What is a payment gateway and how does it work?

A payment gateway allows you to accept online or in person credit and debit card (EFTPOS) payments by connecting payment processors (the service charging the card) and merchant account providers (the service providing your payment systems). Payment gateways are payment services (typically provided for an additional fee) that process cards online through an ecommerce site or in-person through an EFTPOS card terminal.

Why does your small business need an online payment gateway?

With a payment gateway, you have a tailored solution for taking payments through your website.

Save time

Processing online payments manually can become demanding and time-consuming – especially as the e-commerce side of your business takes off. A secure payment gateway can scale with your business and ease growing pains.

Process a range of payment methods

Versatile online payment processing makes it easier to accept a range of payment methods, including credit cards, debit cards and digital wallets.

“A payment gateway doesn't just make it easier to run your business, it also makes it easier for your customers to do business with you,” says NAB E-commerce Manager Phoebe Haberley.

What are the different gateway types?

There are two types of payment gateway.

Hosted payments page (HPP)

A hosted payments page (HPP) temporarily redirects customers away from your website and uses an encrypted connection to process their transaction. It’s the most basic version of a payment gateway linked to your e-commerce site.

Integrated gateway

An integrated gateway conducts the transaction entirely within your website, which reduces friction and lets you offer a more customised experience. Because of this, an integrated gateway can be more complicated to set up.

How do you choose the right payment gateway?

Not all online payment platforms are the same – there are key differences when it comes to how much they charge, how quickly they settle payments and how they handle foreign transactions. Getting the right one for the type and size of your business can help ensure your website is primed to handle current and projected sales.

It’s important to do your research, including talking to your banker and whoever looks after your website, before choosing the right payment gateway for your e-commerce site. Some payment gateways are industry-specific and have functionality that’s specialised to meet the needs of those industries. Also consider how long it takes for the money to land in your bank account – overnight or same-day settlement can boost your cash flow.

Pricing is one of the key differentiators. It’s common to be charged a small percentage of each sale or a transaction fee. Alternatively, the fees can be charged based on monthly transaction volumes. There can also be additional set-up, monthly or annual fees.

How do you handle overseas sales?

It’s important, Haberley says, to consider how your bank and payment gateway provider treat transactions in foreign currencies.

“One common misconception is that all banks and gateway providers offer the same settlement capabilities,” she explains. “Not all banks and gateway providers allow overseas customers to see the final transaction amount in their own local currency.” 

That could be important, given customers prefer to see the final price in their own currency rather than finding an unexpected amount on their bank statement once the funds are converted.

“Also keep in mind that some banks offer multi-currency settlement in certain currencies, which gives you the option to keep some of your foreign currency payments in their original currency,” Haberley adds. “Alternatively, some may automatically convert all foreign currency payments to Australian dollars, which, in some instances, can be quite costly to your bottom line.”

How do you set up your payment gateway and manage internet security?

Along with streamlining your online sales, a payment gateway protects your business by authorising and verifying transactions. It also helps combat fraud by implementing extra security checks and other seller protections.

A gateway is also useful when communicating with customers and troubleshooting. It acts as a bridge between you and your customers, letting you send payment confirmations and notifications as well as manage disputed transactions.

One key difference between payment gateways is how they link to your website and handle security.

While a hosted gateway is fairly straightforward, there are multiple ways to add an integrated gateway to your website. An iFrame gateway lets you customise the page when customers enter their payment details. Meanwhile, Direct Post Integration offers even more customisation – such as the ability to add details like the customer name and email address – if you want to capture those details for returning customers.

These options all ensure that the bank and payment gateway are responsible for customer data security and compliance with financial regulations.

For small businesses broadly, cyber security is a key issue – and for many it’s a key priority. For tips on how to avoid payment fraud, invoice scams and ransomware attacks, plus to download a free cyber security toolkit, see our security tips for your business hub

Where can you go for support?

If you need help choosing a payment gateway to meet your specific needs, your business banker is a great first port of call, Haberley says.

“Remember, as your business continues to grow, your needs will also evolve and change,” she cautions. “You aren’t locked in for life with the one online payment provider, so make sure you regularly review your merchant facility and payment gateway to ensure you have the right gateway to meet your needs.”

Related articles

Related products

Get in touch

Contact us

Visit our business banking contact page for how-to-guides and FAQs, as well as contact numbers.

Visit a NAB branch

Our business bankers are located all around Australia.

Important information

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.