If you are an Ecommerce business owner, you may be curious about the difference between merchant account and payment gateway. While both are beneficial for online businesses, they serve different functions.
Merchant accounts are a specialised type of account that enables businesses to accept and process debit and credit card payments. A payment gateway is a software application that facilitates online transactions by securely transmitting payment information to be processed and approved. Both merchant accounts and payment gateways provide businesses with a convenient and secure way to process transactions.
In this blog, we discuss the different types of merchant accounts and payment gateways and the benefits of merchant account vs payment gateway to help you choose the best payment processing solution for your business.
What are the Types of Merchant Accounts and Payment Gateways?
We highlight the different types of merchant accounts and payment gateways:
Merchant Account Types
Merchant accounts are offered by payment service providers (PSPs) and independent sales organisations (ISOs).
PSPs provide payment solutions to small to medium-sized enterprises (SMBs). They will offer an easy-to-use platform that allows businesses to process payments efficiently and securely, as well as additional merchant account services. PSP merchant accounts are ideal for SMBs as they generally have lower prices and rates, making them budget-friendly for these types of businesses.
ISOs provide payment solutions to large enterprises with high transaction volumes or values. As larger businesses require more complex payment processing solutions, ISOs offer a range of customised merchant account services to meet unique business needs. These services may include advanced fraud detection and prevention, chargeback management, and specialised reporting tools.
Whether your business needs a PSP merchant account or an ISO merchant account will depend on your business size, transaction volume, and service requirements. When choosing a merchant account, you should evaluate the provider’s credit card processing, security measures, and merchant account services. It’s also essential to ensure that the provider is compliant with relevant regulations and standards, such as Payment Card Industry Data Security Standard (PCI DSS).
Payment Gateway Types
Businesses can choose between a hosted payment gateway and an integrated payment gateway. These payment gateways differ in how they are integrated into the merchant’s website.
Hosted payment gateways redirect the customer to a separate payment page hosted by the payment gateway provider. On the hosted payment page, the customer will fill in their payment information, this will be processed and approved, and the customer will be redirected back to the merchant’s website. Hosted payment gateways are easy to set up, require minimal technical expertise, and provide a secure and compliant payment processing solution.
Integrated payment gateways allow customers to complete the transaction without being redirected. The payment gateway will be seamlessly integrated into the website’s payment page. Integrated payment gateways provide a seamless checkout experience, which can reduce cart abandonment rates and provide merchants with greater control over the payment process.
Hosted payment gateways are generally suited to SMBs looking for a simple and secure payment solution, whereas integrated payment platforms are a great option for larger businesses. Businesses should consider their technical expertise, Ecommerce platform, and customer expectations when choosing between a hosted or integrated payment gateway.
Benefits of a Merchant Account vs Payment Gateway
We outline the benefits of a merchant account vs payment gateway to help you choose the best solution for your business needs:
Merchant accounts have several advantages for online businesses:
- Greater Payment Process Control: Merchant accounts provide businesses with greater control over the payment process. This can be beneficial for businesses that want to customize their payment flows, integrate their payment processing with their existing systems, or offer a more seamless checkout experience for their customers.
- Lower Processing Fees: Merchant accounts typically have lower processing fees than payment gateways. This can help save costs for businesses that process electronic payments regularly. Merchant accounts will also offer various pricing models, allowing businesses to select a pricing structure that matches their budget.
- Quick Access to Funds: Merchant accounts allow businesses to access their funds more quickly than payment gateways. This is especially beneficial for businesses that require fast access to their revenue. Merchant account providers typically transfer funds into the merchant’s bank account within one to three business days, allowing businesses to manage their cash flow more efficiently.
Merchant accounts have some drawbacks that businesses should consider. Setting up a merchant account can involve a lengthy application process, which can be time-consuming and delay your access to payment processing solutions. Merchant accounts can also have higher setup costs, which can be limiting for businesses with smaller budgets.
Ecommerce businesses can enjoy these payment gateway benefits:
- Easy to Set Up: Payment gateways are easy to set up and require minimal technical expertise. Most payment gateway providers will offer comprehensive support that allows businesses to integrate their payment gateway with their websites quickly and easily. This makes them a good choice for businesses looking for a simple and fast payment processing solution.
- Secure: Payment gateways are secure and compliant with industry regulation standards. Payment gateways use various security measures, such as encryption and tokenisation to protect sensitive payment information from unauthorised access and fraud. This ensures businesses and customers can enjoy a safe and secure payment processing solution.
- Minimal Setup Costs: Payment gateways generally have minimal setup costs. For businesses looking for a payment processing solution with affordable initial costs, payment gateways are the ideal choice.
There are a few disadvantages of payment gateways that businesses should be aware of before making their decision. Payment gateways may have higher processing fees than merchant accounts, which can be problematic for businesses with high transaction volumes. Payment gateways also require businesses to set up a merchant account and business account, which can add to the costs.
Should You Use a Merchant Account or Payment Gateway?
Choosing between a merchant account vs payment gateway will depend on your business’s payment processing needs, service preferences, and budget.
Merchant accounts are suitable for businesses that process a high volume of transactions or have a high average transaction value. Merchant accounts offer lower processing fees than payment gateways, which can result in significant cost savings for businesses that process electronic payments regularly. They also offer greater control over the payment process and can be customised to meet the specific needs of the business.
Payment gateways require minimal setup and are easy to use. This makes them a great choice for SMBs or businesses wanting to start processing electronic payments quickly. Payment gateways are also secure and compliant, providing a safe and secure payment processing solution for businesses and their customers.
Can a merchant have more than one payment gateway?
Merchants can use multiple payment gateways to offer payment options, but it can result in higher fees and complex processes. Some payment processors offer multiple payment gateway integrations, but merchants will need to then ensure proper integration and security measures. It is best to consult with payment processing providers to determine the best approach for your business.