Payment Gateway vs. Merchant Account, Which one is Right for You?

Tuesday, June 5th, 2018

What is the difference between payment gateway and a merchant account? These two services are sometimes confused. As a small business owner, it is important that you understand the differences between the two and understand which one is ideal for your business’ needs.

Payment Gateway

A payment gateway is used to facilitate online transactions and help them get approved. It allows online customers to enter payment details like a credit or debit card. Payment details are entered via the merchant’s website or through a secure form provided by the payment gateway itself. It is the first stop for a transaction when a customer submits an order online. The transaction flows through the payment gateway, where it should be approved, and then makes its way to the merchant account. Example of payment gateways include: PayPal, Stripe, First Data, WorldPay and SagePay (in the UK).

Merchant Account

Merchant accounts are a special type of bank account that works behind the scenes. It is the account where funds are send on the successful completion of debit and credit card payments that have been made via a payment gateway, virtual terminal or physical card terminal. Some businesses struggle to secure merchant account because of their business type or industry. Certain businesses are considered “riskier” than others, causing many providers to turn them away. However, these merchants can still secure a merchant account – and payment processing – through a high-risk provider.

So Which Merchant Service Do You Need?

If your business has an online presence, you will need both a payment gateway account and a merchant account. Taking credit and debit cards via your website requires that you be able to accept the payment details and connect to the payment networks (payment gateway) and be able to receive the funds (merchant account). Fortunately, many providers bundle these services together.

Your options include:

• All-in-One Payment Services Provider (PSP) – Many providers (e.g. PayPal and Stripe) are a payment gateway and merchant account combined. There is no need to search for a separate merchant account. The advantage of this is that you can have your account setup very quickly and is a cost-effective option for small merchants. You will want to do careful research, however. Some merchants have experienced their account suddenly being suspended or money held with little to no explanation.
• Separate Payment Gateway and Merchant Account – Other providers (e.g. SagePay and First Data) offer payment gateways and merchant accounts as separate products. This option is not as cheap for small businesses as all-in-one providers. A disadvantage is how strict these providers can be during the approval process, and they typically involve longer wait times for application processing (weeks, in some cases).

Do you want to compare providers before choosing a payment gateway account and a merchant account? Consider the many reviews and tips Best Payment Provider has to offer. Find the very best providers in the industry, and research everything you need to know before making a decision.