Payment Gateways and Merchant Accounts

For many online merchants, payment gateways and merchant accounts can be the most difficult things to fully understand. It is important to realize that they exist as two separate entities. Your ecommerce site will need both a payment gateway and a merchant account. They both are necessary in order to accept credit cards for your online business. However, both the payment gateway and merchant account perform their own individual processes.

A payment gateway is the ecommerce service provider that actually authorizes credit card, debit card, or echeck payments at the point of sale. In other words, the payment gateway communicates with the card issuer’s bank to make sure the funds are present before approving the sale. This entire process takes place electronically and usually takes between 2-3 seconds. Additionally, the payment gateway provides for a secure method of transferring this information by encrypting sensitive data, such as bank account and credit card numbers. This means that they transfer data and authorize transactions, while providing protection from hackers and identity thieves.

A merchant account is the bank account that is opened by the merchant for collecting their payments. Merchant accounts allow credit cards, debit cards, and echeck payments to be transferred in and accessed by the business owner. They serve as an agreement between the merchant, the merchant’s bank, and the payment processor, that allows for the settlement of transactions.

When operating an ecommerce business, the payment gateway and merchant account must be compatible with your shopping cart software. Plus, there are a number of companies to chose from, so it is a good idea to shop around for the best rates and service. Some companies provide both the payment gateway and merchant account in a package plan.

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