The Difference Between a Merchant Account and a Payment Gateway

Accepting online payments can be the next step in growing your business. However, setting everything up might be a little confusing, especially if you are just launching your first online store. If you’ve done some preliminary research on the matter, you may have run into terms such as merchant account and payment gateway. Since these are two cornerstones of any online payment system, we’re going to explain them in this article.

What is a payment gateway/merchant account

A payment gateway is the connection between the financial network and the Internet.  When a customer to initiates a credit card payment online from a business’s website, it is the Payment Gateway that moves that information off of the Internet and into the banking system. The Payment Gateway is the first part of the payment ecosystem, which transmits the payment information to the merchant account. The merchant account is the other end of the ecosystem, and it’s were the funds end up after they’ve been approved. From the merchant account, the funds are then transferred to your normal business account. The payment gateway, and the merchant account are both necessary for accepting credit card payments.

How does a payment gateway work?

A payment gateway will allow you to process payments through a variety of channels, including credit and debit cards. The gateway also ensures that all payment information is encrypted and secure as it is being transferred to the payment processor. From the customer’s point of view, access to the payment gateway can take the form of a hosted page, an API or an integrated shopping cart.  The gateway itself is invisible to the customer.

Once a customer initiates the payment procedure at a checkout page, the payment goes through the gateway to the payment processor, then travels across the credit card network, before reaching the customer’s credit card issuer where it awaits authorization. If authorized, the funds are transferred from the customer’s credit card account to the business’s merchant account.

There are plenty of gateways to choose from, but it’s important to choose one that is PCI compliant. There are various PCI standards, and complying to the highest standard ensures that your customers are fully protected. A good standard would be at least the PCI DSS-Level 1, in order to ensure that no cardholder data is exposed.  A good merchant account provider will take care of this for you, so make sure to choose a reputable merchant account provider.

How does a merchant account work?

Once a sale is considered successful, money is transferred into a merchant account. A merchant account is a kind of bank account that stores the money that has been paid by credit card to the business.  The advantage of a merchant account is that it can accept many forms of payments including debit/credit cards, wire, giropay, ACH and others. A merchant account will hold all of the funds you receive from these sales, and transfer them to your normal bank account on either on a set schedule, or when you choose to initiate a transfer. There are two types of merchant accounts: dedicated and aggregated. Dedicated accounts belong to your business alone, and they tend to have the better rates, because they are specifically tailored for your kind of business and sales volume. Aggregate accounts are easier to get, but they are shared with other companies, which means that you will normally get the rate available to the least desirable business that is able to share the aggregate account with you, which may not be the best rate your business could qualify for.  Aggregate accounts are also much less safe, because if any single merchant using the aggregate account does something illegal or improper, then the entire aggregate account may be shut down for all the merchants using it.

For more information on merchant accounts and payment gateways, or to sign up for a merchant account, please call (888) 924-2743 or go to

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