BlogJanuary 3, 2025

How Payment Gateways Work and How to Integrate Them

Vaibhav Jha

This article is part of the Vaibhav Jha technical writing series on backend systems, software architecture, and core computer science topics explained with practical developer context.

Overview

A payment gateway enables applications to accept online payments by securely processing transactions between users, merchants, and banks. It acts as a bridge between your application and the financial system.

High-Level Flow

A typical payment flow looks like this:

User enters payment details (card, UPI, etc.)
Request is sent to the payment gateway
Gateway forwards request to payment processor
Bank verifies and approves/rejects transaction
Response is returned to your application

This entire process usually happens within a few seconds.

Key Components

1. Client (Frontend)

Collects payment details
Sends request to backend or gateway SDK

2. Backend Server

Creates payment orders
Verifies transactions
Ensures security

3. Payment Gateway

Handles encryption and routing
Communicates with banking networks

4. Bank / Payment Network

Verifies funds
Approves or rejects transaction

Integration Approaches

1. Hosted Checkout (Recommended)

User is redirected to gateway’s page:

Easy to integrate
Secure (PCI handled by gateway)
Less control over UI

2. Embedded SDK

Gateway provides SDK:

Better UI control
Still secure
Slightly more complex

3. Custom Integration

You handle everything:

Full control
Requires PCI compliance
High complexity

Typical Integration Flow (Backend)

Step 1 — Create Order

Your backend creates an order:

Ts

POST /create-order

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