Payment Gateway or Merchant Account Which One Do You Need
To accept card payments online, most businesses need both a payment gateway and a merchant account. The payment gateway acts as the secure bridge for transmitting card data, while the merchant account receives funds from electronic payments. Card payments remain popular, making up 77% of non-cash transactions in the U.S., with credit and debit cards leading retail sales. Fee structures, such as transaction fees ranging from 1% to 3%, influence how businesses choose between payment gateway providers and merchant account options. Business owners should match their payment methods with the right setup.
Key Takeaways
Most businesses need both a payment gateway and a merchant account to accept online card payments securely and efficiently.
A payment gateway collects and encrypts card data, while a merchant account holds and settles the funds from transactions.
Using multiple payment gateways can improve customer satisfaction, reduce cart abandonment, and increase sales.
All-in-one solutions combine payment gateway and merchant account services, offering easy setup but less flexibility for large or complex businesses.
Choosing the right payment setup depends on security, payment options, geographic reach, system compatibility, and cost.
Do You Need Both?
Most businesses that want to accept card payments online need both a payment gateway and a merchant account. These two components work together to make accepting electronic payments possible and secure. The payment gateway acts as the digital tool that collects and transmits card data. The merchant account serves as the special bank account that holds funds from card transactions before moving them to the business’s main bank account.
Typical Setup
A typical setup for online businesses includes both a payment gateway and a merchant account. This combination allows companies to process card payments safely and efficiently. Here is how each part plays a role:
The merchant account holds and settles funds from card transactions. It acts as the place where money is deposited after the payment gateway authorizes the transaction.
The payment gateway captures and transmits card data for authorization. It works like a virtual card machine on a website.
Without a payment gateway, businesses cannot collect card information securely or authorize transactions.
Without a merchant account, there is no place to hold or settle the funds.
Both components enable secure, real-time processing of card payments.
Businesses that use both a payment gateway and a merchant account can manage chargebacks, errors, and fraud more effectively. This setup also supports a wide range of payment types, including credit and debit cards.
Many companies choose to integrate multiple payment gateways. This approach increases customer satisfaction by offering familiar and trusted payment options. Research shows that 68.63% of online shopping carts are abandoned, but 63% of these can be recovered by providing the right payment methods. Multiple gateways also help businesses avoid downtime and technical failures, ensuring smooth payment processing. Each gateway provides unique data, which helps companies make better decisions to improve sales and customer experience.
|
Aspect |
Data / Insight |
|---|---|
|
Transaction Volume |
Tens of millions of transactions analyzed over 36 months |
|
Number of Gateways |
155 payment gateways included |
|
Number of Currencies |
147 currencies covered |
|
Transaction Types |
30% authorizations, 70% purchases |
|
Geographic Distribution |
90% domestic transactions, 10% international |
|
Decline Rate Range (USD) |
2.8% to 98%, median decline rate 20.3% |
|
Gateway Currency Coverage |
Median gateway supports transactions in 3 currencies; 38% support 2 or fewer currencies |
|
Business Benefits of Multiple Gateways |
Improved customer satisfaction, increased sales, reduced cart abandonment, global reach, operational resilience, flexibility, and enhanced transaction success rates |
|
Strategic Importance |
Multi-gateway strategy is vital for scaling businesses, optimizing transaction success, and supporting global growth |
All-in-One Solutions
Some modern providers offer all-in-one solutions that combine the payment gateway and merchant account into a single service. These providers simplify the process of accepting electronic payments by handling both the secure collection of card data and the settlement of funds. Businesses that use these services do not need to set up separate accounts.
All-in-one solutions can be attractive for small businesses or startups. They often provide easy setup, simple pricing, and fast onboarding. However, these services may charge higher fees or offer less flexibility compared to managing a separate payment gateway and merchant account. Some all-in-one providers may also have longer funding times or limited support for certain payment types.
While all-in-one solutions can meet the needs of many businesses, companies with high transaction volumes or complex requirements may benefit from the control and customization that come with separate payment gateway and merchant account setups.
Payment Gateway
What It Does
A payment gateway acts as the secure interface between a business and its customers during online payments. It collects card information from the customer and transmits it to the payment processor and the merchant’s acquiring bank. The payment gateway ensures that sensitive data, such as credit card numbers and billing details, moves safely between all parties involved in the transaction.
