10th July 2020

eCommerce Payment Gateway: A Definitive Guide

According to a study from 2018, companies are expected to continue increasing their investments in payment capacities due to rising customer expectations.

When entering the eCommerce game, there’s an avalanche of things you need to consider. Amongst them, is the online payment technology you’ll be using to service your customers. 

From understanding what it does, how it works, and what you can do to optimize it, eCommerce payment gateway technology is a subject matter that demands and begs for your undivided attention.  

What is an eCommerce Payment Gateway?

An eCommerce payment gateway is a digital version for a point of sale that is traditionally found in brick and mortar stores. The gateway is responsible for those few seconds between entering your personal and credit card details at the online checkout, and the completion of the transaction.

Those few seconds might not mean much to the naked eye but trust us when we say, there’s a lot going on. In that short amount of time, the payment gateway manages to securely transfer information between the website and credit card network, process it, and then send back the updated transaction details. 

An eCommerce payment gateway acts as an intermediary, as a bridge between the merchant and the bank/payment processor. Its job is to securely transmit the data from the online shop to their destination and communicate them back to the merchant. 

To better illustrate this process, let’s outline the stages involved in using a payment gateway. 

Why Do You Need a Payment Gateway? 

If having an online presence was an option pre-COVID, it has now become a necessity. The pandemic shed light on the importance of offering your clients the option to shop online. 

Enter payment gateway. 

A payment gateway is an indispensable part of the online payment process. Without it, customers can’t finalize a purchase from a website. The real question is not why do you need a payment gateway, but why are you not looking through options as we speak?

Here are the most obvious benefits:

  • Makes online payments possible
  • Opens doors to other markets
  • Simplifies user journey
  • Builds trust between merchant and client

How eCommerce Payment Gateways Work 

Stage 1: Customer inputs payment information

Let’s start this example assuming that the customer has landed on your e-shop, has added a few items in their basket, and has proceeded to the checkout. The customer is using a Visa card issued by the Bank of Cyprus.

There, they insert their name, billing address, credit card number, expiration date, and the credit card verification (CCV) number.

What happens in the few seconds that follow, is that the payment gateway uploads the customer’s information through a secure, SSL connection, encrypts it, and sends it through to the processor.

Stage 2: Merchant processor receives information

The information is then passed on to the merchant processor. The merchant processor does two things: it checks the validity of the information and performs a series of anti-fraud and security checks. 

Stage 3: Payment Gateway forwards request to credit card company

Following that, it sends the information through to the card’s issuing bank or card association for verification. Whilst card associations like MasterCard or Visa can’t approve or decline the transaction directly, what they can do is charge the Interchange fee on the transaction once it is approved. 

Stage 4: Issuing bank approves or declines

This is where the transaction will get approved or declined. The issuing bank will make sure that the user of the card is authorized to use it, there are sufficient funds in the card and there are no penalties/freezes associated with it. 

Stage 5: Payment gateway sends funds to the seller

Whether the transaction is approved or declined, the information will flow back the same way until it reaches the website and the consumer. If the card is declined, the consumer will receive a relevant notification outlining the reason for the transaction failure. If the transaction goes through, the following will happen. 

Stage 6: Transaction approved

If and when the transaction is approved, there is a very specific sequence of events that follow. The bank sends the money in your merchant account and subsequently informs the processor. The processor will then processes the transaction and make sure that all parties involved (processor, Visa, acquiring bank, and issuing bank all get part of the fee. 

Remember when we said that there’s a lot going on in those few seconds between clicking the “Buy” button and the approval of your transaction? Well, we didn’t lie. 

Merchant Account: The Breakdown

Outlining the stages of the eCommerce payment gateway functionality intended to give you some answers, but we very well know that it has created a few more questions. Don’t worry, we will address them meticulously. 

In stage 6, we mention the merchant account, a part of the process that has traditionally confused even people that work in the payment industry. In a nutshell, a merchant account is a business account that is responsible for accepting and processing electronic payment card transactions. The merchant account is provided by the merchant acquiring bank.

It’s an integral part of the eCommerce business and the eCommerce Payment Gateway lifecycle.

What do eCommerce payment gateways charge?

This could be a major factor in choosing your payment gateway provider. Pricing structures differ and it would be good to investigate what you’re getting for the price you’ll pay. Here are a few common fees associated with payment gateways. 

Transaction fees

Before analyzing the fees and their structure, it’s fair to say that there are a lot of parties that take a chunk of the pie – the credit card company, merchant account service, and the payment gateway. Let’s break it down.


The interchange fee is a predetermined percentage paid to the issuer for each transaction. The fee varies depending on the transaction amount, industry, and type of card used involved in the transaction. The fees change twice a year and here’s a list to give you an example. 

Assessment fee

This is a standard, flat-rate fee charged by the credit card association (Visa, MasterCard, etc.) and is related to your monthly sales volume.


