A payment gateway is a merchant service provided by an e-commerce application service provider that authorizes credit card or direct payment processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar. The payment gateway may be provided by a bank to its customers, but can be provided by a specialised financial service provider as a separate service, such as a payment service provider. A payment gateway facilitates a payment transaction by the transfer of information between a payment portal (such as a website, mobile phone or interactive voice response service) and the front end processor or acquiring bank. Payment gateways are a service that helps merchants initiate e-commerce, in-app, and point of sale payments for a broad variety of payment methods. The gateway is not directly involved in the money flow; typically it is a web server to which a merchant's website or POS system is connected. A payment gateway often connects several acquiring banks and payment methods under one system

Typical transaction processes

When a customer orders a product from a payment gateway-enabled merchant, the payment gateway performs a variety of tasks to process the transaction. Many payment gateways also provide tools to automatically screen orders for fraud and calculate tax in real time prior to the authorization request being sent to the processor. Tools to detect fraud include geolocation, velocity pattern analysis, OFAC list lookups, 'deny-list' lookups, delivery address verification, computer finger printing technology, identity morphing detection, and basic AVS checks.

White label payment gateway

Some payment gateways offer white label services, which allow payment service providers, e-commerce platforms, ISOs, resellers, or acquiring banks to fully brand the payment gateway’s technology as their own. This means PSPs or other third parties can own the end-to-end user experience without bringing payments operations—and additional risk management and compliance responsibility—in house, although the party offering the white labelled solution to its customers might still be responsible for some regulatory requirements such as Know your customer.