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Payment Gateways vs Merchant Accounts: What’s the Difference?

Person completes online payments for purchases

When comparing payment gateways vs merchant accounts, it’s best to start by discussing what they have in common. Both are essential components of processing online payments. However, a payment gateway and merchant account have different functions. Let’s get into it.

What Are Payment Gateways?

A payment gateway facilitates the transfer of payment information between a customer’s bank and the business bank account, ensuring secure and smooth online transactions.

Here’s how a payment gateway operates. When a customer makes a purchase on a website, the payment gateway encrypts the payment data (such as credit card information) and sends it securely to the payment processor for authorization.

Key features of payment gateways

  • Encryption: Payment gateways encrypt sensitive payment information to protect it from unauthorized access.
  • Authorization: They verify the customer’s payment details and check for available funds before completing the transaction.
  • Integration: Payment gateways can be integrated into e-commerce platforms or websites for a seamless checkout experience.

In further detail, once the customer initiates a transaction by entering their payment details on a checkout page, the payment gateway encrypts the sensitive information using advanced encryption algorithms. This encrypted data is then securely transmitted to the payment processor to be further verified. During this stage, the payment gateway plays a crucial role in ensuring that the transaction meets security standards to safeguard against unauthorized access or data breaches.

What Are Merchant Accounts?

A merchant account is a type of bank account that allows businesses to accept payments via credit or debit cards, and other electronic payment methods. Merchant accounts receive funds from approved transactions processed through the payment gateway. They hold these funds temporarily before transferring them to the merchant’s primary business account.

Key features of merchant accounts

  • Transaction Settlement: Merchant accounts handle the settlement of transactions, including deposits from successful sales and refunds.
  • Fee Processing: Merchant accounts deduct processing fees, interchange fees, and other charges associated with card transactions before depositing the net amount into the merchant’s account.
  • Reporting: Merchant accounts provide detailed reports on sales, refunds, chargebacks, and other financial activities related to payment processing.
Person makes secure purchase with payment gateways

What Business Owners Need to Know About Their Payment Gateway and Merchant Account

A payment gateway acts as a secure bridge between the customer’s payment method and the merchant’s bank, ensuring the transaction’s safety and authorization. On the other hand, a merchant account manages the financial aspects of processing payments, including fund transfers, fee deductions, and transaction reporting. Both components work together to enable businesses to accept and process in-person and online payments effectively.

Many business owners need help understanding the workings of the payment process. If you are like most business owners, you want to be reassured of three things:

  1. You want to be able to accept credit and debit card payments from your customers. 
  2. You want to pay the lowest fees possible when your customers use their credit and debit cards.
  3. You want secure transactions to protect your customers’ and business’ bank accounts.

For help with payment processes, including card payment processing, merchant services, POS solutions, and payment gateways, connect with Cardconnect. We will answer any questions you have about taking credit card payments. We also offer technical support and set-up, and your business will be assigned a dedicated account manager to ensure that your electronic payments are processed as they should. 

Key Takeaways: Merchant Accounts and Payment Gateways

  • A payment gateway facilitates the transfer of payment information between a customer’s bank and the business bank account, ensuring secure and smooth online transactions.
  • A merchant account is a bank account that allows businesses to accept payments via credit cards, debit cards, and other payment methods.
  • Carefully choose a merchant account provider to ensure secure credit or debit card payments at the lowest rate possible. 

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