What is a payment gateway and how does it work?

Key takeaways

• A payment gateway captures and encrypts card details at checkout, letting you process sales safely without handling raw card data yourself.

• Choosing hosted, self-hosted, or API setup comes down to how much design control you want versus how much technical work you're willing to take on.

• Transaction fees and currency conversion markups can quietly eat into your profits, but a gateway like Airwallex lets you settle international sales in 130+ currencies to protect your bottom line.

A payment gateway is the technology that captures and encrypts a customer's card details at checkout, then passes them on for approval – it's what makes it possible to accept online payments safely. Get it wrong and a clunky, untrustworthy checkout costs you sales; get it right and you protect your margins as surcharging rules change and cross-border sales grow.

What is a payment gateway?

A payment gateway is the technology that captures a customer's card details at checkout, encrypts them, and passes them securely to the card networks and banks for approval – the online equivalent of an EFTPOS terminal in a physical store.

Because a customer can't hand over a physical card online, the gateway does that job instead. It scrambles sensitive data so it can't be intercepted, then acts as the secure bridge between your checkout, the customer, and the banks. A solid payment processing setup is about more than moving money – it's about building trust and protecting your business from fraud.

Watch: What is a payment gateway?

How does a payment gateway work? A step-by-step breakdown

A payment gateway transaction happens in six steps, all within seconds:

1. Checkout: Your customer enters their card or digital wallet details at your online checkout and hits submit.

2. Encryption: The gateway encrypts this payment data and passes it to the payment processor.

3. Routing: The processor routes the encrypted details to the card network, like Visa or Mastercard.

4. Verification: The card network sends the request to the customer's bank, which checks their details and available funds.

5. Authorisation: The customer's bank approves or declines the payment and passes that decision back through the processor to the gateway.

6. Settlement: If approved, the transaction is finalised, and funds clear into your business account.

What are the different types of payment gateways?

There are three main types of payment gateway: hosted, self-hosted, and API/direct integration. Each trades off design control against technical complexity and security responsibility:

Examples of payment gateways in Australia

Here are eight payment gateway providers available to Australian merchants, with indicative fees as at June 2026 (subject to change and worth confirming directly with each provider):

• Airwallex: A global financial platform that suits scaling businesses of all sizes, from startup to enterprise. The platform charges 1.65% + A$0.30 on domestic cards and 3.40% + A$0.30 for international. Collect payments in 130+ currencies, offer 160+ local payment methods, and settle like-for-like directly into Global Accounts to bypass forced currency conversions.

• Adyen: Built for enterprise brands, Adyen's published pricing is a fixed processing fee of $0.11 plus a payment method fee. Its Interchange++ pricing and monthly invoice requirements can be a tough fit for smaller merchants.

• PayPal: A trusted household name, making it a strong secondary checkout option. As a primary gateway it's pricier, charging 2.90% + A$0.30 domestically plus currency conversion markups of 3%–4%.

• Stripe: A developer favourite with clean APIs and strong documentation. Stripe charges 1.7% + A$0.30 for domestic AU cards, rising to 3.5% + A$0.30 for international cards, plus an extra 2% if currency conversion is needed.

• Square: A fit if you sell both in-person and online, syncing inventory across channels. Square charges 1.6% for in-person and 2.2% for online and remote transactions.

• eWAY: An established Australian provider known for local support and easy setup. eWAY charges a flat 1.5% + A$0.25 on domestic cards, with a further 1.99% loading on international transactions.

• Braintree: Owned by PayPal, Braintree suits recurring subscriptions and mobile-first businesses. It charges 1.75% + A$0.30 domestically and refunds the percentage-based fee on returns – though the A$0.30 fixed fee still applies to both the original sale and the refund.

What payment methods are available in Australia?

Australian shoppers expect cards, digital wallets, BNPL, PayTo, and BPAY at checkout – miss their preferred option and they'll abandon their cart. Offer:

• Card schemes: Visa, Mastercard, and American Express remain the backbone of online payments in Australia.

• Digital wallets: Apple Pay and Google Pay are now the default for many shoppers, who expect a one-click mobile checkout.

• Buy now, pay later (BNPL): Afterpay and Zip remain popular, but keep the cost in mind – they can cost merchants 3%–6% per transaction.

• PayTo: A real-time payment option that sets up pre-authorised recurring payments directly from a customer's bank account, cutting out card networks entirely.

• BPAY: A trusted option for B2B or invoice-based businesses, letting customers pay through their own online banking app.

Offering these alternative payment methods removes friction and helps you avoid losing sales at the final hurdle.

What is the difference between a payment gateway and a payment processor?

A payment gateway is the front-end layer that captures and encrypts a customer's card details; a payment processor is the back-end service that moves funds between banks. A merchant account is where those funds sit while banks verify the transaction.

