CATEGORY - PAYMENTS

Payment Gateway in India, Meaning and How Does it Work?

Payments - 21 Feb, 2025

Table of Contents

Why Payment Gateway?

A payment gateway is a secure technology that facilitates online and in-store transactions by transmitting customer payment details for verification and approval.

In this article, we’ll explain how payment gateways function, explore their key benefits, and provide tips on selecting the right solution for your business in India. Understanding payment gateways is essential for smooth and secure transactions, whether just starting or looking to enhance your current system.

What is a Payment Gateway?

A payment gateway is a digital service that allows businesses to accept customer payments. It is a technology platform that intermediates in electronic financial transactions. As front-end technology, it reads payment cards and sends customer information to the merchant-acquiring bank for processing. It serves as a secure channel to make and receive digital payments.

How Do Payment Gateways Work in India?

A payment gateway securely processes real-time transactions between customers and merchants. Here’s a step-by-step breakdown of how it works in India:

Step 1: Integrating the Payment Gateway

Once your website or online store is ready, the first step is to integrate a payment gateway. This allows you to accept digital payments securely and efficiently.

Choose a Provider: Select a reliable gateway service like Easebuzz.

Integration Methods:
1. API Integration: For custom websites and mobile apps, offering maximum control and flexibility.
2. Plugin Integration: Quick setup for WordPress, Shopify, WooCommerce, or Wix.
3. SDK Integration: Ideal for mobile app developers seeking a tailored user experience.
You can also configure it to accept multiple payment options such as credit/debit cards, UPI, net banking, or wallets.

Step 2: Customer Places an Order

When a customer shops on your website:

They add products to the cart and proceed to checkout.
They choose a payment method (e.g., card, UPI) and enter the required details.
The payment gateway securely captures and encrypts this information to begin the transaction process.

Step 3: Payment Gateway Takes Over

After submitting payment details, the customer is redirected to the payment gateway’s secure page (or the process happens inline, depending on integration).

Key Actions by the Gateway:

Data Encryption: Sensitive payment data is encrypted to ensure safety.
Fraud Detection: Advanced tools like IP tracking, AI-based pattern recognition, and AI tools to check and detect suspicious activity.
Transaction Routing: The gateway sends the payment details to the acquiring bank.

The acquiring bank contacts the card network (e.g., Rupay, Visa, Mastercard) and forwards the request to the issuing bank for approval.

Step 4: Authorisation and Response

The issuing bank verifies the transaction based on various factors:

Card validity
Available balance or credit limit
Security checks like OTP or 3D Secure authentication

Result:

Approved: The customer is redirected to a confirmation page.
Declined: They’re prompted to retry or choose another payment method.

Step 5: Payment Settlement

Once the payment is approved:

The funds move from the customer’s issuing bank to the acquiring bank.
The payment gateway initiates settlement to the merchant’s account, usually within T+0 to T+3 business days.
Both the customer and merchant receive confirmation of the successful transaction.

Example of Payment Gateway in India

An online payment gateway is a vital tool that enables secure and seamless digital transactions between customers and businesses. Let’s walk through a real-time example of how a payment gateway like Easebuzz facilitates an e-commerce purchase:

Product Selection: Customers visit an online store, browse the products, and add items to their shopping cart.
Checkout Begins: At checkout, the customer chooses Easebuzz as the payment gateway to complete the transaction.
Secure Redirection: The customer is redirected to Easebuzz’s secure payment interface, where they enter payment details like a credit/debit card, UPI ID, or net banking credentials.
Encryption & Fraud Check: Easebuzz encrypts the payment data and performs security checks to ensure no fraudulent activity.
Payment Authorisation: Easebuzz communicates with both the customers (issuing bank) and the merchants (acquiring bank) to validate and authorise the transaction.
Transaction Confirmation: Once the payment is authorised, the customer receives a confirmation message, and the merchant is notified in real-time.
Funds Settlement: Easebuzz initiates the settlement by transferring the authorised funds from the customer’s account to the merchant’s account, ensuring timely and transparent processing.

India Payment Gateways vs. Payment Terminals: What Sets Them Apart?

Both payment gateways and terminals enable businesses to accept payments, but they’re designed for different transaction environments. Understanding the distinction helps you choose the right solution for your business.

