Merchant Account vs Payment Gateway: Why You Need Both

There is a common misconception that when it comes to a merchant account vs a payment gateway, your business requires only one or the other. In fact, the two serve totally different functions: a payment gateway facilitates online transactions and allows you to process them, while a merchant account is a holding account where those payments first land before being deposited into your regular bank account.

The reality is that in order to process payments, you need both a merchant account and payment gateway. Still confused? Here’s a simple breakdown of the key differences between the two.

Terminology 101

A merchant account is a holding account where information about payment transactions is collected. For any business that accepts card payments, this is where funds are held. Once the payment is verified, funds are passed on to your business bank account.

Meanwhile, a payment gateway is the link that makes the connection between a customer’s bank and your merchant account, allowing funds to flow into the latter after a payment transaction is cleared.

If you’re having trouble wrapping your head around these definitions, try thinking about them with this analogy: your merchant account is like a central train station, your payment gateway is like the many rail lines connecting your station to your customers’ banks, and each payment transaction is like a train. Without your station, the train has nowhere to depart from and return to; without the rail lines, the train has no way to move.

Finding the Right Fit

Now that you know how they work together, the next challenge is figuring out how to choose the right merchant account and the right payment gateway for your needs.

For merchant accounts, you generally have two main options: a payment service provider (PSP) merchant account and an independent sales organization (ISO) merchant account.

A PSP account is quicker and easier to set up, and is used primarily by small and medium-size businesses. An ISO account is used by large businesses and is more complex to set up, but it generally offers lower transaction fees. Depending on the specifics of your business, one type of account will usually be a much better fit for you than the other.

Choosing a payment gateway is also about finding the right fit. For example, some payment gateways deal only with specific types of merchant accounts and banks. In addition, some may not work with one of your customers’ preferred payment methods, such as Apple Pay. Going back to the train analogy, this would mean that the tracks don’t go to your central station.

There are countless other factors—such as processing fees, security, and support—that vary from one payment gateway to the next, so it’s worth asking the right questions to find the one that’s right for you.

Payments Made Easy

At Bambora, we strive to make your payment process simple, smooth, and secure. It isn’t a question of having a merchant account vs a payment gateway; we know you need both. That’s why we offer both ISO and PSP merchant accounts, and a bank agnostic gateway.

Payments should be easy, so that you can focus on growing your business. At Bambora, we work with you to make this possible.

Photo Credits: Shutterstock / g-stockstudio


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