Picture this: A customer is all set to make a purchase. They have their credit card out and are ready to key in the credentials. But instead of a smooth, branded checkout, they’re redirected to an unfamiliar third-party site. Trust falters. The credit card goes right back in. They abandon the cart.
Sounds familiar? You’re not alone.
Only 3 out of 10 carts make it past checkout. In most cases, a confusing or untrustworthy payment process is the reason behind it. But how can you orchestrate a pleasant checkout experience without understanding the types of payment gateways? After all, it influences conversion rates, customer trust, and business scalability.
We’re here to help.
What are payment gateways?
A payment gateway is a service for the authorization and processing of digital payments. It serves as an interface between the customer’s payment details and the merchant’s bank. Apart from managing financial transactions, it:
- Encrypts sensitive data,
- Checks for fraud and
- Communicates with banks to confirm whether a transaction should be approved.
Main types of payment gateways
There are two dominant types of payment gateways:
- Hosted gateways, where payments are completed on an external page managed by the gateway provider.
- Non-hosted gateways, where payments are completed directly on the merchant’s site or app via APIs. These also go by integrated gateways.
In addition to these primary types of payment gateways, hybrid and embedded models are gaining popularity. You’ll often see them in complex use cases like subscriptions, recurring billing, or EMI.
Now that we’ve covered the basics, let’s understand the key question: Does your choice of payment gateway types matter?
Short answer: yes.
Long answer: the type of payment gateway you choose affects:
- Customer trust: Redirecting users off-site can break the experience.
- Conversion rates: Seamless, branded checkouts reduce drop-offs.
- Integration complexity: Certain types of payment gateways require dev resources, while others are plug-and-play.
- Security and compliance: PCI-DSS responsibilities shift depending on the type of payment gateway.
- Fraud management: The more control you have, the more robust your fraud prevention can be.
- Brand perception: A cohesive checkout reinforces trust and professionalism.
- Speed to market: Hosted solutions can be deployed faster. These types of payment gateways are ideal for MVPs or pilots.
- Customization and flexibility: Integrated payment gateway types allow for business-specific checkout logic or offers.
- Maintenance and scaling: Non-hosted setups may require regular updates and infrastructure support.
In short, your gateway isn’t just a backend tool. It’s a front-row player in your customer experience, revenue growth, and operational scalability.
Hosted payment gateways: Pros, cons, and use cases
A hosted payment gateway directs your customer to a separate website to complete the transaction. The gateway provider manages everything, including payment capture, security, and compliance.
How it works
- The customer adds items to the cart and clicks ‘Pay’
- They’re redirected to the gateway provider’s hosted page
- They enter payment details on the external site
- Upon completion, they’re redirected back to your site
Pros
- Quick and simple to integrate
- PCI-DSS compliance is handled by the provider
- Lower exposure to fraud and security risks
Cons
- Customer leaves your site, which breaks the checkout flow
- Limited control over user interface, experience, and branding
- It may reduce trust or conversions in some markets
Best for use case
Hosted types of payment gateways make sense for:
- New businesses,
- Small ecommerce stores
- Merchants looking for a fast, secure way to accept payments without investing heavily in infrastructure.
Non-hosted or integrated payment gateways: Pros, cons, and use cases
Non-hosted or integrated gateways allow customers to pay you directly on your website or app. You control the entire checkout experience, from UI to backend logic.
How it works
- Customer stays on your website/app to enter payment info
- Payment data is securely transmitted via APIs
- You handle part of the encryption and compliance
- The transaction is processed in the background
Pros
- Fully embedded, branded checkout experience
- Custom logic for offers, EMI, loyalty, or BNPL flows
- Better control over the customer journey and data
Cons
- Requires developer effort to integrate and maintain
- You assume partial PCI-DSS compliance responsibilities
- Stronger fraud management systems may be needed
Best for use case
Non-hosted types of payment gateways are more suited for:
- High-volume ecommerce brands
- Subscription platforms
- Marketplaces
- Businesses focused on customer experience and growth scalability.
Hosted vs. Non-hosted gateways: Side-by-side comparison
Here’s a side-by-side comparison of both types of payment gateways. This will help you quickly evaluate which payment gateway type best fits your business needs, technical capacity, and growth stage:
| Feature | Hosted Gateway | Non-Hosted Gateway |
| Integration Time | Quick, minimal dev effort | Requires development and testing |
| UX Control | Limited, provider-controlled | Full control over interface and logic |
| PCI Compliance | Managed entirely by gateway provider | Shared responsibility with merchant |
| Conversion Impact | Slightly lower (UX redirect may deter) | Higher (seamless, embedded experience) |
| Ideal For | SMBs, startups, low-volume merchants | Scale-ups, D2C brands, enterprise platforms |
Remember, your type of payment gateway isn’t just a technical decision; it’s a strategic one. The right setup can strengthen customer trust, streamline operations, and directly impact your revenue growth. So, make sure you evaluate your business needs, technical capabilities, and long-term goals before making a choice, because your checkout experience could be the difference between a conversion and a cart abandonment.
Choosing the right payment gateway type: A quick decision framework
Still unsure about which type of payment gateway is right for you? Ask yourself:
- Do you have in-house developers to handle integration?
- Is a branded, seamless checkout essential to your conversion goals?
- Are you equipped to manage sensitive payment data?
- Can your team manage PCI-DSS compliance and fraud monitoring internally?
- Are you planning to offer advanced payment flows like EMI, subscriptions, or loyalty programs?
- Are you scaling fast or just testing the waters?
- Can you maintain compliance with the extant rules and norms?
Pro Insight: Many businesses initially opt for a hosted payment gateway for simplicity, then upgrade to non-hosted integrations as they scale.
Alternatively, some brands use a mix of hosted and non-hosted payment gateways. A typical combination would contain:
- Hosted gateways for simple, one-time payments
- Non-hosted APIs for recurring billing or complex flows
You’ll be surprised to discover that the right setup isn’t always an either-or proposition! Your choice of types of payment gateways is often a mix based on product complexity, customer expectations, and internal capabilities.
Pick the right payment gateway type for your payment stack
We’ve already seen how the choice of payment gateway does more than just process transactions. It shapes your checkout experience, builds customer trust, and determines how fast your business can scale.
Hosted gateways offer simplicity and security. This makes them ideal for lean teams. On the other hand, integrated gateways offer control and customization. They are suitable for growth-focused brands.
Whichever path you choose, Pine Labs Gateway provides the flexibility, security, and support you need to power your digital payments. Consult with our experts to discover the ideal gateway setup for your business.