To compare merchant account vs payment gateway, let’s have a look at what these accounts are?

What Is a Merchant Account?

A merchant account is a type of account that allows businesses to accept and process payments. You can also say that a merchant account is a bank account that enables your company to take a variety of payment methods, such as debit cards, credit cards, and ACH (Automated Clearing House) payments, from users. Although you do not have direct access to this account, it links your company and the particular card-issuing banks, facilitating the acquisition of money and the subsequent settlement of cash into your business account. 

A merchant account is required if you want to accept debit cards and credit cards at your company.

Benefits of Merchant Accounts

As we discussed before that, with the help of a merchant account, you can make multiple payments. It also helps you in growing your business. Some benefits of a merchant account gateway are:

• You can Accept the Credit Card 

It is possible to accept debit cards and credit cards using a merchant account, which is one of the most significant advantages that can be gained. With each passing year, customers’ desire for debit cards and credit cards continues to rise, and they are becoming the new “standard.” Businesses that place a high value on the customer experience frequently discover that removing any complexity from the purchasing or payment acceptance procedures may help them gain new customers while also boosting their income stream.

• Boosting Sales 

According to a number of researches conducted over the years, customers spend money when they are offered the choice to use credit cards rather than cash. In fact, according to a study conducted by Community Merchants in USA and sponsored by Intuit, 83 percent of small companies that took credit cards reported an increase in sales. This increase has the potential to directly influence your company’s sales and overall growth.

• Assistance for the Needs of Customers

Customers who may make purchases in various methods will be more likely to be satisfied, which will lead to retaining the existing customers for your business. With credit or debit cards, payment services, shopping carts, mobile phone payments, or regular billing, your customers will love their experience with a company because they can purchase whenever they want to. 

• Keep You Away from Faulty Checks

It is possible for your business to avoid the inconvenience and costs connected with failed checks by utilizing merchant account services and receiving electronic payments instead. Additional benefits of a merchant account include the ability to take recurring payments for services that are provided on an ongoing basis when used in conjunction with a comprehensive payment system such as PayPal.

• Improved Financial Management

Accepting credit cards and transitioning to online payments simplifies the way your company processes transactions and improves efficiency. Electronic payments, rather than cash payments, can assist you in staying organized and will enable you to better manage your cash flow and forecasts.

What Is a Payment Gateway?

A payment gateway is a technology that links all types of merchants. In the case of Stripe, which is an example of an international payment gateway, merchants may take online card payments in a variety of different currencies.

When it comes to performance, an online payment gateway is similar to a credit card machine in that it allows your consumers to input payment information through the internet. Every sort of business, from large box shops to eCommerce businesses and from trade fair exhibitors to antique dealers, requires the ability to take credit card payments in order to expand its customer base and revenue. And an increasing number of those organizations are accepting payments over the internet.

How Do Payment Gateways Work? 

If you’re new to eCommerce, you’re most likely just learning about payment gateway accounts right now.

When using a payment gateway, the online transaction takes place through a safe hosted payment method on your business website.

When a consumer enters his or her order, the following occurs:

• The payment information is sent to the payment gateway.
• The payment gateway protects cardholder data before sending it to the payment processor for verification.
• The payment processor sends the information to the customer’s card issuing bank for authorization, which is accomplished through the card network.
• The payment processor informs the gateway if the transaction has been approved or declined.
• The decision is communicated to both the merchant and the client through the gateway.

Benefits of Payment Gateways 

Payment gateway account has its own benefits different from the merchant account. Some of its benefits are;

• Help in Checkouts Faster and Save Time

From a customer’s perspective, a quick, and efficient checkout process is essential to their satisfaction. The payment gateway makes these capabilities possible, which makes online buying as simple as possible.

Payment gateways accounts receive card payments quickly. Unlike manual processing, you may start collecting payments within 24 hours of creating your payment gateway. Online transactions and e-commerce performance rely on quick payments. Online buyers are renowned for impulse purchases, so making sure they don’t have to wait may make or break a transaction.

