The payment industry is not that easy as it seems. There are a lot of terms that are used like merchant accounts, payment processor and payment gateway. We will discuss these terms and give you a basic idea of how the whole process works.
A merchant account is a bank account that is used for keeping the money generated by using credit or debit cards. Transactions that take place with a credit or debit card go to your merchant account and from there it is transferred to your business account. This normally is done on daily or weekly basis.
If you are planning to accept MasterCard or Visa as payments online, you will require a merchant account provider that gives out merchant accounts to e-commerce businesses. A merchant account is a legally authorized agreement between you (business) and the provider.
It is not a difficult term to understand, basically it means when a customer makes a transaction through a credit card, their information is sent to the MasterCard or Visa server, from where it collects the data regarding the funds available on his card. So, if your business can accept credit cards, then it is required that you make the transactions through the point of sale system or a POS machine, which acts as a payment gateway.
Whereas, with travel merchants or in an e-commerce transaction, it automatically redirects to a payment gateway page that connects to the MasterCard or Visa server that shows if the customer has sufficient funds in his account to make the transaction. Once the information is authorized, the funds are transferred immediately from the customer’s account to the merchant account.
The term payment processor is often confused with the merchant account provider or the payment gateway. This is because the merchant account and the gateway are often provided together. But, in reality both the terms are totally different.
The payment processor is the service that receives the transaction requests from the payment gateway. The processor then sends the authorization from MasterCard or Visa server and sends it to payment gateway and merchant account providers. In simple terms, a payment processor is a company that processes credit card transactions.