Payment Gateway:
A payment gateway is a digital solution used to process online transactions. It enables secure payments on e-commerce websites, mobile apps, and other digital platforms. Gateways handle the authorisation and transfer of funds between the customer and the merchant.

Best for:
- Online stores
- Mobile apps
- Subscription services
- Remote billing
Payment Terminal (POS Terminal)
A payment terminal, also known as a Point-of-Sale (POS) terminal, is a physical device used in brick-and-mortar locations like retail stores, cafes, and salons. It allows customers to pay using credit/debit cards or contactless methods like NFC-enabled smartphones.

Best for:
- Physical storefronts
- Restaurants
- In-person service providers
Hybrid Capabilities
Some modern payment gateway providers, such as Easebuzz, offer solutions that support both online and in-person payments, giving businesses more flexibility in collecting payments.

Payment Gateway vs Payment Processor: Key Differences for Indian Businesses

While an online payment gateway and a payment processor play vital roles in the payment transaction process, they serve distinct functions that ensure secure and smooth transactions for businesses and customers.

Payment Gateway:

The payment gateway securely collects payment details, such as credit card information, and authorises transactions. It acts as a bridge between the customer and the merchant, encrypting sensitive data to ensure its protection while verifying whether the payment method is valid. It enables the merchant to receive approval for payments before they are processed.

Payment Processor:

In contrast, the payment processor handles the funds transfer between the customers’ and merchants’ banks. It routes the transaction information between the two financial institutions and serves as the communication channel that ensures the payment is completed successfully. The funds could not move from one bank to another without the payment processor.

Key Difference:

While the payment gateway is responsible for securely capturing and authorising payment information, the payment processor facilitates the actual transfer of funds between the involved banks. Both are crucial for ensuring smooth and secure transactions.

How Payment Gateway Frameworks Work in India

A payment gateway’s framework can be divided into two key use cases: online payment systems and in-store transactions.

Online Payments: For ecommerce transactions, the payment gateway is integrated into the merchant’s website through a third-party service provider or an Application Programming Interface (API). This integration ensures that the website can securely communicate with the payment processing network and relay information between the merchant and the issuing bank for smooth transaction completion.

In-Store Payments: The payment gateway is typically embedded in card reading devices or Point-of-Sale (POS) terminals in physical retail locations. These devices are connected to the payment processing network through a secure internet connection, enabling the swift and secure processing of transactions at the point of purchase.

This framework ensures secure and seamless payment transactions, whether you’re shopping online or in-store.

Understanding India’s Payment Gateway Ecosystem

Merchant or Seller
The merchant is a business or individual selling goods or services online. To accept online payments, the merchant requires a merchant account, a specialised bank account that enables the receipt of funds from online transactions. Integrated with the payment gateway, this account ensures secure transaction processing. After a successful transaction, funds are deposited into the merchant account. Choosing the right merchant account provider is key to ensuring smooth financial operations.
Customer
Customers are the core participants in the payment gateway ecosystem. They use various payment methods, such as debit/credit cards, net banking, UPI, and digital wallets, to complete their online purchases. Their role is central, as their payment is the driving force behind the entire process.
Acquirer and Issuer Banks
Two types of banks play crucial roles in the payment gateway process:
- Acquirer Bank: This bank works on behalf of the merchant to receive payment. The merchant account is housed within the acquirer bank, the destination for funds routed through the payment gateway.
- Issuer Bank: This bank represents the customer and authorises the transaction. The issuer bank supports payment methods like credit and debit cards, net banking, and digital wallets and ensures the availability of funds for the customer’s transaction.
Payment Gateway
The payment gateway bridges the merchant’s website or app and the acquirer and issuer banks. When a customer purchases, the payment gateway securely transfers payment details and facilitates the authorisation and settlement. It ensures that the transaction is processed securely, safeguarding sensitive payment information.
Payment Processor
The payment processor manages the technical aspects of payment transactions. It handles the connection between the payment gateway, acquirer bank, and issuer bank. The payment processor validates and routes payment transactions securely. With the payment gateway, the processor is essential in smoothly handling online payments, ensuring fast and secure financial transactions.

How do Payment Gateways in India Keep Your Information Secure?

