A payment gateway essentially helps businesses enable transactions on their website or app within minutes. It simplifies and accelerates the payment process for both merchants as well as their customers.
But while the transactions happen almost instantly, there are a series of complex steps that ensure the secure transfer of money from the buyer’s account to the seller’s.
To understand this better, it is essential to know the terms associated with a payment gateway and its functionalities.
This article simplifies the payment gateway terminology and talks about the multiple factors that come together to offer hassle-free transactions on a website.
Payment gateway terminology
Here’s a look at the most commonly used terms while referring to a payment gateway.
1 Payment Gateway / Aggregator
A payment aggregator is a modern technological solution that helps businesses accept payments from customers by integrating with their website or app.
Apart from its primary objective, a payment gateway also helps a business with features and functionalities that enhance the checkout experience on the online store.
It is responsible for ensuring that the transactions are secure, successful and seamless.
In 2025, the Indian payment gateway market is forecasted to grow to approximately 1.71 billion U.S. dollars.
Here’s an interesting read that explains the exact process of money transfer from the customer to the merchant through Paytm Payment Gateway.
2 Payment method
Payment methods constitute the various options available for a user to initiate online payment on your website. They include credit/debit cards, UPI, net banking, mobile wallets and so on.
A good payment gateway ensures maximum availability of payment methods for users to pick their preferred one.
For instance, Paytm Payment Gateway offers more than 100+ payment sources including Paytm Postpaid, Paytm Payments Bank, Pay Later, EMI & more. It is also the only payment gateway that offers FD as a payment source to your customers.
3 Merchant
In the context of a payment gateway a merchant partners with the solution provider to enable online transactions on their website or app.
A merchant can be selling either a product or a service. A payment gateway is highly beneficial and one of the crucial solutions for a merchant when starting a business online.
Here’s an article that highlights the importance of choosing and integrating the right payment gateway for a business.
4 Merchant Dashboard
A merchant dashboard is a panel that can be accessed by logging in to the registered payment gateway account. It helps a business keep a track of all the payment transfers (credit and debited) in the account.
A merchant dashboard of an advanced payment gateway has additional features that help:
- Monitor transactions and sales
- Issue refunds
- Access settlement reports
- Analyse customer spends and behaviour
- Manage user roles and permissions
5 Acquiring bank
An acquiring bank is a financial institution that processes the transactions on behalf of the merchants. It helps them accept payments that are initiated on their online store.
6 Issuing bank
Issuing bank refers to the bank through which the buyer initiates the payment. The customer might use net banking as a payment method or the credit/debit card issued by the bank.
They manage the card features including application and approval process, distributions, terms and benefits and so on.
7 Payment authorisation
Payment authorisation is the process through which a payment that is to be made by a customer is verified.
A payment gateway usually sends the authorisation request to the issuing bank to deduct the transaction amount specified by the user and once an authorisation is received, the money is withdrawn and retained by the payment gateway.
Depending on the availability of funds, an issuing bank can either approve or decline the authorisation.
8 Payment authentication
Payment authentication is the process of checking if the transaction is happening with the consent of the user and without any misuse or fraud.
Authentication is done by asking the user to furnish details such as a one-time password, and card details including the CVV number. Online payment cannot be securely processed without providing these details.
9. Settlement
Settlement is a crucial factor in the transaction process since it determines the time when the amount paid by the customer will actually reach a merchant’s account.
Although a transaction on the website is instant, for the money to reflect in the bank takes time.
Payment gateways offer different settlement period options and a business can choose the most suitable one based on their capital requirements.
Paytm Payment Gateway for instance offers T+1 settlement on business working days throughout the years. In case of a public/bank holiday, it is done on the following working day.
Additionally, there are also batch and same-day settlement options for merchants to choose from.
10 Chargeback
Chargeback refers to the return of the payment done by the customer following an issue such as a fraudulent or unauthorised transaction.
If the customer files for a chargeback the bank communicates the same to the payment gateway for further investigation. The money is reversed back into the account after necessary inspection.
11 Card network
Card networks facilitate transactions between merchants and card issuers through virtual payment infrastructures. Some popular credit card networks are Mastercard, Visa and American Express.
12 PCI DSS Compliance
Payment Card Industry Data Security Standard or PCI DSS is a set of security standards created by an alliance of credit payment agencies to ensure safe online transactions as well as protection against fraud/data theft.
It is mandatory for every business accepting payments online to be PCI DSS compliant. Here are its 12 key requirements and why they matter to businesses.
Paytm Payment Gateway is PCI-DSS Level 1 Compliant with 128-bit encryption which means that it ensures utmost security for consumers transacting on your website.
13 Merchant Identification Number
MID is a unique identifier for every merchant that identifies a business and helps in effectively tracking payments and communicating with the payment gateway.
During a purchase on the website, the merchant identification number is passed to other parties involved in the payment process and it helps establish the validity of the business.
14. Merchant Discount Rate
Merchant Discount Rate or MDR is a small fee charged by the payment gateway during every payment that happens on the website.
It is a percentage of the total transaction amount and may differ based on the mode of payment chosen by the customer.
While the payment gateway retains a share of it, the amount is also distributed between card networks, issuing bank and other entities involved.
15 Maintenance cost
Maintenance cost refers to the fee charged by the payment gateway to ensure an interrupted service. It is either an annual or a quarterly charge.
Paytm Payment Gateway does not charge its customers/merchants a maintenance or a setup fee.
Conclusion
A payment gateway is a crucial part of an online business. The Indian market has a number of solution providers offering multiple features and functions.
If you are a new entrepreneur the aforementioned terms will also help you recognise the advantages that a payment gateway brings to your business. Understanding the product and the associated terms is very important to assess and choose the right payment gateway.
