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What is the difference between a merchant account and a payment gateway?

Thursday, 05 Aug, 2021

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E-commerce has become an essential component of the global retail framework in recent years. The retail landscape, like many other industries, has undergone significant transformation since the advent of the internet, and thanks to the ongoing digitalization of modern life, consumers from virtually every country now benefit from the advantages of online transactions.

Due to the rise of online transactions nowadays, the payment gateway providers and the merchant accounts have grown in popularity as a result of the Internet's rapid expansion, to meet the customer’s demands. They are in charge of a payment's security, sensitive transaction data, and processing it into a virtual station or an E-commerce website.

So, what is the difference between a merchant account and a payment gateway ?

1. What is a merchant account and payment gateway?

1.1. Merchant Account

A merchant account is a type of business bank account that allows a company to accept and process credit card payments. Merchant accounts necessitate a partnership between a business and a merchant acquiring bank, which facilitates all communications in an electronic payment transaction.

1.2. Key takeaways of the merchant account

A merchant account is a bank account that is specifically set up for business purposes and allows companies to make and accept payments.

Merchant accounts, for example, enable a company to accept credit cards or other forms of electronic payment.

Merchant account services frequently come with additional fees, but they also provide a variety of services.

1.3. Payment gateway

  • A payment gateway is a piece of technology that merchants use to accept debit or credit card payments from customers. The term refers to both physical card-reading devices found in physical retail stores and payment processing portals found in online stores.

1.4. Key takeaways of the payment gateway

  • Payment gateways are customer-facing interfaces that collect payment information.
  • Payment gateways in physical stores are point of sale (POS) terminals that accept credit card information via card or smartphone.
  • Payment gateways are the "checkout" portals used in online stores to enter credit card information or credentials for services such as PayCEC.
  • Payment gateways are distinct from payment processors, which collect payments on the merchant's behalf using customer information.
  • There are also payment gateways that allow for cryptocurrency payments.

What is the merchant account and payment gateway?

What is the merchant account and payment gateway?

2. Payment gateway and merchant account

2.1. How does the payment gateway work?

When it comes to the operation of an online payment gateway, it always follows a procedure for settling the payment. This occurs when a customer orders a service or product from a merchant who accepts payments through a payment gateway. The payment gateway goes through a number of steps, beginning with entering the card details and ending with payment flowing into the merchant's account and settling.

  • Step 1: It is linked to the merchant account. It provides companies with one or more options for integrating online card processing with their merchant business account.
  • Step 2: It saves payment information for each customer's transaction. Using the tools provided by the payment gateway provider, the merchant sends information about their customers to the payment gateway. To ensure the security of the payment information, the gateway encrypts it during transmission.
  • Step 3: It sends that information to a payment processor or an acquiring bank. The acquiring bank takes over at this point. Before sending the transaction to the card networks, it performs some fraud screenings.
  • Step 4: It sends an approval or decline notification to the merchant. Based on their yes or no response, the merchant sends a confirmation or rejection notification to their customers. They may request that their customers pay in another way.

The payment gateway serves as a middleman between the customer and the merchant, ensuring that the transaction is completed securely and quickly. Merchants may find it easier to integrate the necessary software with the help of an online payment gateway. As a middleman during payment processing, the gateway manages the customer's sensitive card details between the acquirer and the merchant.

2.2. How does the merchant account work?

When customers make a purchase, the funds must first be authorized and processed before they can be deposited into the merchant's account.

A few safeguards are in place to protect merchants from card fraud and to ensure that the consumer has the funds to pay for merchants. The money is paid directly to the merchant account after their customers' card payments are checked following the transaction.

Most merchants rely heavily on merchant accounts to run their businesses. When it comes to selecting a merchant account service provider, merchants have a number of options, with transaction costs playing an important role. Merchant acquiring banks, which work with merchants to facilitate electronic payments, provide merchant accounts.

If a brick and mortar business chooses not to accept electronic payments and only accepts cash, they do not need to open a merchant account and can instead rely on a basic deposit account at any bank. However, because electronic payments are the only option for online businesses, they must establish merchant account partnerships as part of their business operations.

What are the payment gateway and merchant account?

What are the payment gateway and merchant account?

3. What is the difference between a merchant account and payment gateway?

There are some erroneous conceptions commonly about the difference between payment gateway and merchant account, the business only requires one or the other. Actually, they serve 2 specific different functions: while the payment gateway brings a desired condition for online transactions and allows merchants to process them, the merchant account is a holding account which those payments first being sent to before being deposited into the regular bank account.

Here’s some key simples about the difference between payment gateway and merchant account.

What is the difference between a merchant account and payment gateway?

What is the difference between a merchant account and payment gateway?

3.1. Terminology 101

A merchant account is a holding account where the payment transaction’s information is collected , here is where the funds are held. Funds will be sent to the merchant business bank account, once the payment is verified.

On the other hand, the payment gateway is the platform that links between the merchant account and the shopper's bank. It allows funds to flow into the latter one after the payment transaction is verified.

3.2. Finding the right fit

The next point is figuring out how to choose the right merchant account and the right payment gateway for the demands.

When it comes to merchant accounts, there are 2 main options: a payment service provider (PSP) merchant account and an independent sales organization (ISO) merchant account.

A PSP account is set up quickly and easily, it is used especially by small and medium-sized businesses. About an ISO account, it is used by large-sized businesses and set up complexly. But it usually offers lower transaction fees. Depending on some specific characteristics of your business, one merchant account may be the best fit for the business than the other. Choosing the right payment gateway is also a thing. Besides that, there are other factors such as processing fees, security and support - which is different, compared to the payment gateway, to the next one.

