Payment Gateway
What is Payment Gateway?
A payment gateway is the service that securely authorizes and processes online payments between a customer, merchant, and bank. For small businesses, choosing the right gateway (Stripe, Adyen, PayPal, Paddle) determines checkout conversion, cross-border fees, and how much time you spend on fraud disputes and reconciliation.
Definition
Payment gateways encrypt card data, route authorization requests to processors, and return approval or decline. Merchant-of-record gateways (Paddle) additionally handle tax and compliance.
Key Facts
- Stripe is the SMB default for developers.
- Merchant-of-record gateways simplify global tax compliance.
- Checkout conversion varies 10–30% between gateways.
Practical Example
A SaaS company selling globally moves from Stripe to Paddle. VAT/GST compliance becomes automatic, saving ~$18K/year in tax filings and freeing 40 hours/month.
Why It Matters
The gateway is the last step of your funnel. A bad one silently kills conversions.
How It Works
- 1Customer enters card details at checkout.
- 2Gateway tokenizes and forwards to the processor.
- 3Processor requests authorization from the issuing bank.
- 4Approval flows back to the merchant in milliseconds.
Advantages
- Secure, PCI-compliant checkout without custom development.
- Global card, wallet, and bank-transfer support.
- Chargeback and fraud tooling included.
Common Mistakes
- Underestimating cross-border FX fees.
- Not enabling local payment methods (iDEAL, SEPA, Pix).
- Skipping 3DS in regions where it lifts approval rates.
Frequently Asked Questions
What's the best payment gateway for startups?
What's the best payment gateway for startups?
Stripe for most developer-led products; Paddle for SaaS wanting merchant-of-record; Shopify Payments for merchants already on Shopify.
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