Difference Between In-App Purchases and Payment Gateway: All You Need to Know

Difference Between In App Purchase and Payment Gateway

Today, it is an undeniable fact that nearly everything on the planet has gone mobile. Apps are used by more people than ever before, regardless of age or profession.

When it comes to applications, people frequently use entertainment, professional, learning, or gaming apps in their daily lives.

Businesses (of all kinds) are employing mobile strategies to reach a large customer base today. According to a study, the overall mobile app market will reach a staggering $935 billion in revenue in 2023.

However, shifting to a mobile strategy is not as simple as you think. There are numerous considerations, and one of the most important for any profitable business that sells consumer goods is how to collect payments precisely.

So, it wouldn’t be wrong to say that when developing a mobile app, a key factor to consider is mobile app monetisation.

After all, every marketer and developer’s ultimate goal is to generate revenue for and from their app. They must cover the costs of developing and marketing it while also generating a healthy profit.

Google and Apple both provide a seamless way to streamline payment processing. You can also integrate third-party payment gateways such as the Paytm Payment Gateway into your mobile app.

The real challenge, however, is choosing between in-app purchases and payment gateways. Both options make it easier to collect payments, but they are best suited for different types of apps.

Payment gateway at a glance & the charges involved

A payment gateway is a third-party payment service provider that allows users to buy and sell goods safely. The platform charges a small fee for processing the transactions through the payment gateway merchant account. Paytm Payment Gateway is an excellent example of a payment gateway that works seamlessly in a mobile application.

However, there is a caveat when the revenue percentage share of the two options is concerned. Payment gateway fees typically range between 1% and 3%, while in-app purchase fees range between 15% and 30%.

Ways of integrating an external payment gateway

There are primarily three ways in which you can integrate a payment gateway into your online platform:

Hosted solution

Works as a third-party solution, requiring users to leave the mobile app and use an external digital platform to complete a transaction. These are ideal for small and local business establishments.

The benefits: It is a simple-to-integrate solution that neither stores users’ sensitive financial data nor requires PCI compliance.

The disadvantages: You cannot manage a hosted payment gateway, and some users may not rely on third-party payment systems. Furthermore, redirecting users away from your mobile app lowers conversion rates and may not be profitable for your brand.

Direct post

Allows users to shop without leaving your application. Also, PCI compliance is not required. When a user clicks the buying button, it is assumed that the transaction information is sent to a third-party payment gateway.

Without being stored on the server, the information is sent immediately to the external payment gateway and processor.

The benefits: Even without PCI DSS compliance, you can access tailored preferences and branding capabilities. The user interface allows all necessary actions to be performed on a single page, making it ideal for businesses of all sizes and types.

The disadvantage: You cannot guarantee that this type of payment gateway is completely safe and secure because it is not under your complete control.

Non-hosted solution

It connects to your server via external APIs. Hence, the integration requires the services of an IT solutions provider. Most service providers have fully documented integration guides and API references.

It is suitable for medium and large businesses that rely on user experience and branding.

The benefits: You get complete control of transactions on your application. You can customise and personalise your payment system to meet the needs of your business.

The disadvantages: You need to maintain the infrastructure and become PCI compliant for storing users’ payment-related information on your servers. Also, adding personalised functions is complicated and time-consuming.

Recommended Read: Types of Payment Gateway Integrations: How to Choose the Best

What are in-app purchases (IAPs)?

In-app purchases (IAPs) are a popular way for app publishers to monetize their apps. An in-app purchase is any fee paid in addition to the cost of installing the app on a tablet or smartphone.

Users frequently see the message “In-app purchases” next to the “Get” button for free apps or the app price button for paid apps before they install an app.

This messaging implies that users will be able to pay for additional app features, content, or services. The app store receives payment for all purchases.

A message with the purchase description appears before the user makes an IAP. The user can either purchase or return to the app without engaging in a purchase.

How do in-app purchases work?

Both Apple and Google include a payment gateway feature that developers can use and are frequently required to use for collecting payments when selling

  • an app through the App Store or Google Play
  • digital products or services through an app

These in-app purchase systems are built-in features that connect to an account linked with a device. App developers can easily and safely access these features when payment is required.

For iOS, users must either create or use an existing Apple ID as the primary account for the smartphone. Android users are either prompted to use their registered email address or need to create a Gmail account.

Once an account is registered on a device, users can directly enter payment details in the device’s app or via a native payment processing system linked to the device’s respective store.

When a user is required to make a purchase, apps can call on these payment gateways via StoreKit for Apple or the Billing API for Google.

However, it is only required in some scenarios because not everything sold through an app needs to be purchased using these payment options.

Types of in-app purchases

There are four types of in-app purchases. App publishers frequently use multiple IAPs inside an app to bring in revenue.


Consumable purchases deplete over time as users are using them. After using up all of a consumable purchase, the user must buy another consumable IAP to continue receiving the same benefits.

Example: purchasing additional lives in a gaming app


When a user purchases a non-consumable item, it is available forever to them. It is not affected by time or use. Non-consumable purchases frequently include premium features.

Example: purchasing a filter inside a photo app


One-time product types are also popular when gaming applications are concerned. Users can use this in-app purchase type for buying new game levels, media files, or even premium content.


There are two types of subscription models:

Auto-renewable subscriptions

Under this model, the app users are charged periodically for accessing content, using services, or utilising additional features within an app. Users are charged automatically for each pay period unless they cancel the subscription.

Example: a monthly subscription to an online music streaming service

Non-renewable subscriptions

A non-renewing subscription, on the other hand, is not automatically renewed. This in-app subscription model only offers services or content for a limited time.

If users want to retain access, they have to purchase a new subscription after their current subscription expires.

Example: a one-time six-month subscription to an online magazine

Recommended Read: Payment Gateway for Mobile Apps: Selection, Integration, Tips, and More

In-app purchases vs. payment gateways: when to use what

To summarise, if you want to sell services within your mobile app, in-app purchases are an ideal solution. Let us look at different use cases and see which is more suitable – payment gateways or in-app purchases.

Use CasesPayment GatewayIn-App Purchases
For unlocking a new feature✔️
For upgrading to a premium account/plan✔️
For currency exchange within the app✔️
For a subscription plan specific to the app✔️
For selling physical goods✔️
For selling a subscription of physical goods✔️
For selling a subscription to an online streaming service✔️

On a concluding note

With in-app purchases, the back-end development is a complex and time-consuming process. You will need an excellent coder to start the complex back-end coding project for integrating an in-app purchase into the mobile app.

It all comes down to gaining customers’ trust when they are about to make a payment.

The payment gateway checkout can be the deciding factor. Providing an exceptional customer experience will allow you to establish a solid reputation while increasing sales and revenue.

You can satisfy your customer and provide a smooth shopping experience by accommodating their preferences and expectations, which include payment method options, payment security, reliability, and trustworthiness.

It is possible only if you choose the right payment gateway for your mobile app. So don’t put it off any longer –

Get Paytm Payment Gateway today!

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