Payment Processor Vs. Merchant Account For Businesses

payment processor vs merchant account business payments

Given that nearly 90% of U.S. consumers now shop online, it is important to have the right payment setup installed. You need a payment processor that makes sense to your company and the type of customers that you serve.

Here is everything you need to know about how a merchant account differs from a payment processor.

Understanding Merchant Accounts

If you want to accept prompt payments at your company, you are going to want to have an account that helps you process card payments faster. The payment gateway that you set up is going to deposit funds from your credit card into that account. Setting up a designated schedule allows you to make sure those payments end up in your business's bank account to keep the cash flow moving.

Your merchant account isn't going to be the same as your business's bank account. Some people are confused by this fact and end up conflating the two incorrectly. The money that your business earns should end up in a business bank account where you can work with it. Your merchant account is a place that you hold deposits at.

It allows for money to be deposited from payments and also provides a way to easily process returns. If you had to take the money for returns out of your business's bank account, you would have some challenging tax issues to deal with.

If you have money in your merchant account, any returns get subtracted from that account. The funds that remain will, on a scheduled basis, then end up getting deposited in your bank account.

If you take payment from multiple sources, your merchant account works to ensure that everything comes to one place and results in one deposit. Rather than having to track down multiple deposits, your merchant account makes your money easier to manage and reconcile later on.

Understanding What A Payment Gateway Is

A payment gateway differs from the way a merchant account works. It is a type of technology that helps to connect all sorts of online merchants and payment networks together. In seconds, it integrates everything in a central location with a common interface. This occurs whether you use venmo for nonprofits or a different payment method with a for profit organization.

A payment gateway is meant to integrate with your e-commerce site or your online store. It makes life easier by integrating your ability to process cards with everything else that your business does. Online credit card processing is unnecessarily complicated without a payment gateway.

The gateway is meant to add a layer of security while you capture the payment details that your customers leave behind with their transactions. With tools provided by the payment gateway, the merchant sends a secure packet of data containing all of the shopper's information. The gateway helps by encrypting the payment information that it transmits, making it hard to hack.

Payment gateways cut right to the chase by routing information to the payment processor or the bank managing the money. The bank or the processor takes the wheel for the rest of the process. Using this system banks get the chance to screen for fraud and then route transactions over to the card's network.

The whole thing happens instantaneously and then sends an approval or a declination via the gateway. This either directs shoppers to a confirmation page or tells them to try another form of payment.

Understanding Payment Gateways and Processors

A payment processor is connected directly to card networks like Visa or American Express. Meanwhile, a payment gateway helps to connect merchants with processors. They're a centralized hub that helps to keep payments running smoothly and as payment processors become larger, they use gateways to help.

The ideal gateway helps by offering multiple payment methods. Since people are using more than just credit cards to pay for things online, the number of different tools require mediation. Many payment gateways support the whole variety of payment options to help attract and retain a larger number of customers.

With eWallets, direct deposits, wire transfers, and touchless payment options growing, there is a growing need for tools to help.

Payment gateways help with fraud protection. Since online businesses risk a leak or an attack every time they send data for a payment, it's important to stay on top of the potential for fraud. If a business sees a high rate or fraud, they're going to end up with chargeback fees and penalties.

This ruins reputations and leads to lost profit as customers get fed up with the risk that they are confronted with just by supporting a business.

More people are using recurring billing and subscription services to help keep their bills paid on time. Since you only need to set up payment for these once, your information needs to be safely and securely stored in the interim. Payment gateways are responsible for updating and protecting this information regularly.

Which Payment Method Works For Your Business?

As things change in every industry, it is going to be more important for you to have a robust payment gateway than a merchant account. However, it's likely that more companies are going to offer better solutions for merchant accounts that allow for flexibility. These businesses are going to have to grow or risk dying out.

Ask around other people in your industry or ask ecommerce / retail colleagues what they prefer to use before you sign any contracts. Check to see which type of payment method is going to cost you the least while giving your customers access with any type of payment they are likely to choose.

A Payment Processor Is Vital No Matter How You Do Business

You're going to need a payment processor if you accept any kind of non-cash payment at all. If you are looking to improve your business service, you should consider combining a payment gateway with a processor. It will pay off!

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