Payment Gateway vs. Merchant Account: What's the Difference?

Digital payment methods are quickly replacing traditional methods. Hence merchant accounts and payment gateways are crucial for payment processing. They are essential tools for businesses in need of payments and merchant services. But there has always been a payment gateway vs merchant account misconception among some merchants.

Don’t they do the same thing? Why do I need both for my business?

Well, the truth is, the two serve totally different functions. A payment gateway enables online transactions and facilitates their processing, whereas a merchant account serves as an interim holding account where these payments initially arrive before being transferred to your standard bank account.

So in most cases, you need both in order to make payments successfully.

Still confused?

Here is everything you need to know about merchant accounts and payment gateways: what they are, how they’re different, and how they work together.

Payment gateway vs merchant account — What’s the difference

The payment gateway is the bridge that connects a customer’s shopping cart to the payment processor. It's the digital pathway that securely transmits payment information, such as credit or debit card details, from the device to processor processors. This ensures that the payment is processed accurately and safely.

For example, let’s say that a customer is shopping for a car online. Once they enter their credit card information, a payment gateway will transmit the information from the customer’s device to payment processors. This is the first step to completing the transaction.

On the other hand, your merchant account is like a temporary pit stop for the money paid. When a customer makes a purchase using credit and debit cards, those funds don't immediately appear in your regular business bank account.

They first take a detour and land in what's called a merchant account. This account accepts payments and temporarily holds them before smoothly transferring them to your business's bank account. It's like a checkpoint that ensures the payment process is accurate and reliable.

Merchant account vs payment gateway: How do they work together?

Merchant accounts and payment gateways might sound like technical jargon, but their partnership is the backbone of smooth payment processing. Here’s how the process typically works:

Step 1: The customer initiates a payment, and the payment gateway securely transmits customer payment information to the payment processor, which then takes over processing payments.

Step 2: The payment processor verifies payment details with the customer's bank, confirming the legitimacy of the transaction.

Step 3: The approved payments temporarily reside in the merchant account before being moved to the business bank account.

Step 4: The payment processors/ merchant account provider meticulously reviews transactions for accuracy and fraud prevention.

Step 5: After verification, funds move from the merchant account to the business bank account.

Who needs a payment gateway?

Many customers prefer electronic payments as their primary way of paying. On a global scale, there has been a significant rise in non-cash retail payment transactions. In fact, projected numbers show that the digital payment market will grow by approximately 14% by 2028.

To stay competitive and meet the demands of contemporary customers, all businesses must ensure they can offer online payment gateway services. You need to be able to accept payments online.

Electronic payments matter most to businesses in high-transaction industries like retail, eCommerce, hospitality, and healthcare. They're also vital for businesses looking to reach more customers, improve cash flow, and simplify payment processes.

How to choose a payment gateway provider

There are many factors to consider when choosing payment service providers, with numerous options available, choosing a provider that aligns with your business needs is crucial. Here are some crucial steps to follow when choosing a payment gateway provider:

Step 1: Start by understanding your business's specific requirements. Consider factors like the types of payments you want to accept (credit card payments, debit card payments, online payments), the volume of transactions, and any integration needs with your website or platform.

Step 2: Security is paramount in online transactions. Ensure that the payment gateway provider you choose employs robust encryption and complies with industry security standards to safeguard your customers' sensitive payment information.

Step 3: Clear and transparent pricing is crucial. Look for a provider that offers straightforward pricing models (including their processing fees) without hidden fees or complicated structures. This will help you budget effectively and avoid surprises down the line.

Step 4: A user-friendly interface is essential for both you and your customers. The payment gateway should be easy to integrate into your website or app, and the checkout process should be seamless for customers, encouraging a positive shopping experience.

Step 5: Consider the variety of payment options the provider supports. At Helcim, we offer a wide range of payment methods, making it convenient for your customers to pay the way they prefer.

Step 6: Prompt and reliable customer support can be a lifesaver when technical issues arise. Look for a provider that offers responsive customer support to assist you whenever you need assistance.

Step 7: Ensure that the payment gateway integrates smoothly with your existing systems and platforms. Helcim, for example, provides easy integration options for various eCommerce platforms, making setup hassle-free.

Who needs a merchant account?

A merchant account is essential for businesses that want to accept electronic payments, such as credit or debit card transactions. In other words, it’s an essential tool for anyone offering merchant services.

Whether you run a shop, sell online, or offer services, a merchant account lets you give customers different ways to pay. It also helps you handle transactions, track money coming in, and keep your business finances organized.

In short, if your business sells goods or services and you want to provide your customers with convenient and secure payment methods, a merchant account is a fundamental tool to help your business thrive in today's electronic payment-driven world.

How to choose a merchant account provider

Choosing a merchant account provider may sound complex, but with a clear approach, you can make a smart decision tailored to your business needs. Here's a straightforward step-by-step guide to help you navigate the process:

Step 1: Start by understanding what your business truly needs.

Consider the types of payments you'll be processing – credit and debit cards, online payments, etc. Also, think about your expected transaction volume, whether you'll need international payment support, and any specific features crucial to your operations.

Step 2: Consider integration compatibility

If you're using a specific point-of-sale (POS) system, eCommerce platform, or payment gateway, ensure that the merchant account provider can seamlessly integrate with these tools. Compatibility is vital to ensure smooth payment processing.

Step 3: Security is non-negotiable.

Ensure the provider employs robust security measures to protect your business and your customers' sensitive data. Look for features like encryption, fraud prevention tools, and PCI DSS compliance to ensure the security of your customer’s financial data.

Step 4: Assess processing times and account security.

Determine the speed of fund transfer to your business merchant account post-settlement, ensuring a smooth cash flow. Additionally, inquire about whether they offer individual merchant accounts and the resolution process to minimize the risk of account freezes or disruptions in the event of suspicious activity or chargebacks, as some providers proactively vet clients, fostering trust and cooperation during such situations.

Advantages of using merchant accounts vs. payment gateways

Using merchant accounts and payment gateways offers your business a range of advantages, ensuring smooth and secure payment processing. Here are some of the benefits these tools bring to the table:

• Expanded payment options. Merchant accounts and payment gateways enable diverse payment methods, enhancing customer convenience.
• Professionalism and trust. Accepting electronic payments elevates credibility and fosters customer trust.
• Global reach. These tools open doors to a worldwide and online customer base, expanding market potential.
• Streamlined transactions. Simplify transactions for smooth customer experiences and automated tracking.
• Enhanced security. Advanced security measures ensure data protection, building customer confidence.
• Increased integration possibilities. Easy integration with platforms streamlines setup and management.
• Customer Experience. Secure and seamless payments contribute to positive customer interactions.
• Business Growth. By offering convenience and security, these tools lay the groundwork for business expansion.

Increase your payment potential today

Technically, payment gateways and merchant accounts are not mutually exclusive. They work hand-in-hand as part of the payment processing system to simplify your financial operations and provide exceptional customer experiences, elevating your business's presence and influence.

As technology advances, using these tools sets you up for success, helping your business stay strong and competitive. It's all about making things convenient, trustworthy, and efficient in the digital age.