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Payment Gateway vs Merchant Account: Understanding the Differences

Read Time: 4 min

The business world is full of terminology, much of which may be difficult to understand at first. While many business terms can feel intimidating, it’s important to learn their meanings. Doing so ensures you don’t invest money, time, and other valuable resources into something unfamiliar to you. Today, we’ll look at payment gateways vs merchant accounts and dive into the details differentiating them.

What is a Payment Gateway?

A payment gateway is the technology merchants use to accept electronic payments from their customers. In a brick-and-mortar store, the payment gateway is the POS card terminal. Whereas, in eCommerce, it’s where one inserts payment and personal information. (In other words, the online checkout page.) The payment gateway applies industry-standard encryption during the transferring of the customer’s payment information to the business owner’s account. This secures the transaction, protecting both participating parties, as well as their accounts, from fraud.

How does a payment gateway work?

payment gateway vs merchant account

In physical stores, the POS card terminal is connected to a cable in order to send and receive information. However, in eCommerce, 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.

In 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 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’ customer base through 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.

difference between merchant account and payment gateway

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 then store payments from transactions. However, a business uninterested in receiving payments through a POS card terminal or online needs neither a payment gateway nor a merchant account.

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 account vs payment gateway 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 a technology that accepts POS card terminals and electronic payments securely.

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