Payments Gateway vs. Payouts Gateway

A payment gateway helps businesses accept payments from customers. It securely authorizes and routes debit and credit card payments, as well as transactions made via digital wallets, bank transfers and other payment methods. Payment gateways are commonly used for point-of-sale transactions, e-commerce, subscription billing and recurring payments.

A payouts gateway helps businesses disburse funds to their customers, employees, contractors and other stakeholders. It enables organizations to send payments through methods such as direct deposit, prepaid cards, digital wallets or even checks. Common use cases include: 

• Appeasements – Compensation such as a refund, credit or gift card provided to customers who have experienced dissatisfaction with a product or service; helps to repair the customer relationship and maintain loyalty.
• Customer Incentives – Payments or discounts given to customers to encourage specific behaviors, such as signing up for a service, making a purchase or referring a friend. Incentives can take the form of discounts, digital payouts, gift cards and more. Some common types of customer incentives include:
  • Loyalty or Reward Payments – Payments made to customers as part of a loyalty program or promotional campaign, typically as a reward for repeat purchases or engagement with a brand. Examples include cashback rewards, points-based rewards and promotional gift cards.
  • Rebates – Partial refunds given to customers after the purchase of a product or service. Rebates can be instant (applied at checkout) or require a post-purchase claim process.
• Employee Reward or Recognition Incentives – Payments or bonuses given to employees to acknowledge achievements, milestones or outstanding performance. 
• Employee Sales Incentives or Bonuses – Financial rewards given to employees, particularly in sales roles, for achieving or exceeding performance targets. Payouts can include commissions, bonuses or SPIFFs (Sales Performance Incentive Funds).
• Expense Reimbursements – Payments made to employees or customers to cover pre-approved business-related expenses, such as travel, meals or office supplies, typically following the submission of purchase receipts.
• Legal Claim Settlement Payments – Payments made to individuals or entities as part of a legal settlement to resolve disputes related to lawsuits, class actions or regulatory actions.
• Referral Payments – Incentives given to individuals or businesses for successfully referring new customers, employees or partners to a company’s products or services.
• Refunds – Payouts made to return funds that were previously paid. Common use cases include:
  • Bill/Utility Refund – A refund issued by a service provider (such as an electric, gas or internet company) due to overpayment, billing errors or service adjustments.
  • Deposit Refund – The refund of a customer or tenant’s security deposit following the fulfillment of an agreement, such as returning rental property in good condition.
  • Healthcare/Patient Refund – A refund issued to a patient by a healthcare provider, insurer or medical institution due to overpayment, billing errors, insurance adjustments or duplicate payments.
  • Loan Overpayment Refund – A refund made to a borrower who has paid more than the required amount on their loan for reasons such as early payoff adjustments or calculation errors.

Learn more about payouts gateway use cases.

How Does a Payment Gateway Work?

A payment gateway acts as an intermediary between a customer, a merchant, and the customer's bank. It enables the transmission of encrypted payment information for secure processing. Simply put, a payment gateway works like this:

1. The customer initiates a transaction and enters their payment details.
2. The payment gateway encrypts this data and sends it to the appropriate card network for authorization.
3. The network verifies this information and sends the authorization request to the customer's issuing bank.
4. The customer's bank approves or declines the transaction and sends this response back to the card network.
5. If the transaction is authorized, the card network sends the payment info to the merchant's acquiring bank, and the funds are deposited in the merchant account.

What Are the Four Types of Payment Gateway?

Various types of payment gateway are available to support businesses' payment processing needs. These include:

Hosted payment gateways

Hosted gateways are third-party payment gateway services. When your customers are ready to make a payment, they will be redirected from your checkout page to the payment service provider’s online payment platform. There, they will be prompted to enter their payment information, such as credit or debit card details. Following the transaction, the payment gateway sends customers back to your business’ website. Online payment gateways have a number of advantages, such as easy integration and built-in fraud detection and prevention. They can also be integrated with point-of-sale systems to enable on-site payments.

