What is a Payment Gateway?

A payment gateway is a network that enables your customers to transfer funds to your business. It is an essential part of ecommerce that processes online payments for both online and offline businesses. In short, a payment gateway is a vital tool for any business that wants to accept electronic payments securely and efficiently.

Evolution of Payment Gateway in India

When it comes to payment methods, we have witnessed significant advances. From barter system to digital payments, we have come a long way. This blog outlines the evolution of payment gateway all over the globe.

Barter system begins

So, before we start talking about our protagonist, i.e. the best payment gateway for e-commerce, let’s have a quick glance at the payment methods used before payment gateway. Around 3000 BC the barter system was used. In the barter system, two or more parties engaged in an exchange that involved goods or services of the same value.

The closest a civilization came to discovery of coins

Around 1600 BC, China came closest to inventing the coin. Before 1600 BC, tools and weapons were widely used in China as a medium of exchange. To aid convenience, the Chinese started using miniatures of these tools and weapons. These miniatures were later made in the shape of a circle. At this point of time, this was the closest any civilization had come to the discovery of coins.

The advent of coins

In 600 BC, coins were minted for the first time in Lydia. They were made from a mixture of gold and silver called electrum. The king of Lydia, Alyattes, the fourth king of the Mermnad dynasty is credited to have minted the first gold coin. It was the official currency of Lydia.

China introduces cash to the world

In 806 AD, the printed notes were first used in China. Their western counterparts were not willing to implement this payment method at that time. But their usage grew over the next 500 years. Marco Polo was an Italian explorer who was one of the first explorers to provide a detailed report of his experiences in China. In his report, he wrote of the paper money being used in China, which made it a thriving economy.

Europe catches on

It was in the 16th century that European countries started using cash instead of coins. A bank in Sweden first introduced the concept of cash (paper money) in 1661. Eventually, more banks in Europe accepted the idea of paper money. These notes were issued to depositors and borrowers instead of coins. A bank was liable to pay the equivalent value of gold or silver coins if a person took these notes to the bank.

The world decides to go cashless

People realized that cash was merely a means to an end. It enabled you to buy the object you needed. So, the value was in a product and not the cash in the bank or cash at hand that bought it. That is when the idea of going cashless started to emerge. A notion developed that it was possible to transfer money without using these mediums. So you don’t have to carry cash and coins all the time.

Taking this notion forward in 1979, Visa introduced its breakthrough product: the credit card. So, what is a credit card? A credit card is a plastic card that enables us to buy goods and services on credit. The bank that issues the card decides a line of credit up to which a user can borrow money. This money is paid to the merchant who has offered goods or services. The credit card faced resistance initially when merchants didn’t have the necessary machinery at the point of sale. But eventually, it became a prominent electronic payment platform. This resulted in the development of the terminal ecosystem. A terminal is a device that facilitates electronic fund transfer once a card is swiped. This resulted in a significant increase in the sales of hardware manufacturers.

The internet era begins

By mid-90s the winds of change had begun to blow. The world witnessed an internet boom which took businesses online. This gave rise to several e-commerce giants. One of these online businesses is Amazon, who ventured into the business world as a start-up in 1994. It was followed by eBay in 1995. This increasing amount of online businesses made the terminal ecosystem insufficient. A better payment method was the need of the hour. This gave rise to companies that provided the technology of payment gateway.

So, what is a payment gateway? In simple words, a payment gateway is a means of making an online payment. It enables a merchant to collect money from the customer. It verifies the information provided by the user and the payment method and then authorizes the transaction. A customer provides sensitive data while making the transaction like card number, CVV, etc. To protect this sensitive data, payment gateway solutions use encryption.

Payment gateway companies focus merely on providing an interface between a payment portal such as a website and the acquiring bank. A few of these companies are PayPal, CyberSource, DataCash Group, etc.

Today, this new type of payment is not just limited to the western world. India has mirrored the scope for payment gateways as well. It has more than 1 billion mobile subscriptions, which is the second-largest in the world. There are over 240 million smart-phone users and these numbers are only going to increase. It is predicted that by 2020 over 600 million users will have internet access with 3G or 4G connections.

All of this provides a very promising future for payment gateway companies in India. Moreover, the government and regulatory bodies have created a congenial environment to welcome these companies. They have taken steps such as KYC relaxation for small transactions, 2-factor authentication exemption, etc. The most important action taken by the government was the promotion of cashless transactions. Indians were gradually shifting to cashless transactions, but the government regulations accelerated this process.

Today, these companies need to take care of several factors such as security, integration and transparency. Easebuzz is one such payment gateway company in Pune that focuses on facilitating online transactions. We are PCI DSS compliant. We provide end to end encryption that protects sensitive data and offers strong security to our clients. All of this makes us a perfect fit when it comes to choosing a safe and instant payment method in 2019.


The author writes about fintech, banking, and future of SAAS services. He works as an SEO analyst at Easebuzz, so if you're looking for an account that tracks India's fintech scene, you should check out his Easebuzz blog.