• Better Experience for Users

Payment gateways provide additional features that provide a better customer experience. Customers may usually add goods to a cart and save bundles and favorites. Users may quickly create a profile and save their payment information, allowing for one-click purchases. Payment gateways generally provide merchants with complete control and the ability to intercept issues. At the same time, other methods may be time-consuming and costly.

• Extend your Business

With the help of a payment gateway, you can extend your business. Customers from all around the world may effortlessly reach your shop. Secure digital payment alternatives are becoming increasingly important, especially for online retailers. Ecommerce is becoming worldwide. People are becoming more comfortable making online purchases, allowing them to shop anywhere they want, whenever they want. Many payment gateways also provide affiliate marketing programs to assist you in generating more leads.

Which One Is Right for Your Business?

If you want to know which one is better, either a payment gateway or a merchant account, then let us clear one thing. Both of these accounts have their own importance, and both of them are useful for any business. However, there is a significant difference between the two accounts as a payment gateway supports online transactions and enables you to execute them, while a merchant account serves as a holding account where funds are received before being put into your normal bank account.

Summary 

A payment gateway is merely a customer interface that gathers card data, such as an online checkout portal. A merchant account is for receiving and keeping payments from card transactions.

In other words, the payment gateway acts as a cashier, while the merchant account acts as a cash register.

Unfortunately, with so many Internet merchant account service providers in the market, it can be difficult to know what to look for in a provider and how to go about opening your merchant account. The good news is that in this article we answer the questions: how do merchant accounts work and how to set up one? But before we get right into it, let’s learn what a merchant card processor account is.

What Is a Merchant Account?

A merchant account is a business bank account that allows your business to accept and process credit and debit card payments.  The account acts as a link between your business and the financial institutions that process electronic payments.

How Does A Merchant Account Work?

If you’re wondering how a merchant card processor account works, read on. When a customer pays for a product or service using their credit card, their card processor will send the transaction information to their merchant account. The service merchant account will then route the information to the cardholder’s bank. The bank will then confirm if the holder has enough funds in their account to cover the transaction. In case there are sufficient funds in the account, the issuing bank will contact the card processor with this information. The processor also briefs the merchant account with the approval details. Once this exchange of information is complete, the transaction is completed, whereby the issuing bank deposits the transaction funds to your merchant account.

What Are Merchant Services?

Merchant services include the products and technology that businesses use to accept and process credit cards and other forms of electronic payments. The merchant services are provided through a merchant account that is set up by a merchant service provider. Examples of merchant services often provided by merchant account service providers include:

• Mobile payments
• Payment card readers
• Contactless payments
• Credit card terminals
• Offshore merchant accounts
• Online payment gateways
• Business management apps
• Point of sales systems
• E-commerce services

What Are Merchant Services Providers?

Merchant services providers are third-party organizations that provide credit and debit card processing services. These providers act as the bridge between businesses and credit card processors.  In addition to enabling businesses to accept and process card payments, merchant service providers also offer the following services:

• Accept and Process Paper Checks
• Accept and Process Mobile Payments
• Accept E-Commerce Payments
• Provide Customer Loyalty Reward Programs
• Accept Payments Integrated with A Pos System
• Establish Gift Card Programs
• Offer Financing Services

Merchant service providers often comprise banks, credit card companies, point of sale payment service providers, and other third-party providers such as PayPal, Stripe, and Square.

What Are Merchant Services Fees and Rates?

When choosing your merchant service provider, one of the crucial factors to consider is the service fees and rates. This also means you need to understand the pricing models used by different providers to make an informed decision. Below, let’s look at the three common pricing models used by merchant service providers:

Flat rate pricing model – In this model, the service provider will require you to pay a flat fee for each transaction, regardless of the card used. For example, you may be charged $0.04 for every transaction made. Other merchants that use this model will charge you a flat fee plus a percentage of the transaction value. For instance, you may be charged a flat rate of $0.40 plus 2.5% for every transaction value.

Interchange plus pricing model – The merchant services provider will charge you an interchange fee, which is equivalent to the money they pay the credit card network. In addition to this fee, the provider will charge you a flat fee or a percentage fee for every transaction. This pricing structure is popular as it’s easy to understand. It’s also transparent, as you’ll be aware of the amount of money that goes to the card network and the amount that the provider gets. Most business owners also find this pricing model affordable.

