Internet merchant account vs. payment gateway

Written on 07 April, 2014 by Verity Meagher
Categories E-commerceSmall BusinessTags merchant

Not sure how a merchant account works or why you need a payment gateway? Understand the process behind accepting payments on your e-commerce site and know you’ve got the best system in place. 

What’s a merchant account?

A merchant account is an online bank account that allows your businesses to accept and hold payments made through your website.

Rather than immediately depositing the money directly into your traditional bank account, the money your customers spend will normally be held by the merchant account for a few days. This short holding period is typical and the account’s main function is to process cards and authorise transactions.

It’s an essential part of the online payment process and you need a merchant account to be able to accept recurring payments from a credit card.

How does a payment gateway work?

A payment gateway is a browser-based application that allows your website to process credit and debit cards.

It can transmit card details to a processor in a real-time and secure environment so that payments can be authorised. If all of the information matches the details filed by the credit card company, payment will be taken and transferred to your merchant account.

Some payment gateways take your shopper to the gateway’s account to pay, rather than through your website.

Can you have one without the other?

While you can have a payment gateway without a merchant account, your transactions will go to the gateway’s site and be held in its online account rather than in yours. PayPal is a good example of this model, as it allows your site to process payments but they all go through the PayPal site and system.

To allow your customers to stay on your site for their purchases, you need both a payment gateway to process the transaction and a merchant account to accept the money. Whether this is beneficial for your business or not depends on your volume of sales.

Choosing your payment gateway and merchant account

While a payment gateway with a dedicated merchant account service (such as Authorize.Net or PayLeap) allows you to better control your withdrawals and may allow you to negotiate your rates, application tends to be a lengthy process.

Payment gateways offering aggregate merchant accounts (including Stripe and PayPal) store your money alongside the funds of a range of other companies and tend to have a much simpler sign-up process. However, you’ll have less control of your rates.

Compatible services

Most payment gateway providers also offer an integrated merchant account, but you can contract the two separately if you’d prefer. If you do, be sure to check that your gateway and merchant account are compatible before signing up.

A smooth, uncomplicated system is essential for accepting payments through your e-commerce site; so don’t compromise when it comes to payment gateway quality.

If you are looking to start selling products online, why not consider Netregistry's payment gateway, which puts you in full control of your online transactions and is a safe and secure way to accept payments online.