Merchant Accounts and a Payment Gateway

Merchant Accounts and a Payment Gateway
By Amy Nutt

The online e-commerce business community is growing at a rapid rate. Everyday more businesses are setting up online retail stores. There are a number of different methods businesses can use to accept online payments. Understanding the ways of accepting online payments can often seem overwhelming, but a little background information can make it much easier. Two important methods of accepting payments are the Merchant Account and a Payment Gateway.

To help you understand the technology, the following explains the differences between a Merchant Account and a Payment Gateway:

Merchant Account

Also referred to as online credit card payment accounts, online credit card processing accounts, credit card transaction accounts, or e-Commerce merchant accounts, permit businesses to accept credit cards, debit cards, gift cards and other forms of card payments. A business acquires a merchant account from a merchant bank or a merchant service provider. Without a contract, a business cannot directly accept payments by any of the major credit card companies. An e-Commerce account is a service that e-Commerce merchants implement in order to use online credit card processing services. The process of acquiring this specific account type depends on the provider and the type of e-Commerce account. Fees and rates will vary among providers.

The advantage with using one of these account is that it can automate a business. Customers can deposit money into the account on the web 24 hours a day/ 7 days a week.

Payment Gateway

A payment gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is connected to a large network of credit card issuing banks. One of the other main functions of credit card processing is encryption. A gateway uses SSL 128-bit encoding technology to encrypt and decrypt all the data being sent through it. Without encryption, all the credit card holders’ information could be stolen.

The general process of how a gateway works is as follows:

1) A customer orders a product or service from a merchant’s site by clicking on the order button.

2) The customer is then taken to an order form page where they complete an order form and enter their cardholder information and shipping information.

3) The customer clicks the ’submit’ button. The data becomes encrypted (SSL 128-bit) by the cardholder’s web-browser. A key is generated and passed to the merchant’s gateway.

4) This gateway decrypts some of the information, and then re-encrypts it and sends it to the merchant’s acquiring bank.

5) The bank forwards the data to the credit card issuing bank for verification and authorization.

6) The issuing bank sends a type of response code back to merchant bank. The bank then sends it to the payment gateway.

7) The credit card is billed and the funds are transferred to the merchant’s bank and deposited into the merchant’s account.

An online business will have to sign up for this specific gateway once they set up a merchant account. They will be provided with a shopping cart system where their customers can pay for any products that the business is selling. The primary difference between the merchant account and the payment gateway is that a merchant account is the license by which businesses are permitted to accept payment by credit cards, and payment gateway is the means of receiving online payments.

Both the payment gateway and the merchant accounts are vital components in setting up an automated business. They play a major role in attracting consumers and maintaining repeat customers. Acquiring a merchant account with a gateway is essential to business success.

Canada’s leading processor of debit and credit card payments provides POS systems, retail software, online retail register & systems and point of sale software.

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