USEFUL INFO
Chapter 1 : The Basics

Online Payments Made Simple: What Is a Payment Gateway and How Does It Work?

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IN THIS LESSON

If you sell online — whether through a website, booking system, or invoice link — you’ll need a way to take secure card payments from your customers.

This guide explains in simple terms what a payment gateway is, how it fits into your online checkout, what to consider when setting it up, and how to avoid paying more than you need to.

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  • A payment gateway is the technology that lets you accept debit card, credit card, and digital wallet payments through your website. It securely captures your customer’s card details, processes the transaction, and confirms whether it’s been approved or declined.

    Think of it like a virtual card machine for your online shop.

    ✅ Important: A payment gateway is not the same as a shopping cart or checkout page (more on that below).

  • How Does a Payment Gateway Work?

    1. A customer places an order and clicks “Pay Now”

    2. They’re taken to a secure payment page or embedded checkout

    3. Their card details are entered and encrypted

    4. The gateway communicates with the bank to approve or decline the transaction

    5. If approved, the funds are processed and paid to your merchant account

    Some providers offer a bundled solution (gateway + merchant account), while others require separate services.

  • It’s easy to confuse these terms, so here’s a simple breakdown:

    • Shopping Cart: Where customers store items they want to buy (used in ecommerce platforms)

    • Checkout Page: Where they enter their delivery and billing details

    • Payment Gateway: The system that securely processes the card transaction

    You need all three to take online payments, but some platforms bundle them together (e.g. Shopify, Wix, WooCommerce + Stripe).

  • Setting up online payments depends on your website platform and provider. Here are the most common steps:

    1. Choose Your Platform

    • Website Builders: Shopify, Wix, Squarespace (built-in payment tools)

    • Ecommerce Plugins: WooCommerce (for WordPress), Magento, OpenCart

    • Custom Websites: Require developer integration

    2. Pick a Payment Gateway

    Popular options include:

    • Stripe

    • PayPal

    • Square

    • Opayo (formerly Sage Pay)

    • Worldpay

    • Checkout.com

    3. Integrate the Gateway

    • Many platforms have simple plug-ins or apps

    • Some gateways provide a “hosted” payment page (redirects to their secure site)

    • More advanced integrations can embed the gateway directly into your checkout

    💡 Tip: If you use a web developer, make sure they’re familiar with PCI DSS compliance and secure payment handling.
    Best for: Start-ups, sole traders, pop-up shops, food vans

  • Online payment costs vary by provider, but here are some typical fees:

    • Transaction Fees:

      • Flat rate providers (e.g. Stripe, Square): 1.4%–2.5% per transaction

      • International cards or Amex: up to 3%

      • Providers with volume-based pricing may offer lower rates for higher turnover

    • Monthly Gateway Fee (if charged):

      • Some gateways charge £10–£30/month, others are free or included in a bundle

    • Merchant Account Fees (if separate):

      • May include monthly service fees, minimum charges, or settlement fees

    • Platform/Subscription Fees:

      • Website builders often charge £10–£30/month for ecommerce access

    • Set-Up Costs:

      • Usually £0–£200 depending on complexity and provider

    • Ongoing Maintenance:

      • If you use a developer, factor in fees for future updates, changes, or troubleshooting

    • PCI DSS Compliance:

      • Some providers include this free, others charge £5–£15/month

    ✅ Watch out for: Authorisation fees, currency conversion charges, or hidden admin fees — especially with older or bank-led payment setups.

How to Avoid Overpaying for Online Payments

  • Compare payment gateway rates — don’t assume the one built into your website is the cheapest

  • Bundle smartly — choosing a provider that combines gateway + merchant account often simplifies costs

  • Check platform restrictions — some website builders tie you into using their own gateway (e.g. Shopify Payments)

  • Look for transparency — avoid providers who won’t give you a full list of fees in writing

  • Understand your customer base — if you take lots of international payments, prioritise low FX fees

Hints & Tips for a Smooth Setup

  • Use hosted payment pages to keep integration simple and reduce PCI compliance headaches

  • Offer familiar payment methods like Apple Pay, Google Pay, and PayPal to improve conversion

  • Make sure your checkout is mobile-friendly – many customers shop on their phones

  • Choose a provider with UK-based support in case something goes wrong

  • Test the payment process yourself to check speed, ease of use, and reliability

Final Thoughts

Setting up online payments doesn’t need to be complicated — but it’s worth getting it right from the start. The wrong setup can cost you money, time, and lost sales.

Whether you’re using Shopify, WordPress, or a custom-built site, the right payment gateway should be affordable, secure, and easy to integrate.

At Merchant Compare, we help UK businesses choose the best gateway, compare costs side-by-side, and avoid hidden charges.

🔍 Compare now or speak to an expert – no pressure, no jargon, just practical advice.