What is a Hosted Payment Gateway? Definition, Integration, and Choosing the Right One for Your Business

A hosted payment gateway is a service where customers are redirected to the payment provider’s platform like PhonePe PG Checkout to complete transactions, instead of processing payments directly on the business’s website.

Businesses opt for hosted payment gateways because they simplify online payments and reduce risk. By letting the provider handle sensitive customer data, businesses avoid the cost and complexity of securing payment information themselves.

It also ensures compliance with industry security standards, speeds up setup, and gives customers confidence in a trusted, secure checkout experience. In the case of a hosted checkout, the user interface is handled by PhonePe PG, offering businesses scope for customization. For small to medium businesses in particular, this allows them to focus on selling and growth rather than managing payment security.

To get a clearer picture, let’s break down how hosted payment gateways function step by step

How do Hosted Payment Gateways work?

The process is simple:

When the customer is redirected to the hosted gateway’s page and enters their payment info, the payment gateway encrypts that data immediately. For example, when a customer adds a product to their cart, proceeds to checkout, and enters their payment details to complete the purchase

The encrypted details are then sent from the gateway to the acquiring bank (the merchant’s bank) through secure channels. The receiving bank passes the request to the card network (like Visa, Mastercard, RuPay) or the relevant payment rail (UPI, net banking, wallets, etc.). For instance, When a customer selects UPI and enters their UPI ID, the gateway sends a collect request to their UPI app (e.g., PhonePe). The customer approves with their UPI PIN, the issuing bank processes it via NPCI, and the merchant is notified of the transaction status.

For card payments, the card network checks with the issuing bank to confirm funds and validity, then the bank responds with approved or declined back through the network to the gateway. For UPI, the customer approves the payment in their UPI app, and the issuing bank processes it via NPCI. In both cases, the gateway updates the merchant’s website or app with the transaction status. For example, a food delivery app will show “Payment Successful” immediately. 

Once approved, funds move from the customer’s bank to the merchant’s bank, usually settled within 1–2 days, so even a small online retailer receives the payment in their account automatically.

Once you understand the workflow, the next step is learning how to integrate a hosted payment gateway into your platform.

How to Integrate a Hosted Payment Gateway?

Integrating a hosted payment gateway is a straightforward process that allows businesses to start accepting online payments securely and quickly without directly handling sensitive payment data. While the exact steps may vary slightly depending on the payment gateway, here’s a general step-by-step guide for payment gateway integration:

1. Sign up with the payment gateway provider like PhonePe PG

Create a merchant account and complete the required onboarding and verification (KYC) process.

2. Access your integration credentials

Once approved, you’ll receive your merchant credentials for test and live environments.

3. Set up your webhook URLs

Configure your success, failure, and webhook endpoints in the provider’s dashboard. These URLs ensure that your website is updated with payment status in real time.

4. Create an order or transaction request through API

When a customer initiates checkout, your server generates an order ID and calls the gateway’s API to create a payment session.

5. Redirect the customer to the hosted payment page through API

Use the URL returned by the API to send the customer to the secure hosted payment page where they can complete the transaction.

6. Customer completes payment

The gateway securely collects payment details, processes the transaction, and sends confirmation back to your configured URLs.

7. Verify the payment

Your server calls the verification API or listens to webhook events to confirm the transaction status before fulfilling the order.

8. Go live and monitor

After testing in sandbox mode, switch to live credentials and monitor the first few transactions to ensure smooth operation.

Like any payment solution, hosted payment gateways come with their own set of advantages and limitations. Here’s how they stack up for online businesses:

What are the Advantages and Limitations of a Hosted Payment Gateway?

Advantages	Limitations
Easy setup helps businesses start accepting payments faster.	Limited design control, the payment page follows the gateway’s layout and branding.
Highly secure, sensitive payment data is handled by the gateway, reducing compliance effort.	Customers are redirected to the provider’s page before returning to the site.
The provider manages infrastructure, security, and updates.	Transaction flow and uptime rely on the gateway’s systems.
Supports multiple payment methods like UPI, cards, net banking, wallets and more	Integration may require technical setup for APIs, webhooks, or notifications.
PCI-DSS and data protection standards are handled by the provider.	Businesses still need to handle order verification and webhook configurations.

Conclusion

Hosted Payment Gateways are a scalable solution for online businesses. As transaction volumes grow, the gateway can handle increased payment traffic without requiring additional infrastructure or technical resources from the business. This scalability, combined with secure and reliable processing, makes hosted gateways well-suited for businesses that plan to expand their online operations while maintaining a smooth and consistent customer checkout experience.

For businesses looking for a trusted and easy-to-integrate solution, PhonePe PG offers all these benefits and more. Get started today.