This is a percentage charge by the merchant bank and it also varies based on sales volume and industry.


This is a fixed fee charged by the payment processor for every transaction. Bear in mind that this fee will be charged even if the transaction is declined. Some providers also charge for setup fees and a provisional fee for account cancellation.

As you can imagine, the whole structure can become quite confusing and that’s why the fees you see above are always bundled together.

In order to make the pricing easy to understand and commercial-friendly, providers have come up with overall pricing plans that include, administrative fees, and charges for services such as fraud detection, and customer support.

payment gateway fees

Types of payment gateways

Before contemplating your options, it would be good to know that there several types of payment gateways. Understanding their differences can help you see which one suits your needs.

Modern payment gateway

A modern payment gateway doesn’t need a merchant account to operate. All it needs is a normal bank account. The best example of a modern payment gateway is Paypal. 

The most obvious advantage of choosing Paypal or a similar option is the ease of setup. The pitfalls come in terms of pricing and user experience as modern payment gateways usually charge higher fees than the industry standards and might redirect your customers off-site to complete payment. 

Classic payment gateway

A classic payment gateway needs a merchant account to operate. The most well-known gateway in this category is authorize. As you can imagine, the challenge with this solution is that it takes longer to set up and has more hurdles to overcome.

On one hand, you have the merchant account side of things. Securing a merchant account can take up to 6 weeks to get approved, and they include loads of paperwork. Moreover, their setup involves API integrations and some technical knowhow. 

On the flipside, classic payment gateways offer competitive pricing per transaction. It’s all a matter of needs, wants and circumstances. Sacrifice money for operational efficiency or take longer in order to get the best pricing? 

Integrated & Hosted Gateways

This category refers to the user experience associated with an eCommerce gateway. With the integrated solution, the customer never leaves your online store and the payment process happens onsite.

With a hosted gateway, the customer gets redirected to the payment processor’s platform, adding a different layer and feel to the process.  

eCommerce Payment Gateway: What to Look For

Now that you know what payment gateway is, what it does, and how it works, you’re ready to start looking for the one that’ll service your online business. What do you base your choice on? What are the things you should be looking at?

Security standards

Putting security at the top of the list is not a coincidence. The payment space is unforgiving to mishaps and mistakes. You’re essentially dealing with people’s money and personal information. A security breach could be detrimental to your company.

What you should be looking for in your payment gateway is conformity to web security standards like the Payment Card Industry Data Security Standard (PCI DSS). Then, there are things to consider like whether the gateway holds on to your credit card data. If so, for how long and why?

Business people are inclined by nature to look at things like sales, profit, fees, and operations. The security part of the equation usually falls down the list because it’s taken for granted or because it involves technicalities they might not understand. 

Our advice is to spend some time researching the provider you’re about to partner with and see if they are compliant with the highest security standards in the market.

eCommerce Payment Gateway: Security Standards


There are a few things in life that simply can not wait: a toothache, a toilet visit, and a problem with your payment gateway. Excellent customer support is something you should be looking at in your future provider. 

The ability to respond immediately to hiccups can make or break your company and efforts. Customer support shouldn’t be a reactive service, but proactive. Your provider should be your business partner, someone who makes sure that the technology and infrastructure respond to your needs. 


Before anything else, a payment gateway provider should be a technology company. Owning the tech and building it from scratch places your provider in a unique position to help you harness and deeply understand the gateway technology.

Entering into a partnership like this one, you should aim to elevate your company’s value by providing your user base with tech that moves the needle and has a direct impact. 

User Experience

According to Baymard Institute, 69.57% is the average documented online shopping cart abandonment rate across all industries. What a nightmare. 

Managing to drive traffic to your website, convince them to buy only to reach the checkout and give up a couple of clicks before converting into paying customers.

A good eCommerce payment gateway will have a meaningful impact on the user experience and directly affect the abandonment rate. The payment process should never look out of place, it should be a smooth, seamless experience that looks like it belongs to the rest of the website. 

Mobile optimization

According to Pew Research Center:

  • 96% of Americans own a cellphone of some kind
  • 81% own a smartphone up from just 35% in 2011

According to Statista:

  • by 2021, mobile commerce will account for 53.9% of e-commerce sales

According to Barilliance:

  • Mobile phone cart abandonment rate was at 80.79% in 2019

You see where we’re getting at with our stats, right? Mobile phone usage is spiking and it seems like smartphones will be a major player in the eCommerce game going forward.

The real winners in this race will be the companies that manage to solve the payment experience problem on mobile. 

Once again, payment gateway technology is one of the main drivers in solving this problem and you should allocate the appropriate attention and resources in choosing it. 


We hope that you now have the understanding and knowledge you need to start looking for the eCommerce payment gateway that fits your business model. 

For any questions regarding the technology, its implementation and benefits, do not hesitate to contact us. Our team here at BigWPay is always available and ready to help.