How a payment gateway works
When a customer pays, the gateway collects their card or bank details on a secure form, turns them into a token, and sends the charge on. The processor routes it through the card network to the customer's bank, which approves or declines it. The answer comes back through the same chain in a second or two, and approved money is later paid out to the seller's bank account.
Three terms get mixed up. The gateway is the front door that captures payment details and talks to your software. The processor moves the transaction between the banks and networks. The merchant account is the account that receives the money before it reaches your bank. Many modern providers bundle all three into one signup, which is why the words are used loosely.
For subscriptions, the gateway also stores the customer's card or bank mandate in its vault, so it can be charged again each period without the customer typing it in. Your billing system keeps only a reference to it, never the card number.
Worked example
A made-up business charges a customer $100. Its gateway agreement, for this example, costs 3% of each charge plus $0.30.
- Customer pays
- $100.00
- Percentage fee: 3% × $100
- −$3.00
- Fixed fee per charge
- −$0.30
- Paid out to the business's bank
- $96.70
The rates are only for the arithmetic. Real rates depend on your gateway, your agreement, the card type and the customer's country.
Why the payment gateway matters
The gateway decides which payment methods and currencies you can accept, which countries you can sell in, and how quickly money reaches your bank. A gateway that cannot collect bank debits or mobile money closes those customers off.
Owning the gateway account matters for subscriptions in particular. The saved cards and mandates live in that vault. If your billing runs on your own gateway account, you can change billing software without asking every customer to enter their card again; if someone else owns the account, moving is harder.
Common mistakes
- Comparing only the headline rate Currency conversion, dispute fees, payout timing and fees on failed attempts all add up. Compare the full cost for your mix of customers.
- Not owning the vault If saved payment details sit in an account you do not control, leaving means re-collecting them from every customer.
- One gateway for every market A gateway strong in one region may not collect the methods customers use in another. Several gateways can run side by side.