Understanding Merchant Account vs. Payment Service Provider vs. Payment Gateway

You might have come across these terms quite often. But do you understand their differences? And do you question yourself on which is the most suitable option for your business? Here’s a straightforward breakdown of Merchant Account, Payment Service Provider, and Payment Gateway.

1. What is a merchant account?

This one is like a holding account where payments go before being deposited in your ideal account. Once you open a merchant account, you receive a unique merchant ID from your processor. The account helps you accept online payments from your customers. The revenue from your merchant’s transactions is deposited until the settlement date; only then you receive the funds in your regular accounts.

2. What are high-risk and low-risk merchant account?

Your merchant account may fall into two major categories: High Risk and Low Risk.

Characteristics of high-risk merchant accounts include multi-currency acceptance, trading high-risk goods or services such as gaming, ticketing, etc., extended/ higher chargeback liability periods, poor credit history, dealing with a higher fraud rate, and more.

Being tagged as a low-risk merchant account includes no to low chargebacks, single currency acceptance, operating in a low-risk industry, working in a low-risk state, bringing relatively lower monthly revenue, etc.

High-risk merchant services acquire strict contracts and are considerably charged more than low-risk merchant services. In case if you’re in a nonresident country, you’d benefit from offshore banking services. These aren’t domestic but offer a direct account helping the merchant process their transactions and support both high-risk and low-risk businesses.

If you’re a multinational or international merchant, opening an offshore bank account would be in your best interest. Offshore merchants can make transactions with customers from different countries and provide solutions for debit or credit card processing as well. It is safe, effective, and works globally, provided you partner with a service provider who is reputed and well versed with your particular business processes.

3. What is a Payment Service Provider (PSP)?

PSPs accept online payments without the hassle of setting up a merchant account. PSP creates a sub-account within the parent account when a new merchant arises. For this reason, PSPs are also named as Payment Aggregators. These aggregate transactions from several different merchants under a single account. It’s the easiest and most reliable way of receiving online payments. Paypal and Transferwise are a few popular PSPs in the market right now.

4. What is a payment gateway?

This is an interface that works on top of a merchant account. It collects all transactions passing over the details to your processor. When customers pay online, they interact with the gateway and not your merchant account. The gateway handles transaction encryptions, back end verification systems, and credit card payments on the front end. Most merchant account providers own their payment gateways, offering you tons of choices.

Takeaway

Now that you understand the ins and out of all the three concepts: Merchant Account, Payment Service Provider (PSP), and Payment Gateway, you can make better decisions concerning your business operations. Whether you are an e-commerce merchant, run your online gaming website, or own just any other business type, differentiating these concepts is crucial to choosing your partners safely and catering to business needs more effectively.

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