Tiered pricing model – For this type of payment mode, the service provider offers their services in the form of priced tiers. The tiers will be based on the risk level and the volume of the transactions.  For instance, a provider can bundle the services they offer into credit card payments, online payments, and debit card payments and then charge you based on the level of risk and the number of transactions of each tier. Unfortunately, this model is costly and more confusing than the other models explained above. In addition to the above rates, some merchant account providers may charge you one-time or monthly fees, as explained below.

• Minimum processing fee – Some providers charge you this fee in case your transactions are less than the number required in a given period
• Account maintenance fee – Account fees are charged monthly or annually. Some providers will also charge an account setup fee when you’re opening an account with them.
• Chargeback fee – This fee is charged when a customer gets a refund after a transaction dispute
• Statement fee – This fee is charged if you request an e-statement or a hardcopy of your statement
• Cancellation fee – if you close your contract before the end of the contract period, some providers will charge you a cancellation fee
• PCI compliance fee – This fee is meant to ensure that you comply with the set credit card security requirements
• Non-sufficient fund fee – Also called the NSF fee, it is paid in case you have insufficient funds in your bank account to pay your service provider

Before you sign a contract with your service provider, ensure you’re informed about all the merchant account fees. Ask about any hidden fees, read the fine print of the contract terms, and ask for a price breakdown. Notably, a good service provider will be transparent about any additional costs. Most merchant account providers also waive some fees such as statement, cancellation, minimum processing, and account setup fees.

Why Do You Need a Merchant Account?

A merchant account protects you from delays associated with credit card payments. When a customer pays for a service with their card, in a typical scenario you’d have to wait until they pay their credit card bills to get your payment. However, thanks to merchant service accounts, you’re able to get your money immediately provided the customer has sufficient funds in their bank account. A merchant account is also beneficial for your business in the following ways:

• Enables you to accept credit and debit card transactions
• Ensures that credit card transactions are done smoothly and automatically
• Protects you from card fraud by ensuring the card payment process is secure
• Modern merchant service accounts also offer other services that improve the flexibility and scalability of your business

Things One Needs to Apply for a Merchant Account

Opening a merchant account isn’t a complicated process. However, you need to do your homework first before you choose your merchant service provider. Some of the factors you should consider before choosing your provider include:

• Additional features
• Fees and pricing structure
• Transaction types
• Processing volume
• Account contract length
• Availability of customer support

To open a merchant account, you’ll need to fill out an application form with a merchant provider and wait for its approval. The merchant service provider may need to know a few details related to your business, such as your credit history and how long you’ve been in business. Some other details they may require from you are the following:

• Financial statements – You’ll need to give the provider the financial records for your business. This allows your provider to verify that you’re in a good financial position.
• Business name and tax ID number – Your business name and identification number allow the provider to verify taxation and legality matters related to your type of business
• Bank account and routing number – This information will enable the provider to determine if you have a separate business account for your business.
• License – This helps verify that your physical or online business has met the required license requirements.
• Credit report – Your business credit report helps the provider verify if you’ve been able to pay past loans. A good credit rating improves the chances of your application being approved
• Past merchant accounts – You should disclose if you have had a previous high-risk merchant account. A positive past merchant account experience will make it easier for your provider to trust you

Conclusion

Now that you know what a merchant service account is and how it works, you have no excuse not to open one.   When shopping for a merchant services provider, look for a provider who is transparent about their payment model and fees. Luckily, merchant services providers such as the eMerchant Authority give you a detailed breakdown of their pricing and contract terms.

Contact us today and start enjoying the services we offer.

In this article, we take a detailed look at merchant account fees and everything you need to know about them so you can make an informed choice when creating a merchant account for your business.

What are merchant account fees?

Merchant costs refer to transaction fees that you, the merchant, pay whenever a customer uses a credit or debit card to purchase items from your retail store. The fees include the money paid to your merchant service provider and the card-issuing bank. The fees paid to your provider include universal, incidental, and scheduled fees, while those paid to the card-issuing bank cover the cost and risk the bank takes to approve the credit card payments.

