Merchant Account, Payment Gateway: What Merchant Services Do You Really Need?

Tuesday, June 2nd, 2020

Consumers want options. Nearly every business today needs to be able to accept credit and debit cards from their customers if they wish to remain competitive. To ensure you can offer multiple payment options, you will likely need access to a merchant account.

What is a Merchant Account?

A merchant account acts as an intermediary between you, your business bank account and the credit card networks or issuing banks. It allows you to safely accept and process credit and debit cards. Essentially, a merchant account is a “storage area” for the funds collected from your business’ sales made with credit and debit cards; it is a holding account where information about payment transactions is collected. It ensures that you receive funding as quickly as possible, your bank is protected from losses and your customer is protected from scams. A merchant account typically provides the most reliable way to accept credit card payments.

What is a Payment Gateway?

A payment gateway is the link between an online payment and the bank that processes the debit or credit card transaction. Once a transaction is cleared, it allows funds to flow into your business’ merchant account. The majority of ecommerce businesses will need to secure a payment gateway, but some in-person businesses may find one necessary as well – some point-of-sale (POS) software require a payment gateway. In most cases, a merchant account and payment gateway will involve separate fees, but some services bundle them to make it as inexpensive as possible.

What Companies are Involved in Card Payment Processing?

Contrary to popular belief, the company providing you with a merchant account is not the only company involved. Below is a list of the essential business entities that help facilitate your ability to accept and process your customers’ credit cards, along with what function each performs:

• Merchant Services Providers (MSPs) – Also referred to as a merchant account provider, an MSP’s primary function is to set up and maintain your merchant services. They also provide value-added services like payment gateways and virtual terminals.
• Payment Processors and Acquirers – Payment processors provide the behind-the-scenes framework that allows you to securely process your debit and credit card payments. If a merchant services provider offers both merchant account onboarding and processing services, it is known as a direct processor.
• Credit Card Brands – These companies organize the processing networks and determine the interchange rates. They also dictate the usage rules for their credit cards.
• Issuing Banks – The “issuer” is simply the bank that issues the credit card to the customer. As a merchant, the only time you will interact with an issuing bank is if a dispute occurs over a transaction or there is an authorization issue.
• Sponsor Banks – These financial institutions back merchant services providers and allow them to open merchant accounts on behalf of business owners.
• Payment Gateways – As mentioned above, a payment gateway assists with processing transactions for online companies, connecting the merchant’s website to the payment processor to authorize transactions.

A lot takes place behind your business’ credit and debit card transactions. It is easy to see why it is so important to make sure you partner with the right provider for your business, and that they provide the merchant services your business really needs. Ultimately, whether you need a merchant account or a payment gateway will boil down to your business type and industry – every business is unique. The key is to find a provider that specializes in working with your business type and industry.

Do you still have questions about which merchant services are right for you? Consider the wealth of information and reviews Best Payment Providers has to offer on providers like Merchant Maverick. Find everything you need to know to make the best decision for your business and customers.