View Full Version : What is the difference between a Merchant Account and a Payment Gateway?

January 13th, 2010, 06:22 PM
What is a Merchant Account?

To accept credit card transactions online, you have a few options.

You can setup a PayPal account to allow PayPal to process your credit card transactions for you. This is commonly the "entry level" way to start accepting credit cards online. However, this is not the suggested way for a real e-commerce site to accept cards. Accepting PayPal transactions can be part of the options, but shouldn't, in most cases, be the only method for taking credit cards.

Here are a couple of reasons you should not choose only PayPal to process your credit card transactions.
- Higher fees than you can get elsewhere, in some cases
- Some buyers will think they have to have a PayPal account, although that is not true. This can cause them not to buy from you.

Successful e-commerce sites will have a real Merchant Account. They will generally get their Merchant Account from their local bank, where they conduct their banking business.

Having a Merchant Account alone doesn't mean you can easily accept credit cards. The credit card transactions have to be processed. There are a couple of ways that these transactions can be processed.
- Manually, by hand via a touch-tone phone
- Automatically via a Payment Gateway (discussed below)

The manually by hand method is the way to go if you're only going to be processing a very small amount of transactions per month and you don't value your time that you're having to spend processing these transactions manually.

The automatic method of processing credit card transactions is to integrate the Merchant Account with a Payment Gateway. This will allow the card to be approved or declined automatically. You can even set the Gateway to batch your sales nightly. "Batching" the sales means that it closes out the sales and notifies the bank to deposit the funds to your account.

What is a Payment Gateway?

A Payment Gateway is a behind the scenes method for getting credit card approval/decline responses and batching out the sales, which will deposit the money into your checking account.

Most any ready made e-commerce cart will be integrated with a Payment Gateway. The most popular gateway is Authorize.net. Most every cart is integrated with Authorize.net.

Another popular Payment Gateway is USAePay. Hostek.com is a Authorized Reseller for USAePay. Some e-commerce carts are integrated with USAePay, including the most widely used card, osCommerce.

All of the Payment Gateways basically do the same thing. They accept the credit card transactions securely behind the scenes and return a result of approved or declined. That's the most basic function of the Payment Gateway. Also, most Payment Gateways also provide you with an online "vterminal" (virtual terminal) which will allow you to manually process a transaction online if you need.

The fee structure on the different gateways vary widely. I'll list some of the main points to consider when choosing a Payment Gateway. The main point to consider is if the Payment Gateway will work with your shopping cart or not.

After determining which Payment Gateways are supported by your cart, here are the next things to consider:
- Monthly Payment Gateway cost (this is separate from your Merchant Account)
- Per Transaction Fee
- Per Batch Fee

There will be setup fees with most every Payment Gateway and that is a one time fee, so the 3 items listed above are the most important.

Authorize.net Fees (http://www.authorize.net/solutions/merchantsolutions/pricing/) (as of this post)
Monthly Payment Gateway Fee: $20.00
Per Transaction Fee: $0.10
Per Batch Fee: $0.25

USAePay Fees (as of this post)
Monthly Payment Gateway Fee: $17.50
Per Transaction Fee: $0.00
Per Batch Fee: $0.00

Do I have to have a shopping cart to accept credit cards online?

No. You can have a custom form created to accept the credit card information, and then connect that to a Payment Gateway to process the transaction. We have the basic custom scripts already written for the USAePay gateway and can help integrate this with your custom application if you need.

How can I order the USAePay Payment Gateway?

You can use this link to order the USAePay Payment Gateway (https://cp.hostek.com/cart.php). Generally the USAePay Silver account is what you will want to use. The difference between the Silver and the Gold is the Gold gives you access to the Fraud Center within your online account.