During payment processing, the payment gateway encrypts the customer’s information. This encryption protects the data from hackers and keeps the transaction secure. The payment gateway also checks if the card details are valid and if the customer has enough funds. After approval, it sends a message back to the website to complete the sale.
Most online businesses rely on a payment gateway for credit and debit card transactions. The payment gateway connects with banks and payment processors to make sure each transaction goes through smoothly. It also helps businesses comply with industry standards and regulations, which protect both the business and its customers.
A payment gateway is essential for secure and efficient transaction processing in any online store.
Security Features
Security stands as one of the most important roles of a payment gateway. The gateway uses several tools to keep every transaction safe:
Encryption of payment data during transmission shields sensitive information from unauthorized access.
SSL certificates create a secure connection between the customer and the payment gateway, shown by HTTPS in the browser.
Compliance with PCI DSS standards ensures the safe handling and storage of card data.
Tokenization replaces real card numbers with tokens, reducing the risk of data theft.
Fraud prevention tools, such as Address Verification System (AVS), CVV checks, and real-time monitoring, help detect and stop suspicious activity.
The effectiveness of these security features appears in recent studies:
|
Security Feature / Tool |
Statistical Evidence of Effectiveness |
|---|---|
|
Risk-based Verification |
Reduces false positives by up to 80%, decreasing abandoned transactions |
|
Adaptive Authentication |
Reduces fraud losses by up to 70% |
|
Kount’s Identity Trust Platform |
Fraud rate reductions up to 90%; 75% of businesses report significant fraud decrease |
|
Stripe Radar |
Fraud loss reductions up to 25% |
|
Forter |
99.5% accuracy rate in detecting fraudulent transactions |
|
Signifyd |
False positive rates as low as 1% |
These features make the payment gateway a critical part of payment processing. They help businesses protect their customers and reduce the risk of fraud in every transaction.
Merchant Account
How It Works
A merchant account serves as a specialized bank account that allows businesses to accept and process card payments. Unlike a regular business bank account, a merchant account holds funds from card transactions before transferring them to the business’s main account. This process ensures that businesses can receive money from electronic payments safely and efficiently.
The merchant account acts as an intermediary between the customer’s bank and the business. When a customer pays with a card, the transaction begins with the cardholder’s issuing bank. The merchant accepts the payment and processes it through a merchant account provided by an acquiring bank. Card brands like Visa and Mastercard set the rules for these transactions. Payment processors relay transaction data and funds between the merchant and the banks. For online sales, payment gateways securely transmit transaction information. The merchant account also manages chargebacks, allowing businesses to respond to disputes and provide evidence.
Cardholder initiates payment using a credit or debit card.
Merchant processes the payment through a merchant account.
Acquiring bank receives funds from the issuing bank after approval.
Payment processors and gateways handle data transmission and security.
Merchant account batches and settles transactions, usually within a few business days.
Fees such as transaction fees and processing fees are deducted before settlement.
The account maintains detailed records for accounting and dispute resolution.
A merchant account must comply with PCI DSS standards to protect sensitive cardholder data and reduce fraud risk.
Types of Payments
Merchant accounts support a wide range of payment options. The most common include credit cards and debit cards, which make up the majority of credit and debit card transactions. Each payment type has unique features and requirements for payment processing.
|
Payment Processor Type |
Description |
Key Characteristics |
Fees and Costs |
Compliance and Risk Management |
|---|---|---|---|---|
|
Traditional Payment Processing |
Services from banks, often for low-risk merchants |
Requires documentation, credit checks, underwriting |
Standard fees, higher for high-risk |
Standard compliance, less flexible underwriting |
|
High-Risk Payment Processors |
For industries like gambling or adult entertainment |
Flexible underwriting, chargeback mitigation, fraud prevention |
Fees 3%-10%, rolling reserves, penalties |
PCI DSS, OFAC, enhanced fraud prevention |
|
Offshore Payment Processing |
Accounts in foreign countries for high-risk merchants |
Lower regulatory requirements, more flexibility, currency fees |
Currency exchange fees, risk of freezes |
Lower oversight, higher operational risks |
Merchant accounts handle both in-person and online transactions. They integrate with point-of-sale systems for physical stores and with payment gateways for online sales. Businesses can accept electronic payments from customers around the world, depending on the account type and provider. Some merchant accounts specialize in high-risk industries and offer extra fraud prevention tools.
Choosing the right merchant account helps businesses expand their payment options and manage risk effectively.
