Merchant Account vs Payment Gateway: Understanding the Key Differences

For businesses accepting online payments, merchant accounts and payment gateways are essential — but they’re often confused with one another. In this guide, we’ll explore merchant account vs payment gateway, how they differ, what to consider when choosing a provider, and other related topics. Let’s dive into the world of online payments.

What is a Merchant Account, and Who Needs One?

A merchant account is a bank account designated for holding funds from processed credit card transactions before they’re transferred to the merchant’s commercial bank account. Merchant accounts are not traditional business bank accounts; they only serve as an intermediary for receiving credit card payments. Anyone accepting credit card payments from customers requires a merchant account, making it a critical component in the payment processing ecosystem.

What is a Payment Gateway, and Who Needs One?

Information is sent and received through an application programming interface (API), which allows two applications to communicate. In this case, an API allows a payment gateway to communicate with a merchant account.

While comparing eBay vs Amazon, you can see how their payment gateways function similarly, yet with slight variations. On eBay, clicking “Buy It Now” redirects you to the checkout page. This is eBay’s payment gateway. There, you can choose a payment and shipping method, view the order amount with fees, and confirm and pay. On Amazon, you add an item to the cart, go to the cart, click ‘proceed to checkout’, and then arrive at their payment gateway. At this point, you can see the same information as on eBay’s payment gateway, but with some additional features.

What is a Merchant Account?

A merchant account is a type of business bank account specifically designed to accept payments. A business owner typically establishes a merchant account by partnering with merchant-acquiring banks. The payment that a business owner receives for a transaction first goes into their merchant account. Once that payment is verified, the money transfers from their merchant account to their bank account.

What is the Difference Between a Merchant Account and a Payment Gateway?

In comparing a payment gateway vs a merchant account, there are clear differences between the two, but they work in tandem during the transaction process. The payment gateway is the technology behind accepting or declining payments. Once the payment is accepted, the money earned from the transaction transfers to the merchant account, where it’s temporarily stored until it’s transferred to the business bank account.

Advantages of Utilizing Merchant Accounts and Payment Gateways

Utilizing payment gateways and merchant accounts grows a business’s customer base by expanding the forms of accepted payments for transactions. There are benefits on both sides of the transaction. Customers are offered varied, convenient payment options, and business owners are assured of the security of these payments.

Merchant Account vs Payment Gateway: Which Does Your Business Need?

If a business wants to accept cards as a form of payment, it will need a payment gateway and merchant account because they work together to process and store payments from transactions.

How to Find the Best Merchant Account and Payment Gateway for Your Business

It’s important to pick merchant accounts and payment gateways that fit your business needs. With a little bit of research, you can find both that will facilitate your everyday business activities.

What to look for when researching payment gateways and merchant accounts

There are a few important factors that you should consider and look for when looking for merchant accounts and payment gateways.

• Currency: You want a merchant account that accepts the currency with which you’re currently working.
• Access: It’s an added bonus if the merchant-acquiring bank allows you to access the account whenever you want.
• Processing Caps: Another important consideration is processing volume caps. The most desirable is an account with no monthly caps.
• Price: Payment gateways have various price points, so consider what works best for your business’ budget.
• Features: Gateways may offer smart chargeback management, electronic invoicing, reminders for customers, and more.
• Integration and Security: Perhaps most important, a payment gateway should be easy to integrate and have a high level of security.

Final Thoughts

To conclude, merchant accounts vs payment gateways are two totally different terms. A merchant account refers to a type of bank account that temporarily stores customer payments until verification. A payment gateway is a technology that accepts electronic payments securely.