Payment Gateway

Bhavesh Dasireddy

Payment Integrations Consultant

24 May 2024

8 min read

Payment Gateway Terminology: Simplified for Easy Understanding




In the world of online payments, various terms and jargon can sometimes be confusing. However, understanding the key terminology used by payment gateways, like Stripe, is essential to grasp how they work. In this article, we will explore important payment gateway terminology in simple language, making it easy for a 10th grader to understand. Let's dive in!

1. Payment Gateway

A payment gateway is like a virtual bridge that connects an online store or website with the bank or financial institution that processes payments. It ensures that when you make a purchase online, your payment information is securely transmitted to the right place for processing.

2. Merchant

The merchant refers to the online store or business that sells products or services. For example, it could be your favorite clothing store's website or an e-commerce platform where people sell handmade crafts.

3. Customer

The customer is you, the person making a purchase online. When you buy something from an online store, you are the customer.

4. Payment Processor

A payment processor is a company or service that handles the technical and operational aspects of the payment transaction. It works with the payment gateway to securely process your payment. Stripe is an example of a payment processor.

5. Authorization

Authorization is the process of checking if you have enough money in your bank account or if your credit card is valid for making the purchase. It ensures that the payment can go through and that you can buy what you want.

6. Settlement

Settlement is when the money you paid is transferred from your bank account to the merchant's account. It's like the online version of giving money to the store after you've made a purchase.

7. Encryption

Encryption is a way to protect your payment information during transmission. It turns your payment details into a secret code that can only be understood by the payment gateway and the payment processor. This ensures that your information is safe and cannot be accessed by unauthorized people.

8. Payment Method

Payment method refers to the way you choose to pay for your purchase. It could be using a credit card, debit card, digital wallet, or even a mobile payment app like Apple Pay or Google Pay.


Understanding payment gateway terminology is important when making online purchases. Key terms like payment gateway, merchant, customer, payment processor, authorization, settlement, encryption, and payment method are fundamental to know. Remember, payment gateways, such as Stripe, make it possible for you to buy things online securely and conveniently. Happy shopping!


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