Payment gateway is an infrastructure to enable a web merchant having an online ECommerce store to charge a customer from his credit/debit/prepaid card or bank account(netbanking) resulting in transfer of funds electronically from customer's account to merchant's account.
So in India : CCAvenue, EBS, ICICI Payseal etc can be called as acquiring bank – which receive payments on behalf of the merchant.
Using payment gateway allows us to receive payments from different channels and financial instruments at our websites. Cards used can of VISA/MasterCard/JCB/AMEX/Discover etc. Now a days all banks allow debit their accounts online using netbanking. Other modes can be by Mobile payments, Cash Cards or using IVR etc.
To use a payment gateway, prior approval is required, including payment of non-refundable setup fees which can be from Rs. 0 to Rs. 75,000. For every transaction, the payment gateway charges you called TDR which can be fixed, percentage or composed of both from the amount of each payment at your website.
You can much easily understand Payment Gateway by assuming an example and seeing the transaction flow. Also available is the same payment gateway flowchart in PDF:
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