How to Collect Payments Online: What is a Payment Gateway?

If you want to sell online, you need a way to get paid. But between "payment gateways," "merchant accounts," and "processors," the terminology can get confusing.

This guide explains exactly what a payment gateway is, how it works, and the best ways to start collecting payments online.

What is a Payment Gateway?

Think of a Payment Gateway as the digital version of a credit card terminal (POS) in a physical store. It is the technology that captures payment data from the customer and securely transmits it to the bank for approval.

How it works in 3 steps:

Encryption: The customer enters their card details on your site. The gateway encrypts this data to keep it safe.
Authorization: The gateway sends the data to the acquiring bank to check if the customer has enough funds.
Settlement: Once approved, the money is transferred from the customer's account to your merchant account.

Without a gateway, you cannot securely accept credit card payments online.

Best Ways to Collect Payments Online

All-in-One Solutions (PSPs)
- Examples: Stripe, PayPal, Square.
- Best for: Most businesses. They combine the gateway and merchant account into one service. Easy setup, no monthly fees, just a transaction fee (usually around 2.9% + 30¢).
Digital Wallets
- Examples: Apple Pay, Google Pay.
- Why use them: Speed. Customers can pay with one click using their fingerprint or face ID. Adding these can increase conversion rates by reducing friction.
Buy Now, Pay Later (BNPL)
- Examples: Klarna, Afterpay, Affirm.
- Why use them: They allow customers to pay in installments while you get paid upfront. proven to increase average order value (AOV).
Direct Bank Transfers (ACH)
- Best for: B2B or high-ticket items. Lower fees than credit cards, but slower processing times.

How to Choose the Right Gateway?

Security: Ensure it is PCI-DSS compliant (most major ones are).
Integration: Does it work easily with your website platform (Shopify, WooCommerce, etc.)?
Fees: Watch out for hidden monthly fees or high international transaction costs.
Currency: If you sell globally, ensure it supports multi-currency payments.

Summary

Collecting payments doesn't have to be complicated. For most beginners, a modern provider like Stripe or PayPal offers the easiest path to start selling immediately. As you grow, you can add options like Apple Pay and BNPL to boost your sales further.

How to Collect Payments Online: What is a Payment Gateway?