A payment gateway in India is crucial in safeguarding sensitive payment information during online transactions, ensuring your data remains protected.

HTTPS Encryption

All payment transactions are conducted using the HTTPS protocol. This ensures that the data exchanged between your browser and the server is encrypted, reducing the risk of interception or tampering.
Transaction Validation via Hashing

The gateway uses a hash function to validate each transaction request and maintain data integrity. This function relies on a secret key shared only between the merchant and the payment gateway, preventing unauthorised changes to the data.
IP Address Verification

The payment gateway verifies the IP address of each request to identify any suspicious or malicious activity. This extra check helps block potentially harmful traffic and ensures that transactions are being initiated from legitimate sources.
Virtual Payer Authentication (VPA) – 3D Secure

VPA is a part of the 3-D Secure protocol used by card networks to add another layer of authentication. Supported by banks and gateways, it prompts users for additional verification during checkout, making transactions more secure for buyers and merchants.

By combining encryption, validation, and layered authentication, payment gateways ensure a secure environment for digital transactions—keeping your financial data safe and private.

How do Indian Payment Gateways Empower SMEs and Startups?

A payment gateway is more than just a tool to collect payments—it plays a key role in driving growth, improving efficiency, and building customer trust. Here’s how it benefits your business:

Enhanced Security
Payment gateways provide a secure environment for online transactions, safeguarding sensitive data and protecting your business from fraud and data breaches. PCI-DSS compliance and tokenisation ensure that every transaction is encrypted and secure.
Builds Customer Trust
Using a trusted and recognisable payment gateway boosts customer confidence. Users who see familiar payment options and security badges are more likely to complete the purchase, knowing their financial information is protected.
Global Reach Made Easy
A modern payment gateway enables you to go global. Your business can accept customer payments worldwide with support for 100+ currencies and real-time currency conversion. Plus, T+1 settlements in INR ensure quick fund transfers without the hassle of exchange rate management.
Multiple Payment Options
Give your customers the freedom to choose how they pay. Offering diverse payment methods, from credit/debit cards to UPI, net banking, and digital wallets, increases convenience and boosts conversion rates.
Faster Transactions, Higher Conversions
Speed matters. A payment gateway ensures quick authorisation and settlement, reducing friction in the checkout process. Faster checkouts lead to fewer cart abandonments and better customer experiences.
Operational Control and Insights
Access real-time dashboards to monitor transactions, track sales trends, and identify issues instantly.

For example:

Spot a fast-moving product? Begin restocking early.
Noticing drop-offs on a specific page? Optimise it to improve conversions.

Integrating an Easebuzz payment gateway is a strategic move that supports secure, scalable, and seamless business operations—helping you enhance customer experience and drive global growth.

How to Choose a Secure Payment Gateway in India: Key Security Features

Tokenisation
Tokenisation enhances payment security by replacing sensitive card details—such as card number and expiry date—with a unique, randomly generated token. This token is used during transactions, ensuring the card information is never exposed, even during a data breach.
Intelligent Fraud Detection Systems
Modern payment gateways come equipped with real-time fraud detection tools. These systems use advanced analytics and machine learning to monitor transactions, identify suspicious behaviour, and proactively prevent fraudulent activity.
PCI DSS-Compliant Wallets
Digital wallets integrated into payment systems adhere to the Payment Card Industry Data Security Standard (PCI DSS). This ensures secure handling of cardholder information, especially for recurring or stored payments, maintaining global data protection standards.
White-Label Wallet Integration
Payment gateways often support white-label wallet solutions, allowing businesses to integrate secure, branded wallets into their apps or websites. This enhances user convenience and builds customer trust through a consistent brand experience.
3D Secure Authentication (3DS)
3D Secure adds an extra verification step during online payments. Customers must authenticate their identity—typically via a one-time password (OTP) sent to their mobile device—before a transaction is approved, significantly reducing the risk of unauthorised access.
Multi-Factor Authentication (MFA)
MFA requires users to verify their identity using two or more methods—such as a password and a code sent to their phone—adding a layer of security against unauthorised logins and transactions.
End-to-End Encryption
Encryption ensures that sensitive payment data is converted into secure code while in transit. This prevents unauthorised access or tampering, safeguarding information from the point of entry to the payment gateway.
Firewall and Network Security
Firewalls are a barrier between trusted and untrusted networks, monitoring and filtering traffic to prevent cyberattacks. Combined with secure network protocols, they help protect the payment environment from external threats.
SSL (Secure Socket Layer)
SSL certificates encrypt communication between users and websites, ensuring that all data shared—primarily during payment—is securely transmitted and protected from interception.
Compliance with Local Regulations
Trusted payment gateways align with regional financial regulations and standards. Whether GDPR in Europe or RBI guidelines in India, adherence to local laws helps ensure user data is handled responsibly and legally.

