Merchant Account vs Payment Gateway (2024)

There is a common misconception that when it comes to a merchant account vs a payment gateway, your business requires only one or the other. In fact, the two serve totally different functions: a payment gateway facilitates online transactions and allows you to process them, while a merchant account is a holding account where those payments first land before being deposited into your regular bank account.

The reality is that in order to process payments, you need both a merchant account and payment gateway. Still confused? Here’s a simple breakdown of the key differences between the two.

Terminology 101

Amerchant accountis a holding account where information about payment transactions is collected. For any business that accepts card payments, this is where funds are held. Once the payment is verified, funds are passed on to your business bank account.

Meanwhile, apayment gatewayis the link that makes the connection between a customer’s bank and your merchant account, allowing funds to flow into the latter after a payment transaction is cleared.

If you’re having trouble wrapping your head around these definitions, try thinking about them with this analogy: your merchant account is like a central train station, your payment gateway is like the many rail lines connecting your station to your customers’ banks, and each payment transaction is like a train. Without your station, the train has nowhere to depart from and return to; without the rail lines, the train has no way to move.

Finding the Right Fit

Now that you know how they work together, the next challenge is figuring out how to choose the right merchant account and the right payment gateway for your needs.

For merchant accounts, you generally have two main options: a payment service provider (PSP) merchant account and an independent sales organization (ISO) merchant account.

A PSP account is quicker and easier to set up, and is used primarily by small and medium-size businesses. An ISO account is used by large businesses and is more complex to set up, but it generally offers lower transaction fees. Depending on the specifics of your business, onetype of accountwill usually be a much better fit for you than the other.

Choosing a payment gateway is also about finding the right fit. For example, some payment gateways deal only with specific types of merchant accounts and banks. In addition, some may not work with one of your customers’ preferred payment methods, such as Apple Pay. Going back to the train analogy, this would mean that the tracks don’t go to your central station.

There are countless other factors—such as processing fees, security, and support—that vary from one payment gateway to the next, so it’s worthasking the right questionsto find the one that’s right for you.

Payments Made Easy

AtWorldline, we strive to make your payment process simple, smooth, and secure. It isn’t a question of having a merchant account vs a payment gateway; we know you need both. That’s why we offer both ISO and PSP merchant accounts, and a bank agnostic gateway.

Payments should be easy, so that you can focus on growing your business. AtWorldline, we work with you to make this possible.

Merchant Account vs Payment Gateway (2024)


Merchant Account vs Payment Gateway? ›

The merchant account verifies the payment information, processes the transaction, and transfers the funds from the customer's bank to the business's bank. The payment gateway sends a confirmation back to the business's website or point-of-sale system, allowing the customer to complete their purchase.

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

In fact, the two serve totally different functions: a payment gateway facilitates online transactions and allows you to process them, while a merchant account is a holding account where those payments first land before being deposited into your regular bank account.

What is the difference between merchant acquiring and payment gateway? ›

Acquiring payment processors allow merchants to accept card payments via a payment gateway. Payment gateways are platforms through which card transactions can be processed, either online or via card terminal at a physical premises.

What is the difference between merchant of record and payment gateway? ›

Merchant of Record vs.

Payment service providers do not assume any responsibilities relating to tax, fraud risk or payment disputes for the transactions that pass through their gateway. Conversely, a merchant of record will take care of these aspects.

What is the difference between a payment provider and a merchant account? ›

Popular examples of PSPs include Stripe, Square, and PayPal. A PSP and a merchant account aren't the same thing. With a traditional merchant account, the merchant has its own account. A PSP, on the other hand, combines a variety of different merchants under a single umbrella account.

What is considered a merchant account? ›

A merchant account is a bank account that is specifically used for accepting customer payments, usually by credit card, debit card, or other electronic transfer. It's not a standard business bank account. A merchant account holds on to funds before they're transferred to the merchant's primary business bank account.

What is an example of a merchant account? ›

An example of a merchant account would be a business account at a bank or financial institution specifically set up for a retail store or online business. This account enables the business to accept payments from customers using credit or debit cards, either in a physical storefront or through an e-commerce platform.

Is Stripe a merchant account? ›

Stripe offers an integrated, user-friendly platform that combines payment processing and merchant account functionality and makes it simple for businesses to accept, process, and manage electronic payments.

What is a merchant payment gateway? ›

What is a merchant payment gateway? A merchant payment gateway is an essential e-commerce tool that securely authorizes and processes online business transactions. Acting as a bridge between a customer's bank and the merchant's website, it encrypts sensitive payment data, ensuring secure and efficient transactions.

Is PayPal a merchant acquirer? ›

Some platforms, like PayPal, can act as both processor and acquirer, completing your business transactions and securely storing your money in one place.

Why do you need a payment gateway? ›

Payment gateways not only enable online transactions but also improve overall business operations. By providing a more secure and efficient transaction process, enhancing customer experience and facilitating global reach, payment gateways are an important component of digital commerce.

Is PayPal a merchant of record? ›

PayPal is a merchant of record for many of its customers. People feel more secure when their cardholder data is handled by such a reputable platform as PayPal and not by some unknown vendors it represents.

Why would I need a merchant account? ›

A merchant account is a bank account specifically established for business purposes where companies can make and accept payments. Merchant accounts allow, for instance, a business to accept credit cards or other forms of electronic payment.

Who sets up a merchant account? ›

Merchant account FAQ

A merchant account is a type of bank account that allows businesses to accept payments from customers via credit cards, debit cards, and other payment methods. Merchant accounts are typically set up by merchant banks or payment processors in order to process payments.

What is merchant Gateway? ›

A merchant payment gateway authorizes payments for retailers in every business categorization. These payment processing platforms ensure that the sensitive transactional information you enter on any E-commerce website is passed safely from the customers to the retailer.

What is the purpose of a merchant account? ›

A merchant account is usually a third-party bank account that facilitates credit or debit card payments from customers to a business by holding card payments and then depositing them into a business's bank account. Some point-of-sale providers or payment processing providers include merchant account services.

What is a merchant services gateway? ›

A payment gateway is a technology used by merchants to accept debit or credit card purchases from customers. The term includes not only the physical card-reading devices found in brick-and-mortar retail stores but also the payment processing portals found in online stores.

What is an Internet merchant account? ›

An internet merchant account is essentially a bank account for an online business. It allows merchants to deposit and refund online payments. It is typically obtained through an acquiring bank. Merchants pay a processing fee for each transaction processed.

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