.

Payment gateways aren’t critical just because they enable transactions—it’s because of how they handle them that make them critical.

What do payment gateways do?

A payment gateway performs several tasks to ensure payments are secure, quick, and accurate:

Encryption

When a customer enters their payment information during online checkout, the payment gateway encrypts the data. Encryption guards personal data from unauthorized access or theft while it passes between the customer’s device, the business’s server, and the financial institutions.

Connects with a payment processor

The payment gateway connects the business’s checkout system and the payment processing provider for secure and efficient transactions.

Authorization

A payment gateway authorizes a transaction to verify the customer’s payment information and that they have sufficient funds or credit available to complete the purchase. This authorization process is crucial because it protects both merchants and customers from potential fraud and financial loss.

Data collecting and reporting

Payment gateways typically provide businesses with data to analyze and optimize payment operations. This could include transaction history, refund management, payment types and methods, and transaction volume and velocity

Fraud detection and prevention

To limit fraudulent transaction risks, payment gateways use advanced security measures like fraud detection algorithms, address verification systems (AVS), and card verification value (CVV) checks. These measures can identify and block fraudulent transactions.

The technology behind payment gateways might seem complicated, but when broken down the steps are pretty simple.

How does a payment gateway work?

After a customer provides their credit card details or uses chip technology to make a purchase, the payment gateway completes the transaction within seconds. Here’s how this works:

Collect: A customer clicks on a payment link and is directed to the payment processor’s page where they enter their credit card details to make the payment.

Verify: After receiving the payment information, the payment gateway verifies whether the customer’s bank has the funds to cover the transaction.

Transfer: The payment gateway sends encrypted payment information to begin processing the transaction.

Authorize: A central payment network (called a card scheme) approves and processes the transaction. The payment gateway sends the information to the seller to complete the transaction.

Complete: The payment gateway sends the information from the customer’s bank account to the seller’s account, paying the seller.

Within moments, the payment gateway executes several steps to enable payments that are as secure and safe as possible. Detecting and preventing fraudulent transactions is crucial, but payment gateways are advantageous for businesses in other ways as well.

Benefits of a payment gateway

Payment gateways provide businesses and customers with several benefits including:

Enhanced security: The payment process includes several checks that verify the cardholder’s identity. Payment gateways must also follow strict security standards to protect customer data, such as PCI DSS. Finally, payment gateways support tokenization, address verification service, transaction counts, and so on for additional protection.

Improved payment experience:

Payment gateways allow customers to make purchases from wherever they are. During the payment process, customers can choose to securely save their payment information for future purchases through tokenization. These convenient measures create a better customer experience which can increase brand loyalty and drive sales.

Expand into new markets:

Many payment gateways support multiple currencies and integrate with local and global payment methods—this lets customers choose how they pay. As you expand your business, you can tailor your payment gateway to provide market-specific payment preferences.

Customizable checkouts

Since payment gateways can integrate with APIs, SDKs, and pre-built plugins, your business can tailor the checkouts to suit your needs. This can include the function and flow of their checkout pages, user experience preferences, and more. Many payment gateways allow businesses to fully customize their checkouts with logos and color schemes.
From Stripe to PayPal, there are so many options on the market that it might feel overwhelming to choose the best payment gateway provider for your business. With a list of crucial considerations, however, the process becomes much easier.

How to choose the suitable payment gateway

Choosing the best payment gateway provider comes down to knowing what to look for. Here’s a list of elements to review:

1. Payment methods supported: Your payment gateway must support your customers’ preferred payment methods from payment type (eg. credit/debit cards or digital wallets) to specific currencies.
2. Security and compliance: Keeping payment data secure is a top priority in financial transactions. Your payment gateway must comply with the Payment Card Industry Data Security Standard (PCI DSS) as well as any local regulations. For an extra layer of security, look for a provider that uses advanced security measures such as encryption and tokenization.
3. Transaction fees: Many payment gateways charge transaction fees. Rates may vary per provider and your business’s transaction volume. Pay extra attention to the provider’s fee structure to understand how it will impact your profit margins.
4. Integration: The payment gateway should easily integrate with your existing ecommerce platform, shopping cart, accounting software, and other systems.
5. Customer support: Some gateways provide more robust customer support, such as 24/7 availability and effective, timely service.
6. Reputation and reviews: Invest some time into checking out customer reviews. This will help you identify potential sticking points with a specific payment gateway.
7. Flexibility for future growth: Be sure your payment gateway can grow with you. If you expand into new markets, will it have the right currency to meet customer’s needs?
8. Local regulations

You may have noticed we left out a major factor in choosing a payment gateway: price. As one of the most important considerations in choosing software, cost deserves a section all its own.
How much does a payment gateway cost?
There are two options when it comes to payment gateways: building your own and purchasing one. Both have different associated costs.

Building a payment gateway can cost between $150,000 to $250,000. This depends on several factors such as the development team’s size and expertise, the technology stack, security and compliance measures, and customization, maintenance, and support needs.

Purchased payment gateway costs depends on the vendor and the services. Some vendors charge a monthly fee of $20-$25, plus processing rate fees and transaction fees from $0.13 to $0.49.

Do we want a conclusion?

Papaya Global’s payment services are offered through Azimo, Papaya’s licensed payments arm. Azimo is a payment services provider regulated in five Tier-1 jurisdictions. These licenses allow Papaya, together with its partners, to provide workforce payments worldwide. For further information on Azimo’s licences worldwide, check our licensing page