Whenever we start a new business, and we're looking forward to getting a merchant account or payment gateway. We sometimes feel that what exactly is the difference between the merchant account & payment gateway. It's a quite a common question especially in developing economies like India, Thailand, Malaysia, Philippines or Latin American countries.
Let’s go ahead & discuss what precisely are the fundamental difference between a merchant account & payment gateway. So a merchant account primarily is a special purpose bank account that a merchant opens with an acquiring bank. The acquiring bank is a financial institution which underwrites the risk of the merchant after critically evaluating all the KYC documents.
If the acquiring bank thinks that merchant is financially stable. The product which he/she is selling is approved and does not violate any local & international law. Then the merchant account is given. So the purpose of merchant account is to hold the money that is released from the card issuer. So whenever transaction happens, the Merchant does not get paid immediately. The only way to get paid directly is when you are using a wallet to wallet transaction or a bank to bank transfer.
So if an individual transfers funds from his wallet to your wallet, you get the fund immediately. But in case of a merchant account, you have to wait for sometime. If your business model is a low risk then you probably you will get the payment in T+1, T+2, T+3 cycle. Here T means the date of transactions and other numerals values indicates business days. In merchant processing industry, the settlement is only done on business days. So this merchant account can hold that fund, and after a specific period, these funds are actually moved to the merchant business bank account.
Let’s go ahead & discuss payment gateway. So payment gateway is an online software which allows businesses to accept credit and debit card transactions. Now as I mentioned in developed economies, people prefer to get payment gateway from a different provider. A wonderful example of the same would be somebody taking a payment gateway solution from authorize.net and then getting a merchant account from Wells Fargo or Bank of America.
So, once they have authorize.net gateway, then they can add multiple merchant accounts on the same portal.
In developing economies, people do not do so much of sales volume. Most of them are growing & they are startups, and that's why most of the payment gateway companies help merchants in getting a sort of merchant account as well. They do it because these payment gateway companies have their own agreements with the merchant account acquirer. These type of organizations are also known as PSP or payment service provider.
So that's the basic difference between payment gateway & merchant account. Let’s go ahead & look at the necessary steps which are followed in terms of transaction processing. A customer visits the website, looks at the products & adds the products to the shopping basket. He then enters card information on checkout page along with additional details. This information moves from the web server of the merchant website to payment gateway. Payment Gateway again follows the process of sending the transaction information to the card brand & card brand further decide whether it has to take the initiative of approving or declining themselves or not. Yes, some card brands are card issuers.
In case if that is not the case, this information goes to the card issuer bank & card issuer decides whether to approve or decline then the transaction on the website.
An aggregated payment gateway is a sort of sharing system. where a lot of merchants are using the same solution. This would be considered as an aggregated solution. A dedicated merchant account offers additional flexibility to merchants.
Source : https://quadrapay.com/payment-gateway-merchant-accounts-differences-india/
If the acquiring bank thinks that merchant is financially stable. The product which he/she is selling is approved and does not violate any local & international law. Then the merchant account is given. So the purpose of merchant account is to hold the money that is released from the card issuer. So whenever transaction happens, the Merchant does not get paid immediately. The only way to get paid directly is when you are using a wallet to wallet transaction or a bank to bank transfer.
So if an individual transfers funds from his wallet to your wallet, you get the fund immediately. But in case of a merchant account, you have to wait for sometime. If your business model is a low risk then you probably you will get the payment in T+1, T+2, T+3 cycle. Here T means the date of transactions and other numerals values indicates business days. In merchant processing industry, the settlement is only done on business days. So this merchant account can hold that fund, and after a specific period, these funds are actually moved to the merchant business bank account.
Let’s go ahead & discuss payment gateway. So payment gateway is an online software which allows businesses to accept credit and debit card transactions. Now as I mentioned in developed economies, people prefer to get payment gateway from a different provider. A wonderful example of the same would be somebody taking a payment gateway solution from authorize.net and then getting a merchant account from Wells Fargo or Bank of America.
So, once they have authorize.net gateway, then they can add multiple merchant accounts on the same portal.
In developing economies, people do not do so much of sales volume. Most of them are growing & they are startups, and that's why most of the payment gateway companies help merchants in getting a sort of merchant account as well. They do it because these payment gateway companies have their own agreements with the merchant account acquirer. These type of organizations are also known as PSP or payment service provider.
So that's the basic difference between payment gateway & merchant account. Let’s go ahead & look at the necessary steps which are followed in terms of transaction processing. A customer visits the website, looks at the products & adds the products to the shopping basket. He then enters card information on checkout page along with additional details. This information moves from the web server of the merchant website to payment gateway. Payment Gateway again follows the process of sending the transaction information to the card brand & card brand further decide whether it has to take the initiative of approving or declining themselves or not. Yes, some card brands are card issuers.
In case if that is not the case, this information goes to the card issuer bank & card issuer decides whether to approve or decline then the transaction on the website.
An aggregated payment gateway is a sort of sharing system. where a lot of merchants are using the same solution. This would be considered as an aggregated solution. A dedicated merchant account offers additional flexibility to merchants.
Source : https://quadrapay.com/payment-gateway-merchant-accounts-differences-india/
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