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Merchant account vs payment gateway: what’s the difference?

Merchant account vs payment gateway: what’s the difference?

Payments can seem like a complex and confusing space. If you’re a merchant that takes card payments online, you’re likely to face a barrage of new information and unfamiliar terminology.

Even after spending a lot of time researching the various options, you may be left feeling perplexed and overwhelmed. And none the wiser about the best way forward especially when it comes to merchant accounts and payment gateways. And you’re not alone.  

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

This is a question that is asked by a lot of merchants. Here’s a quick summary that helps to explain:

Merchant account:

  • Unlike a normal business account, a merchant account only has one function—to hold funds received from customer payments.
  • It’s the first place that the buyer’s money lands after an electronic or card transaction.
  • It acts as a holding pot for funds until they have been received from the customer’s card issuer.
  • Once cleared, the money is then released to the merchant’s business account.

Payment gateway:

  • This is a tech-platform that reads and transfers payment information from a customer to a merchant’s bank account.
  • Its role is to capture data, ensure funds are available and get a merchant paid.
  • To do this it circulates financial data around all the necessary parties to authorize payments and move money from the customer to a merchant.

So, which do I need?

To accept online card payments you need both. A payment gateway so your business can collect card data, and a merchant account to receive the funds.

You must have a business license to hold a merchant account, and set-up and operational fees will depend on your business, transaction volumes and risk. However, there are modern payment service providers or payment facilitators—sometimes called payfacs—that allow businesses to access the functionality of a merchant account without having to open one of their own. can help businesses get setup to accept online payments quickly and easily with our all-in-one solution. To learn more about how we can help your business visit our payment processing solutions page.

Why you need a merchant account

Most customers expect to be able to use a card to pay at your online checkout so not having this facility will seriously impact your bottom line.

Merchant accounts hold funds processed by your payment processor. ,Once funds are received, they then deposit the remaining earnings from the sale into your bank account, minus a small processing fee.  

Steps are put in place during the payment process to check the customer has the funds to pay you. Once your customers' card payments are authorized, the money gets sent directly to your merchant account.

Read more: What is a merchant ID number?

Why you need a payment gateway

A payment gateway is a bit like having a card machine on your website, it’s the interface that captures and handles the customer’s credit or debit card data. It also acts like a bridge that links all the parties involved in authorizing the transaction and moving the funds.  

The payment gateway connects your merchant account with the payment processor by transferring card information between the bank that issued the card and the bank account for your business. As well as routing payments, if there is an issue with the transaction, the payment gateway will ask you how you want to proceed.

Fast payment is vital for any business. Having a payment gateway is a way for all these complex interactions and checks to happen in real-time without manual processing.

Read more: what is a payment gateway?

The above diagram shows how the merchant account and payment gateway work together to ensure safe payment processing.

Is there an all-in-one solution?

Leading Payment Service Providers (PSPs) like can offer an all-in-one combined merchant account and payment gateway. This is a lot more convenient for most businesses than having different relationships with multiple providers.  

It helps new online businesses to be buyer ready much faster, and existing online businesses to streamline their operations and reduce complexity and costs.  

Not only that, having an all-in-one provider can help future-proof your business by ensuring you can accept a wider variety of payment methods and integrate new alternative payment methods as they arise. At the same time, it’s a great way to be certain your business can scale more easily, and with lower costs, as your transaction volumes grow.

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