What's the Difference Between a Payment Gateway and a Merchant Account?
Payment Gateway
A payment gateway is a service which allows an online customer to enter payment details, for example by credit or debit card.
It is the online equivalent of a physical card terminal that you might use when paying by card in a shop or restaurant. The actual payment details may be entered via the merchant's website or through a secure form provided by the payment gateway.
Examples of payment gateways: PayPal, SagePay (in the UK), Stripe, First Data, UTP, WorldPay.
Merchant Account
A merchant account is a special type of bank account that works behind the scenes to receive debit and credit card payments after a payment has been made through a payment gateway, physical card terminal or a virtual terminal.
Examples of merchant account providers: First Data Merchant Services, WorldPay, Card Cutters, UTP.
Which Do I Need?
To take credit or debit card payments via website, you effectively need both a payment gateway (to accept the payment details and connect to the payment networks) and a merchant account (to receive the funds). However, some services effectively bundle these two elements together.
You have two choices:
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All-in-one Payment Services Provider (PSP)
Some payment gateway services such as PayPal and Stripe are effectively a payment gateway and merchant account combined - you don't need a separate merchant account.
Pros: convenient, typically fast to get set up.
Cons: tends to be more expensive for all but small merchants, some horror stories of accounts being suspended and money held by the providers with little explanation.
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Separate Payment Gateway and Merchant Account
Other providers offer payment gateways and merchant accounts as separate products. You can get them from the same provider or from different providers (e.g. a SagePay gateway and a First Data merchant account).
Pros: typically cheaper for all but the smallest merchants.
Cons: providers can be picky about who they accept and some can take weeks to process an application.