What's The Difference?
A reader emailed recently with a question that I thought would make a good post. He was confused because his merchant account provider wanted to set him up with an Authorize.net payment gateway to process credit cards through his website. The perplexing issue to him was that he didn’t understand the difference between what his merchant account provider does and what Authorize.net does. To him it seemed like they were the same type of business because both of them let him take credit cards from his customers. But there is a difference between the services these companies provide.
When a business wants to accept credit card through its website, it must have two services:
- A Merchant Account
- A “Payment Gateway”
A merchant account handles the financial processing of the credit card transaction with the banks and card brand (VISA, MasterCard, etc). A “payment gateway” provides the technology to securely capture and transfer the credit card information from a website shopping cart to the merchant account. Authorize.net is a payment gateway provider, so all that they do is supply technology to capture and transfer credit card transactions to compatible merchant account providers.
[Researching credit card processors? Learn how to get the merchant services you need without getting scammed]
It is very typical to have one company supply the merchant account and another supply the payment gateway because very few companies supply both services under the same roof. Instead, most companies specialize in providing one part of the needed services and then partner with other companies for various other services that may be needed. When a customer needs a service that merchant services company does not provide directly, the company simply sets the customer up with a compatible third-party service provider to supply the needed service.
If you were to buy a physical credit card machine, it would be manufactured by a different company other than the merchant account provider. Though in most cases, the merchant account provider would facilitate the buying or leasing of the equipment. The same practice holds true for internet payment gateways.
This also works the other way around. If you were setting up credit card processing for the first time and contacted Authorize.net, they would set you up with a merchant account provided by a different company and would only directly supply the payment gateway.
But I have a shopping cart…
Now you might be asking yourself, “Isn’t my website shopping cart a payment gateway?” The answer is “no” (in most cases). A website shopping cart is a piece of software that tracks inventory and allows customers to add items for eventual checkout. A payment gateway fits between your shopping cart and merchant account and is only responsible for the capturing and transferring of credit card data.
This may sound complicated, but most merchant services companies have made the process of setting these various services to be as seamless as possible. To make it simple, be sure to work with an experienced web designer.
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Questions or comments? Be sure to leave them in the comment section below.
About The Author
In the late 2000s, as a broke college student struggling to make ends meet, I was contacted by a merchant services company after uploading my resume to a job listings website. This company promised substantial commissions and ongoing residual income for simply persuading businesses to accept credit card payments. It seemed straightforward enough—after all, what business doesn’t need to process credit card payments? Following a phone interview with a persuasive “sales director,” I found myself embarking on what I believed would be an easy job that would significantly boost my bank account with reliable monthly income and large sales commissions. However, the lessons I learned would profoundly change my life in ways I could never have imagined.
After completing my sales training, I hit the ground running, eager to make sales. This broke college student was determined to improve his financial situation! My first attempt at a cold call, with no prior appointment, ended with a burly man in his 50s yelling at me to leave, claiming he had been “totally robbed” by someone like me before. As I hastily exited, puzzled and intimidated by his reaction, I couldn’t help but wonder what he meant. Throughout the day, I encountered similar hostility from other business owners, all expressing disdain for the industry I had been so excited to join that morning. Confused and curious, I decided to shift my approach from selling to listening.
I quickly uncovered that the merchant services sector was riddled with unethical practices, including hidden fees, deceptive marketing, fine-print traps, and much more. It dawned on me that I had nearly been tricked by a dubious company into selling overpriced services under contracts with long-term commitments, all without being fully aware of what I was promoting. Outraged, I resigned from that company but learned that there were indeed ethical credit card processing companies that treated their clients fairly. Over the next four years, I worked for one such company, assisting hundreds of businesses in securing cost-effective processing solutions. Yet, I also met many more who had been misled and trapped in onerous service agreements. Determined to help people steer clear of these unscrupulous providers, I launched this website in my spare time, dedicating myself to researching and sharing my findings on every merchant account provider I could investigate.
Gradually, more and more business owners began to discover my articles. As word spread, search engines started to rank my content highly, amplifying its reach. My efforts were making a difference! Eventually, the website garnered enough traffic to enable me to leave my job and focus on it full-time, a journey that has now spanned over a decade. This path has not been without its challenges; unscrupulous company owners have tried to intimidate and sue me into silence on several occasions. Yet, I have stood firm against each threat. Here I am, continuing to publish reviews and articles, hoping to safeguard others from the pitfalls of the credit card processing industry.
If you believe in my mission and wish to contribute, please share my articles on your websites and social media. Thank you for visiting!
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Matt Collins
Nice write-up, Phillip. Another thing I think can be confusing is that some providers bundle a merchant account and payment gateway together. Still others, like PayPal, are effectively letting you process payments via their merchant account. For anyone looking into this for the first time, it’s a lot to get your head round!