Summary: Let’s discover the different types of payment gateways, their unique features and benefits. It will help you to make an informed choice that aligns with your business requirements. Whether you’re an online retailer, a subscription service, or a global e-commerce platform, these payment gateway options are vital for a seamless, secure, and efficient payment processing experience.
According to Statista, nearly half of the E Commerce payments are made online. Moreover, the number of online payments is expected to grow by 54 percent in 2026. (Source)
The above data is enough to understand that the cashless transactions are nearly dominating the digital payment market. So, in response to that, payment gateways have emerged as the marvels behind seamless online payments.
Payment gateways have become an essential part of our digital lives. But do you know that there are different types of payment gateways? In this blog, we will provide you with an in-depth look at the various types of payment gateways and their unique features, so that you can opt for the best suited payment gateways according to your requirements.
A payment gateway is like a digital cashier that helps you safely pay for things online. It is a technology that securely transfers your money from your bank account to the seller when you buy something on the internet.
Payment gateways offer secure digital transactions, easy online payments, and reduce COD costs for businesses. So, if you are thinking of using a payment gateway for your website, you must think about your needs, infrastructure and the types of payment gateways in eCommerce. There are 4 types of payment gateway in eCommerce, and these are: Hosted, Self-Hosted, API Hosted, and Local Bank Integrated.
The primary difference between these four types of online payment gateways is how they are integrated into your website. Now, let’s take an in-depth look at all those payment gateway types to fully understand them.
Hosted payment gateway depends on a third-party website checkout system. It redirects customers to the real PSP (Payment Service Provider) page. For example, customers will leave your website and return after completing the payment on the PSP webpage.
When a user starts a payment (click on “Buy Now” button), the payment gateway initiates transaction process on their own server, and handles all the payment related details like Card Number, Customer ID, Name, etc. Once the payment is done or declined, it sends the status to the merchant’s website or the app.
You can choose the Hosted payment gateway for an easy onboarding, integration, high security and compliance. Moreover, this payment gateway type makes it quite easy to accept payments online or on a mobile device.
The hosted payment gateways are mostly used in online stores, online booking and bill payment websites.
Unlike hosted, self-hosted payment gateways give you full control over your payment process. With this payment approach, merchants can easily manage and initiate the transaction process on their own website or infrastructure for a secure and customized payment experience. Businesses can tailor the checkout process according to their specific branding goals and requirements.
When a user initiates the payment, the self-hosted gateway starts the transaction process on the merchant’s website. Businesses can collect all the payment details and transmit it to the payment providers to accept or decline the transaction.
It’s the right choice when you want to maintain your brand identity and manage transactions independently. This type of payment gateway is often used by larger enterprises and e-commerce platforms.
This type of online payment gateway is widely used in eCommerce platforms, subscription-based services, crowdfunding platforms, etc.
An API-based payment gateway enables customers to complete their purchase without leaving the merchant’s website by processing payments through an Application Program Interface (API).
Stripe is an example of an API-hosted payment gateway. It provides a set of APIs that developers can use to integrate payment processing features into their own websites or applications. Through these APIs, merchants can securely process payments without the need to build and maintain their own payment infrastructure.
When a customer starts a payment, the API-hosted payment gateway securely sends payment information to the payment processor. The processor then sends back the transaction status to confirm it on the website or app.
You can use an API-Hosted payment gateway solution for your e-commerce website. This payment gateway type ensures secure and efficient payment processing. With this approach, your customers enjoy seamless transactions while your business receives prompt payments.
API-Hosted payment gateways are used in various industries like retail, hospitality, subscription services, and much more. These are commonly used by larger or established businesses.
Local bank integrated payment gateway is a platform that enables companies to integrate with the local banks to offer online payments. It ensures smooth transaction processing specific to each region.
When a customer makes a payment, the local bank integration gateway sends payment information to the customer’s bank. The bank then processes the payment and sends the result back to the website.
If your business is a multinational e-commerce platform that functions across various countries, you can integrate a specialized bank integration gateway for each region you serve. It will enhance user experience and foster trust.
Local bank integrated payment gateways are mostly used in online retail businesses. It has become the go-to solution for many e-commerce businesses for secure and efficient online transactions.
Payment gateways are important for e-commerce businesses who want to accept online payments. However, they also come with limitations that both the business and customers should be aware of. Below are some of the limitations of payment gateways:
Here’s a comparison table of the four different types of payment gateways in E Commerce based on various features:
| Feature | Hosted Payment Gateway | Self-Hosted Payment Gateway | API Hosted Payment Gateway | Local Bank Integrated Payment Gateway |
| Ownership and Control | Low control, hosted externally by a third party. | High control, hosted on the merchant’s server. | Moderate control, hosted externally, but with API access. | Relies on the local bank’s infrastructure. |
| Customization | Limited customization options | High level of customization for unique branding and user experience. | Moderate customization options with some flexibility | Limited customization options. |
| Integration | Easy to integrate, usually with a few lines of code or a plugin. | Integration requires some technical expertise. | Required technical knowledge about APIs to connect the gateway to the website or application. | Integration may require collaboration with the local bank and meeting their requirements. |
| Global Reach | Suitable for global businesses, as they often support multiple currencies and countries. | Can be used globally but may require additional compliance and localization efforts. | Suitable for international businesses, as they offer API access for custom integration. | Typically serves a local or regional market, may not support international transactions. |
| Security | Third-party providers handle security | The responsibility for security rests with the merchant. | Security is shared between the gateway provider and the merchant. | Security measures depend on the local bank’s standards. |
This is no surprise that the payment gateways are the lifeline of our digital economy. However, as we know that there are various types of payment gateways available, it is crucial to know all about them. As we are about to conclude the topic, here are some points to consider:
There are four different types of payment gateway: Hosted, Self-hosted, API-hosted and Local Bank Integrated Payment Gateway.
Razorpay, PayPal, Paytm, and Stripe are a few examples of payment gateways. They provide APIs that allow developers to integrate payment processing features into their websites or applications.
A good payment gateway depends on the specific needs and goals of your business. You can check factors like the level of control, customization, and security required, as well as the target audience and regions you serve. However, some of the popular payment gateways are Cashfree, PayPal, RazorPay, Stripe, etc.
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