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Q: What's the difference between a payment processor, payment gateway, and a merchant account?

Payment Processor

In a nutshell,financial institutions are payment processors. They operate in the background to provide all the payment processing services used by online merchants. 

Payment processors usually don’t market their services and prefer to stay in the background, processing payments for Independent Sales Organizations (ISOs) and Member service providers (MSPs) who have partnered with them.

Payment Gateway

A payment gateway processes online sales. A payment gateway permits you to charge your customer’s credit/debit card with the purchase he/she makes online.

Similar to a physical point of sales terminal at a brick-and-mortar store, the Payment gateways authorize card payments directly from a website. The payment gateway acts as a mediator between the transactions that take place on your website and the payment processor. This is needed because it is prohibited, due to security reasons, to transmit transaction information directly from your website to a payment processor.

Merchant Account

Merchant accounts are the type of bank accounts that authorize you to accept credit or debit cards payments online. These accounts are required if you want to use a payment gateway to process transactions from your website.

Many companies provide merchant accounts. These accounts can also be opened with some large banks that provide such services.

Summary

There are a variety of payment gateways and payment processors out there. They vary in the monthly fees they charge, transaction costs they incur and in various other aspects. It is vital to choose the right company for your merchant account if you plan to run an online business.