payment

Merchants Accounts vs. Payment Gateways: Everything You Need to Know

If contemplating running a small business, you may have been told you need a merchant account and a payment gateway to run your business seamlessly. But why do you need both? Is one enough? We answer these and all other questions you may have about merchant accounts and payment gateways here. Let’s delve deeper.

 What is a payment gateway?

A payment gateway is the technology that facilitates online transactions. This technology makes the connection between a customer bank and your account (merchant account) complete. This makes it possible for money to flow into your account once payment is cleared.  

At its most basic level, a merchant account does the following:

  • Integrates with your online store: A payment gateway gives your store one or multiple ways to link online credit card processing capabilities with your business operations.
  • Securely captures payment details of your client’s transactions: Focus on securing all information provided by your customers. Secure payment gateways go a step further to encrypt sensitive information provided by your customers, such as bank details.
  • Routes the collected information to a payment processor or an acquiring bank: The bank may carry out some screening before forwarding the transaction to the card networks.
  • Finally, it sends an approval or decline message back to you. Based on the yes or no response, you can either direct the shopper to a confirmation page or ask them to provide another form of payment.

Choosing the right payment gateways

payment gateways

Finding the right gateway is very crucial for your business. Here are a few factors to consider when choosing:

  • The cost of using a payment gateway: Anytime you use a gateway, you have to deal with several smaller fees to be connected to the different functionalities. Most of these fees include set up cost, monthly cost, transaction fees

Note: You may get discounts based on the volumes of sales you are getting.

    • Preferred payment: Not all payment gateways will work with your client’s preferred payment methods. So, choose well based on your needs and that of your customers.
    • Merchant accounts and banks: Some payment gateways only work with particular banks and merchant accounts.
    • Security
    • Support

What makes some payment gateways different from others?

  • Multiple payment methods. The ability of some payment gateways to support a variety of payment methods besides credit cards makes them unique. The most reliable options also support eWallets, bank transfer, and direct debit.
  • Fraud protection: Some of the payment gateways offer additional layers of protection against attacks and breach of customer information.  
  • Recurring billing tools: With many businesses today using subscription models to sell good, it is worth finding a payment gateway does the following. 
  • Manages automated billing 
  • Set up customizable billing plans 
  • Send out payment reminders 
  • Auto-updates customers’ subscription payment information
  • Detailed payment analytics: The best payment gateways give you access to several payment analytics and reports. These analytics and reports let you know where you are and what needs to be done to your payment processes to work better.

What is a merchant account?

merchant account

A merchant account is simply a holding account where payments are first held before being channeled to your business bank account. Details about payment transactions are collected here. Once payments are verified, funds are transferred to your bank account. You can automate this process or manually transfer the funds.

If you have set up a payment gateway (which is a requirement), it will deposit money from credit card sales here.

When it comes to merchant accounts, you have to options; an independent sales organization (ISO) merchant account and a payment service provider (PSP) merchant account. A PSP account is easier and quicker to set up and suitable for small and medium-sized businesses. On the other hand, an ISO is more complex to set up and ideal for large businesses.

Merchant account vs. business bank account

It is crucial to note that a merchant account is different from a business bank account. You have no control over your merchant account. It is just an account to hold deposits, and it advisable to have one. But why hold deposits in a merchant account instead of a business bank account? Here is the reason. In cases of return merchandise (which are common), it is simple and less risky to make returns from a merchandise account and pass on the balance to your business account.

How to get a merchant account?

The best way is to find a full-service payment gateway provider like BlueSnap. Such providers offer merchants accounts with a payment gateway and processing solution. Alternatively, contact different providers, one to provide payment gateway services and the other merchant account. We recommend you find a single provider for total peace of mind unless you are ready to deal with the stress of handling multiple providers.

What makes some merchant account different from others?

  • Ability to make global commercial easier: Best merchant accounts are tailored to handle money in all currencies. So, if you have plans to expand to different parts of the world, consider an account that will accept different currencies.
  • In-built sophisticated underwriting process: Some merchant accounts have customized underwriting capabilities, something needed during the underwriting process.
  • Aggregated or dedicated accounts: You either have your own account, or you are sharing one. Make sure to check with the provider about the options available and how they will affect your business before reaching a decision.

Merchant account alternatives

Now, if you want your payments to go straight to your business bank account without passing through a merchant account, here is what you do. Simply sign up with a payment processor that facilitates that kind of transfer. Below are some of the popular options you can consider:

  • Square
  • PayPal
  • Stripe

Which option is right for your business?

Merchant accounts are not new. They have been there since the advent of credit cards. They are an excellent choice for retailers who primarily sells from a brick and mortar store as they can boost cash flow. Additionally, they can help you remain on top of the game.

Payment gateways, on the other hand, give small businesses like alarm security, pool cleaning and retailers an edge in many ways. Using them, they can seamlessly and securely manage credit and debit card payments from a mobile or computer with an internet connection.

FAQ:

question

Who is the merchant in a transaction?

A merchant is a vendor or store that sells goods or services to the cardholder.

What are credit card merchant services?

Credit card merchant services offer all components you (merchant) need to accept funds offline and online.

What is an example of a merchant?

Since a merchant is a person engaged in the business of trading or selling goods and services, a retailer or wholesaler is a merchant.

What is ISO merchant services?

In simple terms, an ISO is a third-party payment processing company that is approved to handle merchant accounts for businesses.

Is amazon a merchant?

Amazon is an e-commerce platform owned and maintained by Amazon that enables third-party sellers to sell used products on a fixed-price online marketplace alongside Amazon’s regular offerings.

 

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