Businesses from Etsy merchants to big-box retailers, antique sellers to trade shows, merchants accept payments of credit cards. Businesses in this ever-changing, fast-paced, and complex e-commerce industry are in favor of online payments. If you are changing or accepting online sales of credit card payments, it means you may be aware of the merchant accounts. However, in e-commerce as a newbie, grappling to learn regarding payment gateway and the difference between a merchant account and payment gateway is helpful.
Merchant account
It is an online bank account, holding your money temporarily as the payment gets approved through a payment gateway. The money remains after the payment for a few days in the merchant account. It may be for 2 to 7 days and will later get transferred to a real bank account.
The merchant accounts are of two types:
- Dedicated Merchant Account- It provides complete control over the funds. The merchant account provider deducts processing fees with each transaction, and the balance is deposited into the business account. Set with payment gateway systems the account, such as PayLeap, Authorize.Net, and Blue Pay Processing LLC. Actions to take using a dedicated merchant include:
- Correcting transaction errors
- Debiting account of the customers making claims for charge-back
- Taking actions necessary in case of fraudulent activity evidence
- Aggregate Merchant Account: It allows the pooling of customers’ money with other companies. Open an account; give details of your company dealing with the products or services. However, as the money is pooled with other companies, there is no exclusive control over the account. There is no negotiation in rates on using the account.
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Payment gateway
It is an e-commerce application system permitting credit card payments for online retailing, transactions, and traditional transactions of brick and mortar. Buyers buying the services and products from your online store may fill during the checkout process the credit card details.
Your online store will send credit card data and reach the payment gateway seeking transaction authorization and payment processing. The payment gateway, during the processing, verifies if the customer’s information is submitted with the data and matches as per the credit card. The payment is approved on matching, while money gets transferred to the merchant account from the customer’s account.
Payment gateway’s main feature is that you do not require changing bank accounts to perform anything. It is simple to integrate systems with the online store. However, the transaction charges are higher and are the downside of using this payment system. Modern payment gateways send the payments to off-sites and thus reduce for some stores the conversion rates.
Merchant account vs. Payment gateway
A merchant account is a bank account type allowing businesses to accept payment in multiple forms. It includes debit and credit cards and ACH payments. Actually one cannot access the account, but it acts as a liaison between individual card-issuing banks and businesses to acquire funds and settle using a business bank account. An acquiring bank or a merchant acquirer provides merchant accounts, and it may be a credit card processor.
A crucial eCommerce component is a payment gateway. It works typically like any credit card machine allowing customers to pay through the web. Today, most businesses, vendors, and dealers accept payments of credit cards and grow their businesses. It is the reason more businesses accept online payment.
The right choice for businesses
Payment gateways vs. merchant account, the latter, the merchant accounts, are with us right from the time the credit cards emerged. Any brick-and-mortar store can increase cash flow on setting a merchant account.
Payment gateways are ideal for mobile retailers and e-businesses. Using their mobile devices reaching payment gateway, retailers can approve credit card details.
Putting together
Adding a merchant account or payment gateway system to an online store is a crucial part of promoting business. Accepting payments is possible in the fast-paced today’s life and business environment ever-evolving. With a payment gateway, the online transaction happens through secure hosted payment through an integrated shopping cart.
The advantage of Merchant account vs. Payment gateway is that it enables businesses to accept electronic payments and credit cards. Setting a merchant account helps:
- Increase sales
- Improve cash flow
- Staying competitive in challenging market
Traditional payment gateways are suitable for mobile and eCommerce retailers. It may be used by all types of merchants to offer a purchasing experience across different channels, including:
- Point-of-sale transactions featuring card-present
- Integrated payments within ERP software, CRM, and accounting
- Contactless payment over some device NFC ( near field communication)
What is right for my business?
Small business owners selling online to customers require a solution as on-the-go processing of credit cards. Even large enterprises streamline the process of payment helps in accepting payments as per the need of the business. Payment gateway vs. merchant account lets payment gateway work like credit card machine, and merchant account lets businesses use multiple payment forms including ACH payments, debit cards, and credit cards.
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