By In 2019, 1.92 billion people were making digital purchases; and e-commerce sales accounted for 14.1% of global retail purchases. By 2023, this percentage is set to rise to 22%.
As more customers switch to e-commerce and buying online, online retail platforms need to ensure customers feel safe and secure. A huge pain point among online buyers is transferring money to an entity they have not physically met or experienced.
E-Commerce platforms need to ensure that transactions carried out on their platforms offer a good user experience and secure fund transfer. Failure to do so might cause customers to drop off from your site and choose your competitors instead.
What is a Merchant Account?
A merchant account is a holding account where information about transactions and payments is collected and recorded. It allows your business to accept different payment forms such as credit cards, ACH payments and more. A merchant account acts as a common link between your platform and the financial institutions issuing the cards. They are mostly provided by a merchant acquirer or acquiring bank. Once the online payment via merchant account is verified, the money passes on to your business account.
What is a Payment Gateway?
An online payment gateway works like a virtual card swiping machine. It lets customers enter information that allows monetary transactions to take place via the internet. A payment gateway is a link between your platform, your merchant account and the customer’s bank account. A payment gateway is fundamental for any online retail outlet that uses electronic payments.
What is the Difference?
A merchant account is where all your transaction records and the customers’ money will go. It is the destination, if you will. Meanwhile, a payment gateway is how money travels from a customer’s account to your account. Think of it as the road.
A better analogy for this would be a public transport system. Think of a merchant account as the hub or station where all buses or trains finally stop at. The payment gateway is the route they take to reach the hub. Without the hub, the buses would have nowhere to go to. Without the route, the buses wouldn’t know how to get to the hub.
Advantages of Payment Gateways and Merchant Accounts:
The main objective of a merchant account is to allow your online portal to accept electronic payments. With a merchant account,
- You will see improved cashflow
- Sales will increase significantly overtime
- Your business is empowered to remain competitive in a crowded market
How Do Payment Gateways Work?
If you are new to the e-commerce world, you are probably getting to know about payment gateways. The online transaction takes place through a secure form on your website or using an integrated shopping cart.
Step 1: Once the customer submits their order, the payment details are sent to the payment gateway.
Step 2: The gateway encrypts the customer’s card data to keep it secure. This data is then sent to the payment processor.
Step 3: The payment processor routes this information through the card network to the customer’s card-issuing bank for authorization.
Step 4: The payment processor authenticates the details to determine whether the transaction has been approved or declined and relay this information to the gateway.
Step 5: The transaction occurs, and the gateway communicates the same to the merchant and customer.
Things To Look For:
Most payment gateway companies or providers will offer you the same essential services. They will all provide you with a payment gateway and a processing solution. However, while others give the merchant account, others leave it to you to set it up.
When looking for merchant solutions, some things make certain providers stand out among others.
1. Operations run smoothly: This includes managing and simplifying B2B payments with automated and instant payouts for vendors and sub-sellers. Some providers also give you dashboards that can track and maintain a comprehensive visual overview of your cash flow. You can also use their eKYC solutions for authentication across the supply chain.
2. Higher sales: Some providers also give you a software development kit that can help with bill splitting. It helps to spread the app across multiple users. They also offer detailed analytics that looks at data from various perspectives to get more actionable insights.
3. Rapid merchant onboarding: To stay ahead, all your onboarding processes need to be faster and seamless. Some providers offer a seamless merchant onboarding process, where the setup for most merchants can be completed within a day.
One Solution For All Your Problems
The payment ecosystem is transforming more rapidly than ever before. As consumers go digital at an exponential pace, payment processes must match their pace. Customers demand flexibility, while businesses need low-cost solutions that are highly efficient. With an all-in-one solution for your merchant account, online payments are a breeze.
