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Merchant Account vs Payment Gateway

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Last editedFeb 20222 min read

Payment processing comes with its own terminology. While the terms payment gateway and merchant account are often used synonymously, there are some key differences to be aware of. Keep reading for a breakdown of merchant account vs payment gateway that will help you choose the best payment solution.

What is a merchant account?

Merchant accounts serve as a repository for incoming funds. They work hand in hand with payment gateways to process payments. When payment is taken from a payment gateway, the funds are deposited into the business’s merchant account.

One thing to note is that a merchant account is separate from a business’s usual bank account. Account holders retain full control over a business account, but funds must remain in a merchant account until the transaction fully clears. Once cleared, the funds can then be transferred from the merchant account into the business bank account. Examples of merchant account providers include WorldPay and First Data Merchant Services.

What is a payment gateway?

A payment gateway is the technology that connects merchants and customers with payment processing networks. It’s a platform integrated with your online store that is used to accept payment details. The payment gateway first collects payment details via an integrated checkout. It helps authorise the payment by communicating with an acquiring bank or payment processor, ensuring that there are sufficient funds for clearance in the customer’s account. It also fully encrypts payment information to keep cardholder data safe.

Online payment gateways are today’s equivalent to a physical card terminal you’d find in a retail shop or café. They perform the same function of collecting payment details and authorising the transaction before transferring the funds to a merchant account for further processing. Examples of payment gateways include PayPal, Stripe, and GoCardless.

Understanding the difference between payment gateway and merchant account

As you can see, a merchant account and payment gateway perform different functions.

Merchant accounts are:

  • Unique to your business

  • Used to hold funds

  • Controlled by the merchant account provider

Payment gateways are:

  • Used to actively collect, authorise, and encrypt payment details

  • Fully integrated into your website

  • Shared between businesses as a network

Types of merchant account and payment gateway

When comparing a merchant account vs payment gateway, there are a few distinctions to keep in mind.

Merchant accounts include:

  1. Payment service providers (PSPs) are best suited to small and medium-sized businesses, being lower maintenance with an easy set-up.

  2. Independent sales organisations (ISOs) are better for larger businesses because they’re more complex and can handle higher volumes of transactions.

Payment gateways include:

  1. Classic gateways that require you to set up a separate merchant account and bank account.

  2. All-inclusive gateways that don’t require you to set up a merchant account.

A payment gateway without a merchant account tends to be the better choice for small businesses. Options like Stripe and PayPal are examples of this type of gateway, putting all the payment processing needs into a single platform to help you get started straight away.

How to choose a merchant account vs payment gateway

If you choose the classic option of a separate payment gateway and merchant account, you’ll need to compare features of both services. Here are a few factors to consider:

  • Settlement in the currency of your choice

  • On-demand access to your account

  • Affordable fee structure

  • Caps or limitations on monthly processing volumes

  • PCI DSS compliance

  • SSL certification

  • Compatibility with your bank and website

For start-ups, an all-in-one payment gateway without a merchant account makes it easy to begin selling. Just be sure that your gateway of choice accepts the currencies and payment methods that your customer base prefers.

GoCardless is a payment gateway allowing businesses to collect both recurring and one-off payments. Businesses have the choice of two payment options, including Direct Debit and Instant Bank Pay, along with the ability to take payments from over 30 countries at the real exchange rate.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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