Credit Card Gateways vs. Merchant Accounts: Learn the Difference

Running an online business can be an exciting and profitable enterprise. You’re able to meet consumer needs without the added costs and overhead associated with a traditional brick-and-mortar store. Before you can take advantage of these opportunities, however, you must be able to accept payments digitally. That means you’ll need to procure a merchant account and have access to credit card gateways.

Which begs the question: what exactly is a payment gateway and how is it different from a merchant account? Keep reading to find out what each term means.

Payment Gateway

A payment gateway service processes credit card transactions for your online store. It facilitates the transfer of sensitive financial information between your online site and the acquiring bank. Basically, credit card gateways are the online analog of a traditional point-of-sale system. However, the transaction process of a payment gateway is anything but simple.

When a client places an order on your website, the client’s financial information is encrypted and sent to the payment gateway. The gateway then transfers the information to the payment processor, and the payment processor transfers the information to the issuing bank or card association. The issuing bank approves or denies the request and sends the authorisation back to the processor, who then sends the authorisation back to the merchant. This highly complicated transaction usually only takes about 2-3 seconds.

It makes sense that credit card gateways are so named. They act as figurative gateways that allow data to securely pass back and forth and provide security measures to ensure that no unauthorised users have access to the information.

Merchant Account

Merchant accounts are bank accounts that hold credit card funds until fully cleared by both issuing and acquiring banks. You must have a merchant account if you want to accept credit cards. Once a transaction is approved through a payment gateway, the funds are transferred into a merchant account. Depending on the terms you agree to with your account provider, these funds might not become available right away. That’s to protect you, your business, and your bank from fraud and chargebacks.

There are two distinct forms of merchant accounts you can sign up for. A dedicated merchant account is your own account. This type of account is ideal for larger businesses. Dedicated accounts are typically reserved for companies with a long credit history that can prove their staying power.

Aggregate accounts are merchant accounts that are shared. This is a great option for new and smaller businesses. These shared accounts provide lower risk and lower cost for your business. The only downsides to aggregate accounts are that you usually can’t negotiate your rates and that you may need to wait a little longer to remove your funds.

Allied Wallet Can Help

Online businesses need to process digital credit card payments in order to stay competitive. In order to do that, you’ll need to use a merchant account and a payment gateway. Knowing the difference between credit card gateways and merchant accounts is just the start. Knowing what’s right for your business is your end goal.

At Allied Wallet, we provide payment gateways and merchant account access for businesses big and small. Call us today to discuss your online business and your payment processing needs.

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