Payment gateway process explained - All your business needs to know

Setting up an online business in the UK? If you’re looking to sell products, services or even subscriptions from your website, then you might need to use a payment gateway.

A payment gateway can help to make checkout processes fast, efficient, safe and compliant. This benefits both you and your customers, and could lead to more sales and increased revenue.

But how does a payment gateway actually work? Read this essential guide for UK business owners covering everything you need to know, including the benefits and fees involved in using a payment gateway. Plus, a quick rundown of some of the most popular payment gateways used in the UK.

We’ll also show you an alternative way to get paid. With a Wise Business account, you can use invoices, QR codes and payment links as an easy way to accept electronic payments in multiple currencies from customers all over the world.

💡 Learn more about Wise Business

What is a payment gateway?

A payment gateway is a technology platform that plays a central part in online payments. It’s essentially an intermediary - or a middle man - between your website checkout or point of sale (PoS) system and the payment processor.

This service enables businesses which sell online and in person to accept and process card payments securely and efficiently.

There are actually lots of steps involved in processing a card payment (we’ll look at this in more detail shortly) and these can be complex and cumbersome to complete. A payment gateway streamlines and speeds it up, while also ensuring all compliance measures and authorisation processes are followed. This helps to prevent fraud, protect sensitive customer data and enable the fast processing of the payment.

It all starts with capturing customer payment details (such as their card details), before they’re transmitted to the payment processor and issuing bank for approval.

What does a payment gateway do?

The main things a payment gateway does are:

• Encrypt customer payment information after it’s entered on your website checkout or at a point-of-sale (PoS) terminal
• Connect your customer-facing checkout with the payment processing provider
• Facilitates the authorisation of the payment, sending the encrypted data to the relevant parties in the transaction - the business’s acquiring bank, the customer’s issuing bank and the payment processor
• Data collection and reporting - to help your business analyse and manage transactions
• Detecting and preventing fraud - using advanced security measures such as card verification value (CVV) and address verification systems (AVS), as well as fraud-detecting algorithms.

The payment gateway process explained - step-by-step

Before using a payment gateway for the first time, it can be useful to understand exactly how they work - and the role they play in facilitating payments.

Here’s a step by step look at the whole process, starting with a customer entering their details on your website or PoS terminal:¹

1. The transaction is initiated

   Your customer adds products or services to their basket on your website, then heads to the checkout page to enter their card details or authorise their digital wallet credentials. If taking a payment in person, the customer may tap their contactless card on a PoS terminal or enter it with a PIN code to pay for their purchase.

2. The payment gateway encrypts the data

   Once the customer’s payment information has been submitted, the gateway encrypts it using either Secure Sockets Layer (SSL) or Transport Layer Security (TLS) protocols. This prevents it from being accessed, read or stolen during the transmission or other parts of the transaction.

3. The data is submitted to your business’s server

   The encrypted payment information is sent to your server, which then securely stores it before forwarding it back to the payment gateway ready for the next steps of processing.

4. The transaction details are sent to the payment processor

   At this stage, the payment gateway sends the still-encrypted payment information and transaction data to the payment processor your business uses. It’s also sent to the acquiring bank, which is your business bank account - this is the party ultimately responsible for processing and receiving the customer’s payment.

5. The transaction is verified

   Your bank will then send the translation data to the customer’s issuing bank - this is the bank that issued their debit or credit card. Their bank will verify the details, including checking whether the payment method is valid and the customer has sufficient balance to cover the transaction. If not, the transaction will be declined.

6. The transaction is approved

   If the customer is using a valid card and has enough balance to cover the payment, it will be approved by their bank. This authorisation is sent back through the chain the way it came - to the acquiring bank, the payment gateway and finally your business’s server.

7. The transaction is confirmed

   The final step is for the payment gateway to send the transaction status to your website, app or terminal - which then displays the appropriate message to the customer. For example, ‘payment successful’ along with confirmation details such as an order number.

As you can see, quite a lot happens behind the scenes when a payment is processed - yet it only takes a few seconds in real time. This is partly due to the payment gateway, which ensures all processes and communications are completed quickly, efficiently and securely.