Third-party payouts gateway services work in a similar way. You'll send your payout recipients to a hosted platform, where they can choose from various payment methods such as virtual or physical cards, bank transfers and even checks.

Self-hosted payment gateways

With a self-hosted payment gateway, your business collects customer payment information through your website, giving you more control over the checkout process and customer experience. But with more control comes more risk. Businesses are responsible for maintaining standards such as PCI compliance to ensure they provide adequate payment data protection. For many organizations, hosting their own payment gateway is too costly and labor-intensive to be practical.

Similarly, payouts gateways can be self-hosted, providing businesses with more control over the payment experience. But again, this route requires significant technical expertise, risk and expense. Partnering with a payment services provider that offers fraud protection and other capabilities can help businesses better manage the risk of handling sensitive payment information.  

API-hosted payment gateways

For businesses that want to offer a more integrated online payment experience without the time and investment required to host a solution, an API may be the ideal choice. With a payment gateway API, businesses can process payments from their website or app without redirecting their customers. Payment information such as credit card details are collected via the API, and customers enjoy a smoother checkout.

Payouts gateway APIs follow the same principle. Your business can integrate payout solutions with your platform or website, and although customers receive payments via a third party, they typically enjoy a custom-branded and seamless experience.

Local bank integration payment gateways

In some cases, businesses opt to integrate with a local bank’s payment system when processing online payments. One advantage of this approach is harnessing consumers' trust in and familiarity with local financial institutions. However, not all banks can offer a high level of support for payment processing, and businesses may find that a payment gateway provider offers more capabilities.

Similarly, banks may offer disbursement services or partner with a third-party payouts platform. Whether you need to make or accept payments, your bank could be the right partner – but that depends on factors like the breadth of their capabilities, whether their service costs are competitive and other considerations.  

Types of Payments Processed by Payment Gateways

Payment gateways and payouts gateways may enable businesses to process physical as well as digital payments. Let's explore the differences between these payment types:

Physical payments are tangible methods like cash or checks, requiring funds to be exchanged by mail or during in-person transactions. A payouts gateway may be used to initiate the payment, but manual processes will still be required.

Digital payments use electronic systems like mobile apps or online platforms to facilitate transactions. Common digital payment methods include virtual cards, payment apps, contactless payments and bank account transfers. 

Learn more about common payment types.

Choosing the Best Payment Gateway Provider

Choosing the best payment gateway or payouts gateway for your business is a critical strategic decision. Consider the following factors when selecting your provider:

Integration Efficiency

The best payment gateway for your business is one that seamlessly integrates with your current infrastructure. Look for well-documented APIs and compatible plugins for your e-commerce platform or accounts payable systems, which could help to minimize development time and resource allocation.

Available Payment Options

The right provider will be able to support the payment options your customers prefer. Compatibility with various credit and debit cards along with alternative payment methods is key to accommodating customer preferences during online sales or at your brick-and-mortar location. If you're planning to make disbursements via a payouts gateway, look for options such as virtual cards, fast funds transfers and compatibility with mobile wallets such as Apple Pay and Google Pay. Depending on your business needs, being ready to accept or make international payments may be a consideration as well.

Security and Fraud Protection

Protecting customer data and preventing fraudulent transactions are essential to maintaining trust and reducing risk. Select a reputable payment gateway with a proven security record and the cutting-edge capabilities you need to keep your business and customers safe.

Cost-Effectiveness

Evaluate payment gateway pricing structures, including setup costs, monthly fees, and per-transaction charges. Depending on your transaction volume and average transaction value, some options may stand out as offering a better value.

The User Experience

Your customers expect a user-friendly, secure experience, so be sure to evaluate your chosen solution from their perspective. Is it seamless, fast and easy to use? Does the provider offer your customers' preferred payment options? If so, these qualities can help improve consumer satisfaction and trust whether you are making or accepting payments.

Discover this year's payment trends in Onbe + NRG’s 2025 Payouts Landscape. Read the report here.