What Is The Difference Between A Payment Gateway and A Merchant Account?

Online sellers need a merchant account as well as a payment gateway. However, it is important to know the difference between the two when launching an e-commerce website; otherwise you may find yourself paying unexpected fees.

Payment Gateway

Payment gateways are services which are responsible for handling credit card transactions for merchants and customers. When a customer wants to purchase a product from a physical store or website, and they choose to use their credit card for the transaction, they will slide their card or key in their number during checkout. The e-commerce website or card terminal will then transmit the credit card data to the payment gateway, where the transaction will be authorized and the payment initiated.

The transaction will only work if the credit card data sent to the gateway is an identical match tothe information stored on file. If the data doesn’t match, the transaction will be rejected, and the customer will be unable to complete their payment. After the customer’s credit card has been accepted, the payment gateway will be responsible for then sending the money to the merchant account of the seller. Whether a credit card payment is made within a physical store or on a website, the process is essentially the same.

Merchant Accounts

Merchant accounts are different from payment gateways, and are also more complex. A merchant account is essentially a digital bank account which is responsible for holding the funds of a merchant temporarily, until it’s moved to an actual bank account. Once a sale is successfully completed, the funds will first be sent to the merchant account, where it will remain from two to seven days, after which it will be automatically sent to the merchant’s bank account. Merchant accounts come in two basic varieties, and these are dedicated and aggregate.

A dedicated merchant account is an online account created for a specific business. These accounts allow you to establish custom rates for any sales you receive. The rates will depend on your sales volume and the products sold. Aggregate merchant accounts place your funds in a pool with a collection of other companies. PayPal is one of the most famous examples of a company that offers aggregate accounts. These accounts are less complex than dedicated accounts and you can open them faster, but this comes at the cost of less control and you’re also not able to get custom rates.

For small businesses and merchants who are new to e-commerce, it may be best to start out with a payment gateway that provides a merchant account, as the fees are low and setting up the account is fast and hassle free.