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Definition

payment gateway

A payment gateway is a service that authorizes a user’s transfer of funds between financial institutions to sellers without direct delivery of either bank or credit card account information. Payment gateways include PayPal, Google Wallet, Apple Pay, Ali Pay and Amazon Pay.

Payment gateways allow the indirect use of bank accounts and credit card accounts online at stores that offer both online and in-person retail purchasing, also known as clicks and mortar, or traditional retail with only Brick and mortar stores. When using a payment gateway, the user’s financial data is never submitted directly but transferred between a payment portal and the user’s bank or credit card. The information is transferred covertly and protected by encryption.

In the past, payment gateways were a necessity to make payment through bank accounts when shopping online. Early consumer confidence in shopping online was low with as consumers were concerned with customer data security and possible theft of their financial information. Payment gateways provided a means to make a payment to these sites without involving the direct information of each account to which the payment is tied. More recently, near field communication (NFC) in mobile devices has been used in conjunction with payment gateways for purchases at retail locations by way of tapping a phone on any NFC point-of-sale terminal upon checkout.

This was last updated in June 2018

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