How They Work Together
Payment Flow
A payment gateway and a merchant account work together to process every online transaction. Each step ensures that payments move securely from the customer to the business. Here is how the process unfolds:
The customer starts the transaction by entering card details at checkout.
The website sends this information to the payment gateway.
The payment gateway encrypts the data and forwards it to the payment processor.
The payment processor communicates with the card network and the customer’s bank to check if the transaction can be approved.
The processor sends back an approval or decline message to the payment gateway.
The payment gateway relays this result to the website, letting the customer know if the purchase succeeded.
If approved, the funds move to the merchant account, where they are held before being transferred to the business’s main bank account.
This process usually takes only a few seconds, but it involves several layers of security and verification to protect both the customer and the business.
Example
Consider an online store selling shoes. The business sets up a merchant account and connects it to a payment gateway like Stripe or PayPal. When a customer buys a pair of sneakers, the payment gateway collects and encrypts the card details. The gateway then sends the information to the payment processor, which checks with the customer’s bank for approval. If the transaction is approved, the payment gateway notifies both the customer and the store. The funds are then deposited into the merchant account, usually within one or two days.
Many businesses use plugins or APIs to connect their website to the payment gateway. This integration allows for secure, fast, and reliable transactions. Popular providers offer features like fraud detection, multi-currency support, and seamless checkout experiences. These tools help reduce cart abandonment and improve customer satisfaction.
Choosing the Right Solution
Key Factors
Selecting the right setup for accepting electronic payments depends on several important factors. Every business should consider its unique needs before choosing between separate services or an all-in-one payment gateway provider. Here are the main criteria to evaluate:
Safety: A trusted payment gateway provider helps maintain customer confidence and prevents loss of sales.
Payment options: Supporting a variety of payment methods, such as cards and bank transfers, can increase conversion rates.
Geographical coverage: The provider should operate in all regions where the business plans to sell, making future expansion easier.
System compatibility and API integration: The payment solution must work smoothly with existing systems and provide a seamless checkout experience.
Continuous improvement: Providers with a history of innovation adapt better to new payment technologies.
Closed-loop solutions: Businesses that handle both deposits and withdrawals benefit from using the same payment service, which simplifies identity checks.
Conversion rate impact: A smooth checkout process can reduce cart abandonment, which sometimes reaches 68%.
Conscious consumer values: Some customers prefer companies that align with their social values, which can increase loyalty and lifetime value.
Businesses should match their sales channels and customer preferences with the right payment gateway provider to maximize success.
Picking a Provider
When comparing providers, businesses should focus on three main areas: security, integration, and cost. A reliable payment gateway provider uses strong security measures to protect customer data. Integration with existing systems ensures a smooth experience for both the business and its customers. Cost remains a key concern, as fees can affect profit margins.
Studies show that integrated solutions can reduce costs by about 5.6% and improve outcomes by 6.2%. These benefits appear in both statistical analyses and real-world case studies.
In regions like Europe and Asia, integrated care models have shown significant cost savings and better results. For example, combining services in healthcare led to lower expenses and improved efficiency.
Long-term partnerships with a payment gateway provider often bring more value, as providers continue to improve their services and adapt to new technologies.
A business should compare providers based on their ability to support electronic payments, offer strong security, and provide flexible integration options. Reviewing fee structures and customer support can also help identify the best fit.
Most businesses benefit from using both a payment gateway and a merchant account. This combination supports efficient fund settlement, compliance, and a wide range of payment types. Larger companies often use several payment partners to meet customer needs worldwide.
Multiple gateways improve customer experience by offering more payment methods and currencies.
Access to alternative payments is growing, with 85% of merchants planning to add new options soon.
Business owners should review their payment needs and compare providers to find the best fit for their goals.
FAQ
What is the main difference between a payment gateway and a merchant account?
A payment gateway collects and transmits card data securely. A merchant account holds funds from card transactions before transferring them to the business’s bank account. Both work together to process online payments.
Can a business use multiple payment gateways?
Yes, many businesses use more than one payment gateway. This approach increases payment options, reduces downtime, and helps reach customers in different regions. Multiple gateways can also improve transaction success rates.
Do all-in-one payment solutions suit every business?
All-in-one solutions work well for small businesses or startups. Larger companies or those with complex needs may prefer separate payment gateways and merchant accounts for more control and flexibility.
How long does it take to receive funds in a merchant account?
Most businesses receive funds in their merchant account within one to three business days after a transaction. The exact timing depends on the provider and the type of payment processed.