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

Payment gateways and payment processors are both essential for accepting and processing electronic payments, and they’re often confused for each other. But while they work together, they both play quite different roles in the process.

A payment gateway is an intermediary between your website checkout (or PoS terminal) and a payment processor. It doesn’t actually process the payment at all.

Its role is to facilitate all of the authorisation steps that need to happen for the payment to take place. This means encrypting and securely transmitting data, as well as communicating with all the key parties in the transaction. The payment gateway integrates with your website or app, or with ecommerce platforms or online marketplaces.

The payment processor is responsible for the processing of the payment. Its main functions include:

• Verifying the transaction details
• Checking the customer’s account balance
• Checking the validity of the payment method (for example, making sure the debit or credit card hasn’t expired)
• Approving or declining the transaction
• Facilitates the transfer and settlement of funds between the customer’s and the business’s bank account

Payment processing providers usually provide businesses with merchant accounts, so that they can accept and process electronic payments.

In some cases, the same provider offers both services - a payment gateway, and a payment processor.

Read more about the cheapest online payment processing providers in the UK.

Benefits of using a payment gateway for online payments

Most businesses which accept card payments or which sell online tend to use a payment gateway. There are very good reasons why this has become the norm. Without one, there isn’t a fully secure way a business can accept electronic payments.

Even if possible, the process would be slow, time-consuming, complicated for both customer and merchant, and at risk of errors due to the need for manual data entry.

Let’s take a look at some of the main benefits of using a payment gateway for online and in-person payments:

Security and compliance

One of the main roles of a payment gateway is security. It encrypts sensitive customer information and facilitates anti-fraud checks including making sure that the person making the payment is actually the cardholder.

Payment gateways use features such as tokenisation, risk management solutions and other anti-fraud measures to add extra layers of protection. And for extra peace of mind, all payment gateways need to be PCI DSS compliant.

Seamless customer experience

The better the payment experience is for the customer, the more likely you are to foster loyalty and repeat purchases. A fast, easy and convenient payment process is great for your business and your brand reputation, and a payment gateway can help with all of this.

Accept payments all over the world

Many payment gateways are set up to accept multi-currency payments, and are compliant with local payment rules in different countries. They can also handle the most popular payment methods used in countries worldwide.

This makes it easy for your business to start selling to a global audience, which is ideal if you have international expansion in mind.

Read more about how to accept international payments with a Wise Business account.

Fees for using payment gateways

Payment gateways are not generally free to use. They come with multiple fees and charges, including:

• Setup fees
• Transaction fees
• Monthly subscription fees
• Chargeback fees
• Refund fees
• Early termination fees
• PCI compliant fees
• Charges for international transactions and currency conversions.

UK payment gateway fees compared

To give you an idea of how much you can expect to pay to use a payment gateway as a UK business, let’s take a look at fees with some popular providers.

Below are fees from Stripe, Square, PayPal, Revolut Business and GoCardless, including monthly fees, transaction fees, currency conversion charges and chargeback fees - this is when a customer disputes a payment and it needs to be refunded.

Simplify online payments with Wise Business

If you want a simple, secure and cost-effective way to accept global payments, check out Wise Business. Open an account and you can start accepting payments in multiple currencies, from customers and clients all over the world.

There are lots of ways to get paid with Wise Business. Either send a payment link, invoice or a QR code to your customers, and let Wise handle the rest - ensuring timely payments and an improved cash flow.

This streamlined approach eliminates the technical challenges and time-consuming setup associated with traditional payment gateways, allowing you to focus on what truly matters: growing your business.

For easy B2B payments, you can create local account details in 8+ - so that clients can pay you in their own currencies.

Once the payment is done, you can manage multiple currencies effortlessly, all in one account.

Enhance your customer relationships and support your company’s global expansion with Wise Business, a payment solution that prioritises simplicity and efficiency.

Get started with Wise Business 🚀

Sources used:

Sources last checked on date: 17-Sep-2025