4. Advantages of payment gateways and merchant accounts

The purpose that comes first when talking about the difference between payment gateway and merchant account.

What are the advantages of a payment gateway and a merchant account?

What are the advantages of a payment gateway and a merchant account?

4.1. Merchant account

  • Improves cash flow
  • Increases sales
  • Remains competitive in a challenging market

4.2. Payment gateway

  • Integrated payments within accounting, CRM, or ERP software.
  • Card-present transactions at a point-of-sale system.
  • Contactless payments tapped or waved over a near field communication (NFC) device.

5. What makes some payment gateways different from others?

5.1. Multiple payment methods

Paying for goods and services online isn't limited to credit and debit cards. Because many customers choose to pay with eWallets, direct debit, or bank transfers (especially if you're selling internationally), you'll need more than simply a credit card payment gateway.

5.2. Fraud protection services

Every time an online business accepts a payment, it puts itself at danger of being hacked. Your business will suffer as a result of chargeback fees and fines, lost merchandise, and reputational damage if your fraud level spirals out of control. Finding a payment gateway with powerful fraud detection and prevention technologies will assist you.

5.3. Recurring billing tools

Many organizations now sell things via a subscription basis. Finding a payment gateway that can handle automated billing, issue payment reminders, set up flexible billing plans, and automatically update shoppers' subscription payment details will make your life easier.

6. What do businesses need?

To accept credit or debit card payments through a merchant's website, merchants will need both payment gateway and merchant account: a payment gateway (to accept payment details and connect to payment networks) and a merchant account (to receive the funds). However, some services effectively combine these two elements:

6.1. Provider of All-In-One Payment Services (PSP)

Some payment gateway services function as both a payment gateway and a merchant account, eliminating the need for a separate merchant account.

6.2. Payment Gateway and Merchant Account are separate entities.

Other providers sell payment gateways and merchant accounts separately. Merchants can obtain them from the same or different providers (e.g. a SagePay gateway and a First Data merchant account). Merchants can integrate payment gateway to any other merchant account from their preferred banks. This helps merchants manage their funds easier with the suitable business banking account.

7. What are the fee charges of the merchant account and payment gateway?

7.1 For payment gateway

Based on the difference of fee charge of every payment gateway provider, at PayCEC, we provide 2 pricing packages:

7.1.1 Standard

Overseas representative offices and international subsidiaries are available to experienced merchants looking to massively expand up their company.

  • Everything you need for online business
  • Take advantage of hundreds of up-to-date powerful features
  • Optimize profits in the international market (including: USA, Europe, Middle East, India, Singapore, Hongkong…)

7.1.2 Premium

All in one solution for your business needs.

  • Marketplace platform support
  • Incorporation & banking account consultancy
  • Ideal for startups and SMEs
  • Cost-Effective
  • Rich Ecosystem

The fee charges will be changed from time to time, includes:

  • Set up fee (FREE)
  • Account Management Fee
  • International charge
  • Chargeback protection

Read more: Payment gateway fees

7.2 For merchant accounts

One of the difference between merchant account and payment gateway is the fee charged. The fees associated with a merchant account differ depending on the service provider. In some circumstances, merchant accounts have a set per-transaction rate that is free of additional charges. Others employ an interchange-plus pricing model, which combines the processing cost from the credit card issuer with a markup from the merchant account provider. Finally, there's the tiered pricing approach, which gives a variety of fees depending on the transaction. 

  • Flat-rate pricing: The flat-rate pricing model, which is most typically used by mobile credit card processors, is straightforward. You will be charged a set percentage for each transaction that is completed.
  • Interchange-plus pricing: The interchange rate is the fee charged by the credit card company for processing transactions. A payment processor will charge this rate plus a markup as its profit in interchange-plus pricing.
  • Tiered pricing: Qualified, non-qualified, and mid-qualified transactions are divided into three groups by tiered pricing. Non-qualifying transactions are the most expensive, whereas qualified transactions earn the best rate.

Furthermore, at PayCEC, when you register for a merchant account, there are several benefits, such as:

  • Checkout Payment
  • Account Management
  • Custom Payment Page
  • Mobile and Tablet Payment Page
  • Risk Management
  • Real-time Risk Management
  • 3D Secure Transaction
  • Fully PCI DSS
  • Tokenization

Read more:

About us

PayCEC was established in response to the growing need of businesses to accept online payments more quickly and easily. In the new media era, our payment flow has evolved to work seamlessly and effectively across all platforms and devices. We pride ourselves on combining superior technology with first-class customer service.

PayCEC is a truly global payments platform that not only allows customers to get paid but also withdraws funds to their Business accounts in various currencies.

We have created an open and secure payments ecosystem that people and businesses choose to securely transact with each other online and on mobile devices.

PayCEC Team

 

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We are honored to serve as your reliable business partner and financial service provider in the industry and other business-related services. With the help of our professional staff, to help merchants to achieve their goals for the development and expansion of the international business market.

Our payment flow has developed in the e-commerce world to perform seamlessly and effectively across all platforms and devices. We take pleasure in combining technology with customer service, to solve your concerns at the moment.

PayCEC is a fully worldwide payment network that not only allows merchants to be paid immediately and securely, but also allows them to withdraw money in multiple currencies to their company accounts.