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How does a merchant account differ from a payment gateway?

Curious about Merchant account

How does a merchant account differ from a payment gateway?

A merchant account and a payment gateway are two distinct components of the payment processing ecosystem, each serving different functions:

1. Merchant Account: A merchant account is a type of bank account that allows businesses to accept and process credit card and other electronic payments. It is typically provided by a financial institution or a payment service provider. When a merchant applies for a merchant account, they undergo a risk assessment and approval process. Once approved, the merchant account enables the business to receive funds from customer payments and facilitates the settlement of those funds into the business's bank account. In other words, a merchant account acts as a holding account for the funds before they are transferred to the merchant's bank account.

2. Payment Gateway: A payment gateway is a technology platform that securely authorizes and facilitates the transfer of funds between the customer's payment source (such as a credit card) and the merchant's bank account. It serves as the intermediary between the customer, the merchant, and the acquiring bank (the bank that processes the payments on behalf of the merchant). When a customer makes a payment on a merchant's website or through an app, the payment gateway securely captures the payment details, encrypts the information, and sends it to the acquiring bank for authorization. If the transaction is approved, the payment gateway facilitates the transfer of funds from the customer's payment source to the merchant's designated merchant account.

In summary, a merchant account is the bank account that holds the funds from customer payments, while a payment gateway is the technology infrastructure that securely transmits the payment information and facilitates the authorization and transfer of funds. Both the merchant account and the payment gateway work together to enable businesses to accept electronic payments from customers.

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