Types of Credit Card Merchant Fees

For you to know how merchant service fees are calculated, you’ll need to understand the different pricing models used by various merchant service providers, & Some of the commonly used categories of credit card merchant fees models include the following…

Flat Pricing

The flat pricing type of merchant fee charges one flat fee for all the credit card transactions.

Some merchant providers instead of charging a flat fee will charge you a fixed percentage, while others will charge both a fixed percentage and a flat fee. Usually, the percentage is between 1.75 and 3 per cent. For instance, a provider who uses the fixed percentage and flat fee model may charge you 2.5 %+0.10 for every credit card transaction.

The flat fee payment model is an attractive option for most businesses as it’s easy to calculate and predict. This pricing is also recommended for businesses with low monthly credit card processing volume, as it can save you some money.

Tiered Pricing

The tiered pricing also called the bundled pricing groups cards into various tiers. So, the fee you’ll pay will depend on the type of card the customer uses and the tier rate the card is grouped in. Most credit card processing companies who use this pricing model will group the fees into three general pricing tiers. While this pricing model presents the fees in an easy-to-understand format, it’s expensive and doesn’t disclose the transactions’ true cost, as it conceals interchange fees.

Interchange Pricing

The Interchange pricing model also referred to as Interchange Plus or Cost Plus is made up of two components. The first one is the interchange fee which varies depending on the type of card and the type of transaction. This fee is charged by credit card companies. The second component of this charge is the markup, which is set by the credit card processor and covers the fee for processing the payment.

Compared to other payment pricing plans discussed above, Interchange Plus is the cheapest model, especially for merchants with high credit card payments. Besides, it’s also transparent as it clearly shows the interchange fee and the markup, meaning there is no room for the credit card processor to overcharge you.

The Universal Merchant Account Fees

After choosing the type of merchant fee pricing model for your business, you should expect to pay additional fees related to your merchant account.

For instance, some fees will always feature on your monthly statement. These fees are called universal merchant fees. A good example of such a cost is the authorization fee you pay to your provider every time a customer swipes their credit card. This fee covers the cost of sending information from the issuing to the acquiring bank. Even if the card is declined due to a low balance or any other issue, the authorization fee will still apply.

Other types of universal merchant account fees include:

• Transaction Fee – This refers to all fees that apply to each credit card transaction. This is often a flat fee charged on all electronic payments including the denied ones. Some providers include the authorization fee as part of the transaction fee.
• Assessment Fees – Assessment fees refer to the money paid to credit card companies. These fees are set by the credit card associations and help cover the operating costs that the card networks incur. The assessment fees are the same for the different card brands. For instance, you may notice a rate of 0.13% for MasterCard or 0.10% for Visa. These fees are passed down to the customers by the merchant account providers and are included in your merchant account monthly statement.

Scheduled Fees

These are flat merchant service fees that a provider will charge to maintain your account will be later called as scheduled fees.

Some of them include:

• Monthly or Annual Fee – Some providers will charge you a monthly or annual fee for the use of their service or software. This charge will often be a small percentage of the revenue you get from credit card transactions.
• Monthly Minimum Fee – Some payment processors will expect you to pay a certain amount of processing fee monthly. If you don’t reach the provided threshold, the provider will charge you the difference.
• Statement Fee – The statement fee covers the cost of printing and mailing you a hard copy of your credit card monthly statement. You can easily do away with this fee by requesting an online statement.
• Processing Commitment Fee – If your business commits to process agreed credit card transactions every month, your provider may agree to waive the monthly minimum fee. However, if you fail to meet this amount in a month, you’ll be charged the monthly processing commitment fee.
• Payment Gateway Fee – Some merchant account providers will charge you a fee for using their gateway to process online transactions. Other providers use third-party services and may pass on the gateway fee to you

Situational Merchant Account Fees

Situational merchant account fees meaning, & actual fees can be related to incidental fees that you pay in certain cases.