Think of the gateway as the secure guard at the front door, the processor as the courier running information between banks, and the merchant account as the temporary holding zone for your money. These roles are bundled into your merchant discount rate (MDR) – the total fee you pay to accept card payments. Card networks also assign your business specific merchant category codes, which help determine your underlying processing costs.

How do payment gateways keep your transactions secure?

Payment gateways protect transactions through four layers of security: encryption, tokenisation, PCI DSS compliance, and 3D Secure authentication.

• Encryption: The gateway scrambles card numbers using Transport Layer Security (TLS) the moment a customer hits "buy," so intercepted data can't be read.

• Tokenisation: Instead of storing actual card numbers, the gateway replaces them with random, unique tokens – so a breached site has no real card details for hackers to steal.

• PCI DSS compliance: The industry-wide security benchmark for handling card details. A PCI DSS compliant gateway hands off most of that compliance burden to the experts.

• 3D Secure authentication: An extra identity check at checkout. Modern 3D Secure authentication (3DS2) uses risk scoring to verify shoppers in real time, prompting a fingerprint or SMS code for risky transactions – and shifts liability for fraudulent chargebacks from you to the card-issuing bank.

What do payment gateways cost? Understanding transaction fees

Running an online store in Australia typically costs 1.5% to 3% per transaction in gateway fees, though the true cost is rarely a single flat percentage. Here's what shows up on your statement:

• Per-transaction percentage: The variable slice of your sale that goes to the processor and banks.

• Fixed flat fee: A small flat fee (commonly around A$0.30) charged on every transaction, regardless of order size.

• Interchange++ pricing: A transparent model separating wholesale card costs from the processor's markup, letting high-volume businesses see exactly where their money goes.

• Monthly gateway fees: Some traditional providers still charge a recurring fee (often around A$60) just to keep your gateway active.

• International and FX fees: Selling overseas usually means higher rates for international cards, plus a foreign exchange markup of 2% to 4% to convert sales back into AUD – where many merchants quietly lose margin.

Surcharging

There's also a regulatory change worth planning for. From 1 October 2026, the RBA is banning card surcharging on Visa, Mastercard, and eftpos transactions. Amex sits outside the RBA's designation as a closed-loop network, but has separately confirmed it will drop surcharges too to stay aligned with the market. Either way, from that date you can no longer pass card processing costs onto customers at checkout.

Why businesses choose Airwallex for online payments

If card fees are eating into your margins on international sales, Airwallex is built to solve exactly that. Over 200,000 businesses globally use Airwallex to manage their money and accept payments without the high price tag.

With the Airwallex gateway, you can collect payments in 130+ currencies across 180+ countries and settle like-for-like in 20+ currencies directly into your multi-currency Global Accounts – instead of being forced to convert everything back to AUD. Sell in USD, and you can hold that USD to pay overseas suppliers or run Google Ads, bypassing double-conversion fees entirely. When you do need to convert currencies, Airwallex charges a transparent markup of just 0.5% above the interbank rate for major currencies and 1% for others.

You also get access to 160+ local payment methods, and a checkout experience that flexes with your business – a prebuilt hosted checkout, payment plugins (Shopify, WooCommerce), payment links, or a fully customisable API. With international transfers spanning 200+ countries, around 93% of payments settle on the same business day, keeping your cash flow healthy.

Frequently asked questions

Is a payment gateway safe?

Yes, provided you use a reputable provider. Quality gateways protect cardholder details with encryption, tokenisation, and PCI DSS compliance, so sensitive data is never stored on your site. Modern 3D Secure authentication adds a further layer, helping stop fraud and protecting you from costly chargeback disputes.

Do I need a merchant account and a payment gateway?

Traditionally, yes – they were separate services from different providers. Most modern payment platforms now bundle the gateway and merchant account into a single package, keeping pricing and support simple. High-volume sellers sometimes still keep them separate to negotiate custom rates.

How do I choose the best payment gateway for my Australian business?

Focus on these factors:

• Transaction fees: Look at the total cost of card payments, especially with the surcharge ban approaching.

• Supported payment methods: Offer the cards, digital wallets, and local payment methods your customers actually use.

• International support: Look for multi-currency and like-for-like settlement to protect your margins.

• Integration options: Choose a gateway that connects with your eCommerce platform and accounting tools like Xero.

• Settlement speed: Find a provider that transfers funds quickly to protect your cash flow.

• PCI compliance: Make sure the gateway handles the heaviest security requirements for you.

Sources

1. https://squareup.com/au/en/pricing

2. https://stripe.com/au/pricing

3. https://www.paypal.com/au/business/paypal-business-fees

4. https://www.adyen.com/en_AU/pricing 

5. https://www.eway.com.au/online-payments/

6. https://anzworldline.com.au/en/home