How Credit Card Payment Processing Works: Lesson 2 – What’s the Difference Between a Gateway and a Merchant Account

In lesson two of this blog series we’d like to help you understand the two services you’ll need to accept and manage credit card payments — a Payment Gateway and a Merchant Account, and the difference between them.

Payment Gateways

The Payment Gateway sits between the Merchant and Processor, who passes transactions to the Network (MasterCard, Visa, American Express, Discover, etc.) The role of the Payment Gateway is that of a secure information conduit that complies with credit card processing security rules and regulations. Once the card information is entered, the Payment Gateway securely transmits the card data to the Network, who then passes it on to the card’s issuing bank for authorization. All of this happens in the blink of an eye using encryption technologies to ensure confidential cardholder information is never exposed.

The Payment Gateway also provides credit card payment management tools such as reconciling and reporting and automated account updating—which is the process of proactively tracking down outdated credit card information for the purpose of maintaining your recurring payments.

Merchant Account

The merchant account serves as a repository for credit card payments and is linked to your bank account, where funds settle each day. The settlement process happens behind the scenes in coordination with your Payment Gateway.

Merchant accounts are set up directly with a Merchant Provider. Merchant Providers are just that. They are the folks that provide the account to you, the Merchant. Not all Merchant Account and Payment Gateway providers are created equal, however. A good gateway will provide all of the tools you need to submit payments to the networks at a reasonable price that is easy to understand. If your gateway operates a cost-plus pricing model, you can clearly see exactly what you are being charged and by whom. Want to learn the difference between cost-plus pricing and bundled pricing? Lesson three in this blog series will tackle that very question.

If you can’t wait, then we suggest that you download our eBook Understanding the Ins and Outs of Credit Card Payment Processing >>


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