In today's fast-paced digital economy, offering smooth and secure payment options is crucial for both online and offline businesses. Whether you're running an e-commerce store, subscription service, or mobile app, the right payment gateway ensures efficient and secure transactions.
In this comprehensive guide, we’ll break down the types of payment gateways, how they work, their pros and cons, and how to choose the best fit for your business in 2025.
What is a Payment Gateway?
Before diving into the types of Payment Gateways, let's briefly understand what a payment gateway is and how it works. A payment gateway is a technology used by merchants to accept debit or credit card purchases from customers. It serves as the bridge between a customer’s bank and the merchant’s bank, ensuring secure transfer of funds.
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How Payment Gateways Work
- The customer places an order and enters payment details.
- Data is encrypted and sent to the payment gateway.
- Gateway routes data to the acquiring bank.
- The bank contacts the card network (e.g., Visa, Mastercard).
- The issuing bank approves or declines the transaction.
- The payment gateway communicates the result to the merchant.
- Funds are settled into the merchant's account.
Read More: How Payment Gateways Work: A Beginner’s Guide to Secure Online Transactions
Types of Payment Gateways
There are mainly four types of payment gateways:
1. Hosted Payment Gateways
In this model, the customer is redirected to the payment service provider’s (PSP) page to complete the transaction. Once the transaction is complete, they are redirected back to the merchant’s site.
Pros:
- Easy to implement.
- A high level of security is managed by the provider.
Cons:
- Lack of control over the payment experience
- Redirection might impact conversion rates
Best for: Small to medium-sized businesses and startups with limited technical resources.
2. Self-Hosted Payment Gateways
With self-hosted gateways, payment data is collected on the merchant’s website and then sent to the payment gateway’s URL.
Pros:
- More control over the user experience.
- Customizable checkout process.
Cons:
- Increased responsibility for security and PCI compliance.
Best for: Businesses that want more branding control and have technical support.
3. API/Non-Hosted Payment Gateways
These gateways allow customers to enter payment details directly on the merchant’s website through APIs. The transaction is processed in the background without redirecting users.
Pros:
- Seamless customer experience.
- Fully customizable checkout.
Cons:
- High development and maintenance efforts.
- PCI-DSS compliance is mandatory
Best for: Large-scale businesses and enterprises with dedicated development teams.
4. Local Bank Integration Gateways
These are country-specific payment gateways that directly integrate with local banks. The customer selects their bank and is redirected to complete the payment.
Pros:
- Ideal for region-specific transactions.
- Trusted by local users.
Cons:
- Limited international support.
- May lack advanced features.
Best for: Businesses targeting specific geographic regions.
5. Mobile Payment Gateways
Mobile payment gateways are platforms that enable secure transactions through mobile devices. They support payment methods like mobile wallets (Google Pay, Apple Pay), UPI, and in-app purchases, allowing users to pay directly from their smartphones.
Pros:
- Optimized for Mobile Transactions.
- Supports Multiple Payment Methods.
Cros:
- May Require Additional App Development.
- Device Dependency.
Related Post: Minimize Your Brand With White Label Payment Gateway Solution At ITIO Innovex
Comparison Between Types of Payment Gateways
Below are the Points that show a comparison between types of payment gateways
Hosted Payment Gateways:
- User Experience: Redirected to the payment gateway’s page
- Security Level: High
- Best For: Startups & small businesses
- Customization: Low
Self-Hosted Payment Gateways:
- User Experience: Data collected on the merchant site
- Security Level: Medium to high
- Best For: SMEs with technical support
- Customization: Medium
API Hosted Payment Gateways:
- User Experience: Seamless; remains on the merchant’s site
- Security Level: High
- Best For: Enterprises and tech-savvy businesses
- Customization: High
Local Bank Integration Gateways:
- User Experience: Redirected to the local bank’s page
- Security Level: High
- Best For: Region-specific businesses
- Customization: Low
Mobile Payment Gateways:
- User Experience: Seamless in-app or mobile wallet transactions
- Security Level: High, utilizing secure mobile payment technologies
- Best For: Mobile-first businesses targeting smartphone users
- Customization: Moderate, depending on the integration with the mobile app or wallet
How to Choose the Right Payment Gateway Type
When selecting a payment gateway type, consider the following:
- Business Size & Type: Startups may prefer hosted gateways for ease, while enterprises benefit from API-hosted gateways.
- Technical Resources: Self-hosted and API-hosted gateways require more technical implementation and maintenance.
- Geographic Coverage: If you're operating in a specific region, a local bank integration may work best.
- Security & Compliance: Ensure the gateway supports PCI-DSS compliance and other security protocols.
- User Experience: A seamless checkout process can improve conversions and customer satisfaction.
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Integration Guide
- Choose the right provider based on your needs.
- Register for a merchant account.
- Implement APIs or plugins into your website or app.
- Configure payment settings and test the gateway.
- Secure your website with SSL and PCI compliance.
Benefits of Choosing the Right Payment Gateway Type
- Improved Conversion Rates: A frictionless payment experience can reduce cart abandonment.
- Enhanced Security: Robust gateways protect both merchant and customer data.
- Scalability: The Right gateways can scale with your business growth.
- Multiple Payment Options: Offer credit/debit cards, wallets, net banking, and more.
Latest Trends in Payment Gateways (2025)
- Integration with blockchain and crypto payments
- BNPL (Buy Now, Pay Later) solutions
- AI-driven fraud detection and prevention
- Biometric and voice-based authentication
- Cross-border instant payment support
Final Thoughts
Choosing the right type of payment gateway is more than just a technical decision—it impacts your user experience, security, and business growth. Whether you’re a small business owner or a tech lead at a growing enterprise, understanding these gateway types gives you the power to make informed decisions.
If you’re looking to integrate a payment solution tailored to your business, check out our payment gateway development services and connect with our expert team.
Looking for a reliable provider? Here’s our curated list of the best payment gateway service providers to help you get started.