The most common ones are highlighted below

• Address Verification System (AVS) fee – If the merchant service provider feels the need to verify your address or ZIP code with the card issuing bank due to security reasons, then you’re charged a fee to enable this transaction. The address verification system fee is often $0.01 for every transaction
• PIN Debit Transaction Fee – Sometimes you’ll be required to enter your debit card PIN for a transaction to be processed. Once such a transaction is processed, you’re charged this flat rate fee
• Chargeback Fee– If a customer successfully disputes an item on their statement, you’ll be charged chargeback fees by the credit card network to cover the transaction
• Retrieval Request Fee – In case a customer enlists a card issuing bank to investigate a transaction on their monthly statement that they seem not to remember, the issuing bank will charge you a small fee to facilitate the investigation.
• Batch Fee – Each time you settle a large transaction, you’re charged a small fee for it
• Application Fee – Some merchant service providers will charge you an application or set-up fee. However, most providers don’t charge this fee.
• Voice Authorization Fee – This fee applies when a merchant has to call the card issuing bank help desk to authorize a given transaction due to security reasons.
• Termination Fee – If you terminate your account before the agreed period, you may be charged an early cancellation fee
• PCI Non-Validation Fee – A credit card processor will usually give you 90 days to become PCI compliant. In case you aren’t compliant by the end of the given period, the processor will start charging you the PCI non-compliance or non-validation fee.

Fees that Are Red Flags

Some unethical processors will make up their fees or even add some hidden fees to your cost. Ensure you carefully read and understand all the fees included and the terms and conditions before signing a contract with any merchant account provider.

Some of the fees that are red flags include:

• Creative Processor Fee – Be on the lookout for fees that you don’t understand as some fraudulent credit card processing companies come up with their fees.
• Integrity Fees – Also referred to as ERF, this is a fee that should only be charged when you don’t follow the credit card transaction rules, or you don’t meet the requirements for the credit card authorization type
• Jacked-Up Assessment Fees – You should be aware of the various credit card company’s charges as some unethical providers will charge you more than what is required
• Fluctuating Discount Rates – You shouldn’t do business with a merchant service provider who inflates their rate without letting you know.  Such providers will raise their rates occasionally in the hope that you won’t know or ask.

Which credit card merchant fees are best?

Not all businesses are created equal. This means that the merchant card fees you pay may not be similar to what other businesses pay. However, with the help of this guide, you should be able to determine the credit card processing fees that apply to your business. Hopefully, you are also aware of the red flag fees to look out for.

Ensure before you sign your contract, you are aware of the fees your provider is charging you, why they’re charging you, and how they calculate the fees they’re charging you.

Frequently Asked Questions

What are the PayPal merchant account fees, and how do they impact businesses using the platform for online transactions?

• Transaction type: Different charge structures apply to international, micro, and commercial transactions.
• Region: Different countries have different fees.
• Volume: High-volume merchants might be able to get a better deal.
• Other fees: Dispute fees, currency conversion fees, chargeback fees, etc.

What is merchant account fees in QuickBooks?

All of the payment processors it interfaces with have different fee structures, though, so examine the costs when selecting a processor with QuickBooks and select the one that best meets your requirements. At last, if you wonder, what is a merchant fee in Quickbooks? Then there are no additional costs associated with merchant accounts in QuickBooks.

Is credit card processing secure?

With strict security measures and security in place to safeguard sensitive data, credit card processing is usually safe.

Is there a way to avoid credit card processing fees?

If you wonder what are merchant fees? Then, There are numerous methods to avoid paying credit card processing costs, such as taking ACH payments instead of credit cards, accepting higher volume that may qualify you for lower rates, introducing recurring charging to reduce processing costs for returning clients and encouraging them to employ less expensive techniques

How can I lower my payment processing fee?

Negotiate with your provider, select interchange-plus pricing, improve card acceptance strategies, and routinely evaluate and amend your processing agreements to reduce payment processing fees.

Conclusion: Merchant Account Rates

In closing, credit card merchant fees shouldn’t be confusing. When choosing your provider, go for a company you can trust. While most merchant services providers add unnecessary fees to your already inflated merchant account cost, you can trust eMerchant Authority to be transparent with our costs. We don’t charge any of the red flag fees explained above. Besides, since we endeavour to create long-lasting relationships with our customers, we give you a detailed breakdown of the cost you’ll pay for our merchant account services.

We also advise our customers on how they can lower their merchant account fees in instances where they feel the cost is too high.