Finding a payment solution that is secure and convenient is a major headache for eCommerce businesses, and it’s easy to see why. E-commerce businesses need payment gateways for one reason: customers like to pay with credit and debit cards.

Research shows that a whopping 80% of online shoppers choose to pay with credit and debit cards. So how can eCommerce businesses choose payment solutions that match their customers’ expectations?

Let’s find out what an ecommerce payment gateway is and how you can use it to accept credit card payments.

What is a payment gateway?

Like a virtual cash register, a payment gateway processes card payments on behalf of businesses – online and offline. This involves checking the validity of the customer’s card details and ensuring the availability of funds to pay your business.

Here’s how it works in simple terms:

1. Customer pays: The buyer enters their card details (or digital wallet info) on a checkout page.
2. Data encryption: The payment gateway encrypts the information to provide theft and fraud protection.
3. Authorization request: It securely sends the data to the acquiring bank (the merchant’s bank) and then to the card network (Visa, Mastercard, and other major credit cards).
4. Response: The card issuer checks the customer’s funds or credit limit, then approves or declines the transaction.
5. Confirmation: The gateway sends the response back to the website, confirming if the payment was successful.

In short, a payment gateway is what makes online payments possible, keeping sensitive card information safe while communicating between all parties involved in a transaction.

What’s the difference between a payment gateway and a payment processor?

Payment processors and payment gateways can both feature hardware and software components, so distinguishing them based on components alone can be tricky. While both terms may sound similar, there are key differences between them.

To put it simply, a payment processor handles data digitally. Its role is to evaluate and pass on encoded transaction data to issuing banks. In addition to handling data as described above, a payment gateway also approves fund transfers between the customer and the business.

Essentially, a payment gateway can be considered a virtual “Point of Sale” (POS) terminal, while the processor usually works behind the scenes to enable online transactions.

What types of payment gateways are there?

Depending on your needs, you may choose one of the popular payment gateway types.

Redirect payment gateways

In this type, the customer is redirected to a different provider’s page to complete the payment. For example, with PayPal, the customer leaves your site to finalize the transaction on PayPal’s platform.

This method is convenient and secure since it relies on the infrastructure of large providers, but it gives the business little to no control over the checkout experience and adds extra steps for the customer after they leave your online store or website.

Onsite checkout, offsite payment

A good example of this hybrid type is TailoredPay, which allows customers to check out directly on your website while processing the payment securely on external servers. This gives businesses more control over the customer journey without taking on the full security burden of handling payments directly.

If you’re looking for a gateway that maintains customer trust while offering flexibility and security, TailoredPay is an ideal option to consider.

Onsite payment gateways

These gateways let businesses process payments entirely on their own servers. They’re typically used by large eCommerce companies that want full control over branding and the checkout process in this business model. However, this comes with added responsibility for security, PCI compliance, and ongoing system maintenance.

Digital wallets and mobile payment options

Modern payment gateways don’t only process credit and debit cards. They also integrate with digital wallets such as Apple Pay and Google Pay, which have become increasingly popular among online shoppers as some of the most accepted payment methods.

These wallets store customers’ payment information securely and let them complete purchases using biometric verification, such as Face ID or fingerprint recognition. For businesses, supporting Apple Pay and Google Pay can lead to faster checkout times, reduced cart abandonment, and improved security since card details are never shared directly with the merchant.

When comparing payment gateways, look for those that support multiple payment methods, including Apple Pay, Google Pay, and traditional card payments, to offer a flexible checkout experience for your customers. They’ve become standard payment platforms for accepting payments online,

How do payment gateways work?

Each time a customer initiates an order, a process is triggered. This process only takes seconds and begins after the customer enters card details on the browser to complete their purchase.

Here’s what happens next:

• Encryption: The payment details entered on the web browser are encoded (converted into a different format) for exclusive use within this transaction.
• Transfer: Within a secure environment, the payment gateway transfers the encoded transaction information to the payment processor.
• Request: The payment processor makes an authorization request to the customer’s financial institution to accept or decline the transaction based on the availability of funds.
• Fulfillment: Once the transaction is authorized, the business is cleared to fulfill the order.

This entire process is usually completed seamlessly in 2-3 seconds, However, this isn’t all that the payment gateway does. The payment gateway also takes responsibility for tasks such as calculating tax where applicable and monitoring orders to identify fraud. Keep in mind that often, it doesn’t replace your tax software, especially if you’re also accepting payment methos such as crypto.

Recurring payments and billing

Many eCommerce businesses rely on recurring payments to charge customers automatically for subscriptions, memberships, or ongoing services. A good payment gateway should include built-in tools for recurring billing, allowing businesses to manage repeat charges without manually processing each transaction.

