Merchant Accounts and Payment Gateways: Telling the Difference

Written by: Charge.com Payment Solutions, Inc.

Learn the crucial differences between a merchant account and a payment gateway.

When customers slide their cards through credit card machines, they tend to take for granted what’s happening behind the scenes. There is a sophisticated system in place that allows businesses to move money from one account to another, all digitally, so that the funds are delivered almost instantly. The business owner needs a merchant account, which relies on something called a payment gateway to transfer the funds. If you’re feeling overwhelmed, not to worry! This brief guide will break down all concepts related to merchant accounts and payment gateways.

Payment Gateway

At first glance, a payment gateway seems a lot like a merchant account. Small business credit card processing requires a payment gateway, but that’s not the only piece of the puzzle. The gateway is the mechanism used to transfer money from the buyer to the seller. It’s the digital route money has to pass through, and it’s only required for transactions online. Gateways can be a component of either a payment processor or a merchant account, but they are not the entire service.

Merchant Accounts

When you need credit card machines for your store, you have to get a merchant account. Some payment processing companies will ship a reader to you, like Square or PayPal, but you never really have full control as a business owner.

Say, for example, a customer wants to return an item they bought. A payment processor might  hold funds and open a dispute. If the requirements to settle that dispute aren’t met, your account could be flagged for removal. Merchant accounts allow business owners to set their own policies and process transactions faster. They also provide a greater degree of security for the customer, because they utilize randomly generated number strings to process transactions.