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Modulr glossary

Payment Gateway

A payment gateway is a technology that facilitates online payment processing by securely transmitting transaction data between a merchant's website or application and the payment processor. It acts as an intermediary, encrypting sensitive information such as card details to ensure secure online transactions. While payment service providers (PSPs) and payment gateways are both integral to processing online payments, and some businesses such as Modulr are able to perform both roles, there are important differences between the two. A payment gateway is a technology that facilitates the authorisation of (generally) card payments by acting as an intermediary, ensuring that sensitive payment data like card numbers and personal information is encrypted and securely passed from the customer to the bank. The gateway won’t settle or process payments, it is purely a technology facilitating authorisation and secure transmission. A PSP, meanwhile, will likely offer transaction processing, fraud detection or alternative payment methods, overseeing the entire payment lifecycle from start to finish. Some providers, such as Modulr, also offer accounts for payments to be made into, rather than simply directing funds onwards to another account elsewhere, ensuring that funds remain inside a single ecosystem and enabling finer control over payment processing.A payment gateway is a technology that facilitates online payment processing by securely transmitting transaction data between a merchant's website or application and the payment processor. It acts as an intermediary, encrypting sensitive information such as card details to ensure secure online transactions. While payment service providers (PSPs) and payment gateways are both integral to processing online payments, and some businesses such as Modulr are able to perform both roles, there are important differences between the two. A payment gateway is a technology that facilitates the authorisation of (generally) card payments by acting as an intermediary, ensuring that sensitive payment data like card numbers and personal information is encrypted and securely passed from the customer to the bank. The gateway won’t settle or process payments, it is purely a technology facilitating authorisation and secure transmission. A PSP, meanwhile, will likely offer transaction processing, fraud detection or alternative payment methods, overseeing the entire payment lifecycle from start to finish. Some providers, such as Modulr, also offer accounts for payments to be made into, rather than simply directing funds onwards to another account elsewhere, ensuring that funds remain inside a single ecosystem and enabling finer control over payment processing.

Applications

E-commerce:

Reduces fraud in online card payments by verifying the cardholder's identity

Banking and fintech:

Helps issuers and payment providers comply with Strong Customer Authentication (SCA) requirements.

Advantages

  • Enhanced security: Reduces unauthorised transactions by verifying that the genuine account holder is authorising the payment
  • Fraud prevention: Helps reduce chargebacks related to fraud.

Challenges

  • User Experience: Additional authentication steps can cause friction and increase checkout abandonment
  • Implementation complexity: Requires integration with card schemes and issuer systems.

Related Terms

OTP Compliance Strong Customer Authentication PSD2
Item created by Modulr, Updated on
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