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

difference-between-a-payment-gateway-and-a-merchant-account

Payment gateways, payment processors, merchant accounts – all these terms might seem a tad bit confusing if you are in the e-commerce business and are planning to accept digital payments from your customers. Most often, the terms ‘payment gateway’ and ‘merchant account’ are misunderstood to be the same. Well, that is not true.

Let us break down the terms in simple words first.

A payment gateway makes it possible for you to execute online transactions, whilst a merchant account acts like a holding account where all the funds initially arrive before being transferred to your business’s bank account. 

In order to conduct hassle-free transactions, you need to have them both. Keep reading further to understand the terms better and in more detail.

Difference Between a Payment Gateway and a Merchant Account

A merchant account serves as a holding account for all the data collected on payment transactions. The funds of any business that accepts credit cards are stored here.  After the payment is confirmed, the money is transferred to your business bank account.

When a payment transaction is cleared, a payment gateway establishes a connection between the customer’s bank account and your merchant account, allowing money to flow into the latter. 

NTT DATA Payments offers a complete payment solution to your business with their payment gateway services, ensuring a seamless experience of accepting and managing online payments. 

To put it in simpler words, a merchant account is more like the destination, while the payment gateway is the means you get to the destination. An easy analogy to better understand the difference is to think of the merchant account as a central railway station and the payment gateway as the railway lines. Payment transactions are trains moving along the railway lines to reach the railway station. 

Payment Gateway vs Payment Processor

PAYMENT GATEWAYPAYMENT PROCESSOR
The mechanism that delivers payment information from the point of entry to the payment processor is known as a payment gateway. Additionally, it informs the merchant or the customer of the clearance or denial.A payment processor is in charge of communicating transaction information to and from the merchant’s acquiring bank and the customer’s card-issuing bank.
A payment gateway is mostly used in e-commerce businesses to accept payments via online means,  POS machines, card readers, or software integration.A payment processor is used for all card-based transactions, irrespective of where and where they occur.

MERCHANT ACCOUNT

Benefits of a Merchant Account

A merchant account helps you in many ways. Here are a few benefits:

  • It groups all the transactions made and deposits them in your business’s bank account in one go. This way, keeping track of transactions and managing accounts is easier.
  • It helps you deal with uncertainties in transactions like customer returns.
  • Merchant accounts also check for fraud in transactions. It stops suspicious and questionable transactions from entering your business’s bank account, thus saving you money from large transactions. 

How to Acquire a Merchant Account?

Most payment gateways offer all payment solutions, i.e., they provide customers with a merchant account, payment gateway, and a payment processor. So if you are thinking about setting up these, make sure you find a full-service payment solution provider who will provide you with everything you need. Some payment gateways offer only gateway service and expect you to set up a merchant account on your own. However, that is not the best idea. Choose a payment gateway that is also a payment solution provider.

How to Choose a Merchant Account?

Before you choose a merchant account for your business, you must know the types of merchant accounts. There are two main types of merchant accounts: 

  1. Payment Service Provider (PSP) merchant account: This is usually used for small and medium businesses and is quite easy and quick to set up. Though it is a much more affordable option for many businesses, it comes with a risk of vulnerability since this type of merchant account expects you to share your account with other merchants.
  2. Independent Sales Organization (ISO) merchant account: This is an individual and dedicated merchant account for your business that need not be grouped with other merchant accounts. This is mostly used by large businesses and is a bit complex to set up. It also incurs a huge amount of money for setting up. However, it offers low transaction fees.

When choosing the right fit for your business, you must consider many factors like price and payment plans, processing and chargeback fees, and the merchant account provider’s anti-fraud tools. 

PAYMENT GATEWAY

Why Do You Need a Payment Gateway?

A payment gateway serves many functions, including

  • Security: A payment gateway captures and encrypts the customer’s account information at the time of checkout. This keeps the data safe and secure from cyberattacks and fraudulent transactions. 
  • Routing the information: With the information gathered, the payment gateway routes them to the payment processor or the merchant account, where more security checks are done before transferring the amount to the business’s bank account.
  • Merchant gets to decide: Whenever there is an issue with the transaction, the payment gateway will ask the merchant what they want to do or how they would like to proceed. The merchant can decide whether to continue with the transaction or go for an alternative mode of payment.

How to Choose a Payment Gateway Service Provider?

Just like how you need to choose the right merchant account according to your business needs, you must select a payment gateway that will help your business offer seamless payment services for your customers. 

Some payment gateways work only for specific banks and merchant accounts. Some might not work with payment modes preferred by your customer. You have to research well and find the one that will offer maximum services and benefits to your business.

You can keep these points in mind while selecting a payment gateway

  1. Check if the payment gateway provider offers multiple payment options. Customers prefer different modes of payment like credit/debit cards, e-wallets, mobile payment, or direct debit. Make sure your payment gateway provider offers all of these options.
  2. Find out if your payment gateway provider offers good fraud protection tools. Fraud and other cyberattacks are a constant source of worry for both businesses and customers. If the payment gateway provider does not help with fraud protection, it can harm your business severely.

You should look for other factors like security, support, and processing fees. 

NTT DATA Payments is one of the top payment service providers that provides payment gateway solutions to businesses, both small and big, at competitive prices. They provide end-to-end payment acceptance services through both online and offline channels with a vast range of payment services and offer 100+ cutting-edge payment options

Conclusion

To wrap up, a merchant account and a payment gateway are not the same. You need to have them both to process and manage payments efficiently and securely. As a business owner, it is your responsibility to research them and choose the ones that perfectly fit your business and its needs.

Leave a Reply

Your email address will not be published. Required fields are marked *