The Major Differences Between Merchant Accounts and Payment Gateways

For any modern eCommerce merchant, payment gateways, processors and merchant accounts are indispensable parts of their industry.  Even though this fact is well-known, what’s less clear is the various ins and outs related to each of these different concepts. The decisions one takes during this process depend on the understanding of these concepts.


Payment Gateways: Explained

In layman’s terms, payment gateways include the technology which is used to connect merchants of all kinds, including online merchants with different PCI Network.

In som use cases an ACH Payment Gateway makes sense, especially for recurring payments. The most basic features of a typical payment gateway include the following:

  • Securely Capturing Payment Details for Customer Transactions: Payment gateways provide certain tools which the merchant uses to send the shopper’s information to the payment gateway. The gateway uses data encryption for allowing the safe transmission of such payment information.
  • Integrating with Your Online Store: Payment gateways provide merchants with options to integrate their business operations with online credit card processing capabilities.
  • Routing Information to a Payment Processor/Bank: By using payment gateways, the acquiring bank can take over from this point onwards, carefully conducting fraud screening before routing transaction details to the card network.
  • Sending Approval/Decline Message Back to the Merchant: The merchant may direct the shopper to a confirmation page or ask them to provide any other form of payment, based on a simple yes or no response.

How Does It Work? Payment Gateway vs Payment Processor

Payment gateways are used to connect merchants with processors, who consequently connect you to various credit card networks. On the other hand, payment processors directly connect merchants to credit card networks such as Mastercard or Visa. Large payment processors tend to not work with online businesses directly. They instead make reselling agreements with such gateways in exchange for their services to the merchants.

Factors That Make Differentiate Payment Gateways

Even though almost all payment gateways provide a set of identical basic functions, there are several other payment gateways who go one step further, providing a host of useful services related to payment processing. This includes,

  • Fraud Protection: Online businesses are more exposed to the risk of attacks every time they accept a payment. For a business, it can have a major negative impact if its fraud level gets out of control, incurring expenses such as chargebacks, fees, penalties, lost merchandise, and of course a damaged reputation.
  • Tools for Recurring Billing: Using subscription models to sell goods is a popular method used by most businesses nowadays. There are several payment gateway options that provide services like automated billing, sending out payment reminders, customising billing plans, as well as updating shopper’s subscription payment information automatically.
  • Multiple ways of Payment: Modern payment methods are not restricted to just credit cards, with options such as e Wallets, direct debit or bank transfers and other methods now available. Thus, for any successful business, there should be multiple payment options available to attract and retain a larger number of customers.
  • Payment Analysis: Conducting detailed payment analysis on data can help a business stay on top of what’s happening in the industry. They then can take more informed decisions when it comes to improving their business model. The best collection of payment gateways provide their clients with various payment analytics and reports, painting a clear picture when the payment process succeeds and where it needs some improvement.
  • Select Payment gateways can also provide you with a merchant account.

Talk to us about how our All in one payment platform can help if you feel your current gateway is limiting your growth.

If you find that your payment gateway is unable to provide you with the above services, then you should look for a better replacement. Services such as fraud engines are required to be added in addition to your gateway as a fraud prevention tool is recommended in this industry.

Thus, the best option for any online business is to select a single payment gateway that provides all of these services. This includes providing a complete payment processing solution, with strong fraud protection, detailed analytics and a robust subscription functionality.

A Merchant Account: Explained

Merchant accounts allow merchants to process online credit and debit payments.  In this case, you payment gateway or a related entity deposits the funds from the credit card sales. After that the funds are automatically transferred  from the merchant account to the business account, according to a pre-designated schedule.

Merchant accounts differ from business bank accounts to the point that they cause confusion. In a merchant account, you do not have any control over the funds, as it acts as a holding place for deposits. Because merchandise can be returned and the money received in that case is required to be paid back, the money from the sales is not deposited directly to your business bank account. Thus, returns are deducted from the merchant account before transferring the remaining funds to your bank account.

Another helpful advantage is the fact that payment processors can receive deposits from multiple sources and store it in a single holding place rather than multiple  separate deposits.  The funds are collected together in the merchant account which then combines it into one single deposit for the bank account.

Your banking relationship remains the same even if you change your merchant account provider.

For ecommerce merchants, changing merchant providers does not make it necessary to alter their entire banking relationship.

This is because of the nature of the merchant account, which acts as a holding place for the proceeds from credit card transactions. In this case, you are not required to change your bank account to the one used by the payment provider. For example, an existing business bank account with Bank “A” can be maintained and is compatible with a payment merchant with bank “B”, without affecting your relationship with Bank “A.”

About Author