What is a Payment Gateway and How Does it Work?
                     What is a Payment Gateway and How Does it Work?
What is a Payment Gateway?
A payment gateway is a merchant service that verifies the cardholder’s details and allows the transfer of funds 
from the customer. It serves as an interface between merchant websites and payment processing banks. 
Gateways can be used for multiple types of payment. It encrypts customer details in online and offline 
transactions. In stores, these gateways consist of point-of-sale (POS) terminals that accept credit card 
information by card or smartphone. There are exclusive gateways to facilitate payment in cryptocurrencies like 
bitcoin.
How does a Payment Gateway work?
The operation can be categorized as two separate entities depending on whether it is an in-store payment or 
an online payment. The following stakeholders are involved in transacting payments from the customer 
account to the merchant account.
● The payment service provider/payment processor serves as a pivotal third-party intermediary in the 
transaction process. Their primary function encompasses a range of services, such as providing the 
payment gateway itself, overseeing payment processing, and offering supplementary services relevant 
to transactions. Beyond this foundational role, they meticulously manage the intricacies of payment 
processing, ensuring seamless and efficient transfer of funds from the customer’s account to the 
merchant’s account. Additionally, they extend their expertise to offer a spectrum of supplementary 
services tailored to enhance the transaction experience, covering aspects like fraud prevention, dispute 
resolution, and transaction analytics.
● A merchant is any individual or organization that sells goods or services.
● A customer is an individual who purchases goods and services from the merchant.
● Issuer and issuer’s bank is a financial institution that processes payment on behalf of the customer.
How does a Payment Gateway process a transaction?
The merchant initiates a transaction by filling in the customer’s required details on the payment page – such as 
the cardholder’s name, card number, card expiration date, and the Card Verification Value (CVV) code. The 
gateway encrypts the customer’s details and performs the required security checks. Payment processors 
redirect the request to the issuer bank (customer’s bank). The issuer bank validates the customer data and 
decides whether to approve or decline the transaction. The information is sent back to the payment processor 
to the gateway and back to the customer to confirm the payment. The issuing bank releases the funds to the 
acquiring bank, and the acquiring bank transfers the funds to the respective merchant account, completing the 
settlement process. These processes might seem overwhelming, but these transactions happen within 30 
seconds. The payment is transferred to the merchant account within 48 hours.
How does a payment gateway benefit business?
● High-quality customer experience – Today’s customers expect an ultra-fast transaction for their day-to-
day needs. Payment gateways supply rapid transaction processes, which benefits both the customer 
and the merchant.
● Secure data encryption – Gateways provide first-hand protection with rigid security measures to guard 
sensitive customer information. Multiple gateways employ complex fraud detection tools that screen 
suspicious activity in customer transactions.
● Faster payment processing – Gateways process the funds in the blink of an eye. It handles transactions 
quicker than manual processing. As a result, they provide an effective checkout experience for 
customers.
● Global outreach – Expanding businesses must utilize the gateways for reaching a wider audience across 
the globe.
Valor Payment Gateway: Setting the Standard
While researching gateways, explore the possibilities provided by Valor PayTech’s payment gateway. Here are 
some highlighted features that set Valor apart from other gateways: 
● Valor’s payment gateway uses state-of-the-art encryption and anti-fraud technology to keep transactions 
secure. 
● With a focus on user experience, Valor makes payment processing simple for merchants and customers 
with a user-friendly interface. 
● Valor accommodates various payment methods, ensuring that virtually every customer can transact 
smoothly for optimal versatility.
●  With impeccable uptime stats, Valor ensures that your ability to process payments is there when you 
need it most. 
● Understanding that payment issues can arise at any time, Valor provides 24×7 support. 
● Our gateway at Valor processes transactions while enhancing the buying and selling experience with its 
robust and reliable infrastructure. It’s a significant element that can influence consumer trust and 
satisfaction.