Large and small business owners often ask themselves, "What is the difference between a merchant account and a payment gateway?" Well, they are vastly different entities that serve two unique purposes. A merchant account processes payments for goods or services sold to customers whereas a payment gateway simply transmits data about transactions from your business's website to your bank or credit card company. With this blog post you will learn more about these differences as well as their benefits. So read on!
A merchant account is a bank account that lets your business accept credit cards, debit cards, and ACH (Automated Clearing House) payments while an online payment gateway works like a credit card machine.
Merchant accounts allow businesses to accept payments from customers. It can be provided by a PA that takes funds from the merchant in its account. The funds are deposited into the merchant's account. Merchants can get funds in under 15 minutes and the settlement takes less than 2 days.
On the other hand, payment gateways are technology providers that facilitate and route the online payment of businesses. It captures the payment data of the customer on the checkout page and forwards it to the acquiring bank. This data is forwarded securely in an encrypted format. Thereafter, it informs the customer if the payment has been accepted or declined. But, aside from these basic definitions, what are the key differences between a merchant account and a payment gateway? In this article, we make a comprehensive comparison between merchant and payment gateway.
A payment gateway refers to the technology that connects merchants of all kinds — not just online merchants — and payment networks. At its most basic level, a payment gateway does the following (all in under a second!):
A merchant account is an account that enables merchants to process payments. Your payment gateway deposits the funds from your sales there. According to a designated schedule, as determined by your payment gateway, the funds are automatically transferred from your merchant account into your business bank account, which you set up for yourself.
A merchant account is different than a business bank account, a point that often confuses. You have no control over your merchant account; it is simply a holding place for deposits. Why can’t the money from sales be deposited directly into your business bank account? Since merchandise can be returned, there is always the chance that some money you receive as a seller will have to be paid back, which accounts for a certain level of risk in your transactions. Returns are subtracted from whatever sits in the merchant account at that time; the remaining funds are then transferred to your bank account, sometimes using application programming interfaces.
Also, your payment gateway may be accumulating deposits from multiple sources. Rather than giving you five different deposits, it collects them in your merchant account and combines them into one single deposit for your bank account, making reconciliation easier.
Many payment gateway providers are full-service payment solution providers, which means they provide merchant accounts to their customers along with a payment gateway and processing solution. However, that is not always the case. But setting up your own merchant account is not the ideal situation in simple terms; the fewer providers you have, the better. So, we recommend finding a payment gateway that is also a payment service provider—one that gives you a merchant provider account and handles payouts.
A merchant account is like a business bank account for an organization or enterprise. After the customer pays for the product or service, the payment gateway credits the funds into the merchant account after deducting the gateway fees.
On the other hand, a payment processor helps communicate the payment processing services information between the card companies to Acquirer and Issuing Banks. The payment processor is extremely essential for online payment processing.
A payment gateway can charge fixed and variable costs from the merchants. Fixed charges are usually the onboarding fees, infrastructure charges, and annual maintenance fees. On the other hand, the variable application fees are the merchant discount rate/transaction discount rate (MDR/TDR) charges.
The MDR may vary according to the payment processing solution and is charged per transaction. There are no ways to avoid payment gateway charges. However, you can choose a payment gateway that charges no annual maintenance fees or conversion fees.
A merchant account is a business bank account that is different from a normal bank account. Many payment gateways have zero setup fees and help you set up a sub-merchant account with zero charges and transaction costs.
Yes, a lot of merchant account providers will help you open multiple types of merchant accounts. There can be several reasons for this. For example, the bank decided to shut down the merchant account due to a change in policies and conditions of cooperation. (Companies in high-risk industries are especially susceptible to this.)
It is also possible that the Acquiring bank has imposed a monthly volume limit. Multiple merchants, rather than a single merchant, accounts can help businesses avoid sudden disruptions of payments.
Yes, merchants can have multiple payment gateways on their sites. You can choose to integrate multiple gateways at once. Alternatively, you can integrate multiple gateways but route them selectively. You may route the transactions based on your business needs, the strengths of the gateway or downtimes. Multiple payment gateways can help increase customer trust. Moreover, it can lead to a higher number of successful transactions by balancing the load.
Merchant accounts have been with us for quite some time since the coming on of credit cards. If you are a retailer that sells primarily from brick-and-mortar stores, then setting up a merchant account can help you increase your cash flow in the business.
On the other hand, the payment gateways are ideal for e-businesses and other mobile retailers. When you use this payment gateway, the retailers can easily enter and approve their credit card details from their mobile devices.
BNG Payments is payment processing made easy. Whatever your processing needs, we make it easy for merchants to accept credit and debit cards, mobile payments, e-commerce, and more. Contact us to find out more about what BNG Payments can do for your business.