Merchant Account vs. Payment Gateway

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 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 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:

  1. A Merchant Account
  2. 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. 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, 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.

Find the right processor for you with the Merchant + Processor Match-up tool

Questions or comments? Be sure to leave them in the comment section below.

Reader Comments

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1 User Reviews

  • 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!

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