Merchant account is a retailer’s bank account that allows payments from consumers’ credit or debit cards. Payment gateway on the other hand, is not a bank account but it only acts as a terminal for verification and authorization of transactions in credit card processing.
Merchant account and payment gateways are sometimes conjectured as one for the fact that both deals with financial transactions. But actually they are both very different from each other though they are partners in the matters of online business and financial transactions.
What a merchant account is
It is a type of bank account that allows credit or debit card payments for goods or any services offered in any business. It practically manages all the financial transactions in your business such as payments.
Many chose to have a merchant account because it has great benefits to both the retailers and the consumers. To the buyers, it saves them time and the problem of paying cash-only payments. They can buy expensive stuffs too from stores without worrying about bringing large amounts of money on their wallets. To the sellers, it saves them from constantly sorting all the cash and checks in their business because everything would be done electronically.
Getting a merchant account isn’t easy and it is not for free, meaning account providers charge fees to every transactions and services made in the merchant account. That is why there are terms, conditions and policies that retailers should fully understand and certain factors that retailers should consider before a merchant account could be approved by any account providers. These factors are very crucial too to account providers because these factors will give them the assurance that your business would be strong enough against economic instabilities or financial crisis because account providers too are affected when that happens.
What a payment gateway is
Payment gateway is not a banking account but serves as an authorization and verification agent on behalf of the seller. It is the middle line between retailers online store to the financial transactions between the consumers credit or debit card to the retailers merchant account. It acts as a terminal for credit or debit card validation and transaction details encryptions.
Payment gateways are very helpful in online businesses. It is in online business that a payment gateway is connected with a merchant account.
Here’s how payment gateway works in online sales processing to let you understand how it is different from a merchant account:
1. Buyer visits a business site and selects items that he wants to buy.
2. The buyer then receives a copy reviewing all of the items he selected and he then clicks on the “buy me” button when he’s sure with his purchases.
3. All items selected will then be put in the electronic shopping cart meaning that it is being ordered.
4. The consumers are then asked to put some details about their credit or debit card accounts before completing the buying process.
5. When confirmed, the site will then pass the transaction details to the payment gateway. The payment gateway will send transaction information to the bank in which the customer’s card was issued.
6. The issuing bank will then give a response to the payment gateway whether it was approved or not. If approved the buyer’s credit card will be debited and the retailer’s account will be credited.
7. The payment gateway will forward the response to the retailer’s merchant account server.
8. The merchant account server will relay the response to the customer to let him know if the order was successful or not.
9. This process will only take a few seconds and at the end of settlement period, the customer’s issuing bank will deposit the total amount of money in the transaction details to the retailer’s account. Payment gateways usually log all the delicate information in business transactions to ensure that it is securely transferred from consumers to retailers.