What’s the difference between a merchant account and payment gateway?

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One of the most frequently asked questions we receive is to explain the difference between the merchant account and the gateway?  Whether you’re new to processing credit cards or a seasoned business owner, it is very important to understand the purpose of each.  The more knowledge you have, the better you can position yourself and your business for strategic growth.

So the question is…

What’s the difference between a merchant account and payment gateway?

Let’s first start with the merchant account.   Merchant accounts are the last point before funds that received approval are paid out to you.  Merchant accounts act very similar to a normal bank and are subjected to the same federal regulations as their adversaries.  After you successfully process a credit, debit or alternative payment the money is transferred to the merchant bank.  The merchant bank then works on a payment schedule where the funds are deposited in your bank.  Typically funds can be held up to 7 business days but here are Merchant Competitor we understand that access to funds the next day are important asset to a thriving business.

Why do I need a gateway when I have a merchant account?

A payment gateway is your direct relationship between the customer and their payment method.  Businesses are directed to send their payment information direction to the payment processor and never to the merchant bank.  The payment gateway works directly with the major credit card brands to ensure information is securely encrypted and transmitted using the highest standards of PCI compliance.  For example, when a customer goes to your online site and pays using a credit card.  A payment gateway will take that information and cross reference the validity with the credit card issuer.

So how does it all work…

  1. The customer makes a purchase using his or her credit card.
  2. The integrated payment gateway interacts with the credit card networks to determine if there is a successful transaction.
  3. Once an approval is successful, the processor and the acquiring bank receive the funds from the issuer bank.
  4. From there the acquiring bank will deposit funds info the merchant’s normal bank account

Why are there so many steps?

Due to federal rules and regulations there are many steps put in place to protect the consumer, bank, and business.  Each step has its own PCI compliance, regulations, risk management and procedures that ensure the highest level of security.