Get Started with Easebuzz Payment Gateway in India

Simplify and secure your payment processes with Easebuzz.

Easebuzz Payment Gateway offers a powerful and user-friendly solution for businesses to accept digital payments easily. From supporting multiple payment methods like credit/debit cards, UPI, and digital wallets to ensuring robust security and seamless integration, our platform is built to help you grow and manage transactions efficiently.

Whether you’re running an online store or a physical business, our payment gateway adapts to your needs and ensures a smooth customer checkout experience.

Why Choose Easebuzz Payment Gateway?

Fast and secure transactions
Multiple payment method support
Easy integration with your website or app
Advanced fraud prevention protocols
Real-time transaction tracking and analytics

How It Works

A payment gateway technology allows merchants to accept customer payments, whether online or in person. Here’s what it does:

Captures and encrypts payment details securely
Authorises or declines transactions
Routes payment data through banks and card networks for approval
Enables payment collection via card swipe, QR code, UPI, or digital wallets.

For In-store Payments:

Payment gateways work via POS terminals or card-swiping devices that connect directly with your bank to accept credit or debit cards and even smartphone-based payments.

For Online Payments:

They act as a digital checkout system, processing transactions in real-time during customer purchases using methods such as UPI, credit/debit cards, and wallets.

Security First:

Every transaction goes through a secure process that includes encryption and fraud checks, ensuring customer data is protected before communicating with banks for authorisation.

Ready to Elevate Your Payment Experience? Sign up with Easebuzz today and start accepting payments with confidence and convenience.

FAQ's

Can any payment gateway easily integrate with my website or mobile app?

Yes, payment gateways can seamlessly be integrated into websites and mobile apps. Depending on your setup, you can:

Use plugins for platforms like WordPress, Shopify, or InstaMojo for quick setup.
Opt for API or SDK integrations for custom websites or apps that need more flexibility and control.
Connect directly with CMS platforms for simplified order processing and management.

How long does it take to set up a payment gateway in India?

Setup time varies by provider:

Platforms like Easebuzz allow integration and deployment within a few hours.
Other gateways may take 1–3 days, depending on the complexity of your tech stack and the level of customisation needed.

What should I consider when choosing a payment gateway in India?

Key factors to evaluate include:

Transaction fees and setup costs
Ease of integration (API, SDK, or plugins)
Security features like PCI-DSS compliance and encryption
Supported payment methods (cards, UPI, wallets, etc.)
Platform compatibility (Shopify, custom sites, mobile apps)
Customer support 24/7 availability

How do I add a payment gateway to my website or app?

You have several integration options:

API or SDK integration for maximum control and flexibility
Plugins for fast setup on platforms like Shopify or WordPress
Hosted checkout pages if you prefer minimal coding involvement

Choose the method that best fits your business needs and technical resources.

Are there transaction limits with payment gateway platforms?

Yes, transaction limits vary based on:

The payment gateway provider
The type of merchant account (starter or enterprise)
Your business profile and transaction history

It’s best to check with your provider for specific limits and how they can be adjusted over time.

What charges are involved with a payment gateway in India?

Typical payment gateway charges may include the following:

One-time setup fee (varies by provider)
Transaction fee (usually a percentage + fixed amount per transaction)
Monthly maintenance fees for some advanced plans

Always review the pricing structure and terms before committing to a provider.

Is UPI an online payment gateway?

No, UPI (Unified Payments Interface) is not a payment gateway.

It’s a real-time payment system that facilitates instant money transfers between bank accounts using mobile devices. While UPI is a payment method, a payment gateway is a platform that enables online businesses to process transactions securely using various methods, including UPI.