Recurring billing systems securely store customer payment information and trigger automatic payments on a set schedule, improving cash flow and reducing missed payments. When evaluating payment gateways, look for options that support flexible billing intervals, failed payment recovery, and detailed reporting for subscription-based revenue.

What is a merchant account?

Once payment processing is complete, how do eCommerce businesses receive cleared funds?

A merchant account is a specialized account that allows businesses to accept customer card payments, unlike a regular business bank account. Once funds are cleared, they are held in these specialized accounts for a short time before being transferred to the business’s bank accounts.

For eCommerce businesses, merchant accounts streamline payment collection across multiple payment sources and ease refund and chargeback processing. Merchant accounts and payment gateways go hand-in-hand, but some payment solutions only offer standalone payment gateways, while solutions such as TailoredPay offer both payment gateways and merchant accounts.

Merchant accounts combined with online payment gateways ease the process for eCommerce businesses looking to accept payments for their online business. To further illustrate this, here are a few examples of companies that offer standalone payment gateways vs. payment gateways + merchant account combos.

Hidden truths about payment gateways

All payment gateways are not created equal, so before deciding on the right payment gateway for your business, it is important to understand the strengths and limitations of each option.

Below are a few of the main limitations you might expect.

Variance in accepted card types

While most payment gateway providers advertise how universal they are, the truth is that there are specific processing portals and card issuers that they can’t accept payments from. This could be either region-specific or issuer-specific.

Many gateway providers highlight payment acceptance across Europe and North America, but don’t offer any specifics on what types of payments aren’t accepted.

Without the choice of alternative payment methods, your shoppers may simply drop out mid-purchase.

Exclusion of international shoppers

If you’re looking to sell your products/services internationally, your chosen gateway should provide a global solution. Merchants targeting a broad international clientele need to check the international acceptance of their chosen payment gateways.

For example, American customers may not be familiar with Alipay – China’s most popular payment gateway. It is also important to note that even when accepted, cross-border transactions may cost more, as certain payment gateways may charge additional payment processing fees for international sales transactions.

In some cases, customers may simply prefer local payment methods instead, e.g., because of the lower transaction fees. If this happens frequently, we suggest adding multiple payment methods.

Merchants targeting a broad international clientele need to check the international acceptance of their chosen payment gateways. In some cases, using multiple payment gateways can help cover regions where a single provider has limited support or higher cross-border fees.

Security concerns

Research shows that a significant number of customers show security-related concerns over making purchases online. While security is a key feature of any good payment gateway, here are some unavoidable vulnerabilities worth considering:

1. Malware. Hackers can infiltrate a user’s account using malware to make fraudulent transactions through secure payment gateways.
2. Data breaches. While TLS encryption enables payment gateways to process sensitive data (e.g. card information), the data is still at risk of a security breach as long as it remains on a server.
3. Mobile security risk. Lack of control over who has access to customers’ mobile devices still presents a security risk.

Things to consider when choosing a payment gateway

When choosing a payment gateway, it is important to get clarity on what features you should expect – and whether or not these features are a match for your unique business needs. Here are some of the key features to consider:

• Security: The Payment Card Industry Data Security Standards (PCIDSS) is the gold standard for security compliance for digital transactions, so it is important to choose a payment gateway that is PCI Compliant. Choosing a PCI-compliant payment gateway means that your customers’ payment information is kept secure, and you reduce your risk of incurring heavy fines or sanctions.
• Integration with other apps: Your chosen payment gateway needs to integrate with other apps that run on your website, as well as your existing accounting solutions. It is important to choose a payment gateway that aligns with your existing applications to avoid service disruptions (and a hit on your bottom line).
• Cost: It is important to understand the fee structure of your chosen payment gateway before you commit. Most payment gateways have a total operating cost, which is made up of setup cost + transaction cost + monthly fees. Fraudulent transactions on your website would also attract additional fees.
• Alternative payment options: If you already understand how your customers prefer to pay, you want to choose a payment option that aligns with their payment habits. Choose a payment gateway that offers multiple payment options to reduce the number of problems you encounter in the long run.

Why you should choose TailoredPay as your payment gateway

TailoredPay is your ideal payments partner, especially for eCommerce merchants who have had negative experiences with mainstream payment gateways in the past.

With much higher acceptance rates than other providers, TailoredPay offers businesses an affordable, secure payment gateway and high-risk merchant account solutions that are PCI compliant and compatible with a variety of card types. For bonus points, there are no set-up fees, and approvals only take 48 – 72 hours!

So, if you’re looking for a full stack payment platform that won’t hold you back, apply today and take your business to the next level.