Payment Processor, Payment Gateway & Merchant Account: Points Of Distinction

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As soon as merchants make up their mind for selling their products or proffering their services, they are liable to quest the best way of payment processing for their respective businesses. Disarray and frustration are bound to accompany throughout the process unless you understand the difference between payment processor, payment gateway and merchant account.

Sea of information available on internet, while adding to the confusion further adds to the plight of business owners in this case. It is therefore, indispensable to dive deep into the meaning and role of the aforementioned three common terms related to payment processing.

What do you think about their connection? Are they closely related to each other? Or, can they be synonymously used? Is it possible to skip any of these by an e-commerce merchant? This post intents to answer all these queries and more.

Stay tuned for arming yourself up with loads of payment processing knowledge and ensure that you take an informed decision.

Payment Processing- The Real Battleground

Think of yourself as an e-commerce merchant. Essentials of running an online store includes a domain name, a superior e-commerce website platform, ace web hosting services and lastly, you need a payment system for accepting several kinds of cash-less payments.

It is a no-brainer that here we will be only taking up the last prerequisite only. Without mincing words, let us just head straight into the process of payment processing.

Many of you reading this article would be taken by surprise on knowing that payment processing is completely independent of your e-commerce store. In other words, payment processing has nothing to do with your store and it comes into play at last, only when your customer is about to make a payment.

Every e-commerce store showcases the available products so that customers can browse them and add the items they are interested in their cart before they finally check out and make payment for the selected and available items. This is the stage when the actual processing of the payments of the site flies off. In all this, role of your store is just to share the required information to the payment processing mechanism so that it gets done.

Doing it this way has its own advantages. Not only this model is much secure but also, the sole responsibility of security lies with payment processing platform. If it would not have been the external payment processing then this whole security aspect have to be taken care by you.

Moreover, there are lot many amendments that are made time and again in the existing rules and regulations of the payment processing industry. It would have taken a huge amount of your time and efforts to keep in sync with these. Thus, it is in your best favor that you can avail these services from professionals because your precious time is much more needed to be invested on your business core areas.

What’s more? Even customers are in their best comfort when a widely known and more trustworthy setup is processing their payments, instead of your online store, which may be still new to them. Also, since they have got hands on experience with processing transactions, they can better do it while saving ample of your time.

Isn’t it a good idea to leave the whole thing to the proficients? You can forget about everything and focus on what you are good and confident at. It is always better to do something productive.

It is the right time to introduce the main constituents of payment processing mechanism which are nothing but,

Payment Gateway

Payment Processor

Merchant Account

No brownie point for guessing that these three are separate items. With that said, it is important to understand that they come together to transfer money from the customer to the merchant (it is you). But that is not all about it, it is very useful to understand their individual part in the process.

What Is Payment Gateway?

A payment gateway is a middleman between you (your store) and the payment processor. Payment made by your customer goes to the payment gateway that sends the customer data securely to the payment processor. It implies for card payments and other kinds of payments too.

Reasons Why We Encourage Merchants To Use A Payment Gateway:

1. Ace security measures- Security is one of the most prominent reasons why experts advocate deploying payment gateways. This helps you inculcate trust and confidence amongst your customers.

It goes without saying that cyber attacks make the whole e-commerce industry highly vulnerable to data loss. Prevention of these incidences is quite in your hand by making a payment gateway work for your online store. Payment gateway covers all the security related aspects of the transaction and keeps a hawk’s eye to ensure the safe transfer of funds without any data leakage.

2. Seamless integration- Big and widely used e-commerce platforms can integrate 100 payment gateways each. If your destination is any of the popular e-commerce platforms like Shopify, WooCommerce, BigCommerce and Magento etc. then you need not look for a third party payment gateway since they have their own payment system.

3. Round the clock availability- Quite like your online store, payment gateways also work 24X7. No matter what time of the day or night, a customer buys from your store, the payment will be still processed and there will be a successful purchase.

4. Multiple payment alternatives- If you think that ready acceptance of both credit and debit cards would suffice on your online store then it is your bad.

While this makes a right base, it is like sticking to an elementary level of communication, like writing postcards and telegram in the age of emails and cellphones. Ask for more sophisticated payment solutions besides gift vouchers. Also, remember to confirm if you would get a free card reader (POS) which can be later utilized on the go at events or in your retail store.

Besides the one listed above, there are many more perks that come free with using payment gateway. These include acceptance of multiple foreign currencies and insightful reporting.

How Much Does It Cost?

To avail the professional payment gateways assistance there is no specific figure that can be told. Cost is in fact, the most complicated part of using a payment gateway. It is so because there are various smaller fees which together conglomerate to decide one final price. While set up cost ranges between $0 and $250, monthly cost varies between $10 and $50. Transaction fees is layered as its one part is fixed that can vary from $0.00 to $0.25 and 1-5% per transaction (additional over the decided fixed fee).

What Is A Payment Processor?

Financial institutions that work behind the scenes to carry out all the payment processing services used by an online merchant are the payment processors. These work in partnership with other companies that directly associate with consumers or merchants.

The payment, on one hand, works with the payment gateway and on the other, it associates with the merchant account. It actively passes information back and forth as and when required to facilitate secure and instant payments for the end user.

Alternatively, the working of the payment processor can be explained as, payment processor fetches out the details of the transaction from the payment gateway and takes it forward for validation, execution and finally takes it further to the stage of fund deposition. It comes back to the payment gateway about the success of transaction or otherwise.

Paying due heed to selection of payment processor is crucial. It cannot be left to the understanding and opinion of a single person. Since it can directly influence the rate of conversion on your online store you should not take this affair lightly.

Nonetheless, it is a merchant’s exclusive decision to go ahead with prominent payment processors like Stripe, PayPal, Payline, Square etc. or experience the fresh approach of relatively new but inexpensive players of the industry.

What Is A Merchant Account?

A merchant account, also dubbed as MIDs (or merchant IDs) is a special category of bank account. With this account your business can accept payments by credit and debit cards processed by a payment processor.

After a transaction gets cleared at the level of payment processor, the payment amount becomes ready to get deposited into the merchant account. You can move the sum of money into your business’s main account afterwards.

Merchant accounts do not get opened easily for several businesspersons. Primary reasons behind the rejection of these applications by banks include bad credit history, high-risk nature of business and severe charge back background.

Moreover, there is a great deal of paperwork involved and across regions the requirements fluctuate. Merchants are free to choose one merchant account provider amongst various institutions, firms and banks to provide you merchant account services. But a lot depends on the availability of these in your local area and country.

Some business owners opt to go ahead with payment processors for addressing their merchant account needs too. R&D of available options can help you understand that if your payment processor can handle this much of work. Having said that you would be made to pay more as you attempt to transfer your funds from the processor to your normal business account.

Takeaway

Payment gateway, payment processor and merchant account- magic happens for your online business when these 3 come together into picture. For clarifying any doubts regarding this or anything related to payment processing, speak with our industry experts.