Understanding Payment Gateways and Merchant Accounts

Before integrating mobile payments into your business, you’ll want to understand payment gateways and merchant accounts — two essential cogs in the credit card payment wheel. Here’s what these two important terms mean and why you need them.

Payment Gateways

A payment gateway is an e-commerce app or service provider that authorizes or declines credit card transactions. When a customer swipes a credit card at a point-of-sale terminal, the payment gateway contacts the card company, such as Visa or MasterCard, and the card’s issuing bank.

The sale amount is given to the card company and bank, which, in turn, tell the payment gateway whether those funds are available. If funds are available, the transaction proceeds. If not, the card is declined.

Merchant Accounts

A merchant account is like a holding tank for money that’s halfway between the customer and the retailer. These special accounts take immediate possession of funds after a credit card payment is authorized and the sales transaction is completed.

After a card is approved for a purchase, the transaction amount is deducted from the customer’s account. But that money isn’t transferred directly from the issuing bank to the business’s bank account. First it goes to the merchant account.

Merchant accounts hold funds for a few days, a week, or longer, depending on the account agreement. At regular intervals, the merchant account provider releases the funds into the business’s bank account.

Credit card companies require merchant accounts; businesses can’t accept credit card payments without one. If you want to accept Visa, you’ll need a Visa merchant account with a providing bank, and the same applies to other cards, according to Wells Fargo.

But mobile-payment systems like Intuit GoPayment incorporate payment gateways and merchant accounts directly into their services, so you don’t have to worry about setting up either on your own. Funds can be directed to just about any bank account after a sale is closed.

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