What is a Payment Processor, Payment Gateway & Merchant Account

payment processing

Whether you’re just starting a business, or just starting to look at moving it online, the world of eCommerce can be overwhelming for some. There are so many elements to put in place in the beginning (the good news is, you only need to do it once) and a lot of the terminology may seem foreign to you. 

Below we’ve demystified some of the primary terms that will come up when establishing your eCommerce site, to help you get past the nitty gritty and start reaching new customers. 

Payment Gateway 

A payment gateway is, essentially a messenger. The payment gateway is a software used to transfer a transaction’s data from the merchant to the acquiring bank (the merchant’s bank who processes payments on their behalf). This software also encrypts the transaction information along the way, to prevent any information being lost or falling into the wrong hands.  

In searching for the right payment gateway, merchants should be sure that they select one that is PCI DSS compliant, so that they can rest assured their transaction information and customers’ personal data are held with a high level of security when being captured and transmitted.  

Payment gateways typically offer fraud prevention, reconciliation, and reporting services to their merchants, making life a little bit easier when it comes to managing payments processed.  

Payment Processor (PSP) 

A payment processor or payment service provider (PSP) is a service implemented by a merchant which is used to process all payments made online through a variety of payment methods: credit cards, debit cards, ewallets, etc., making it very flexible and broad-reaching. Customers can use the payment method that best suits them. 

Each PSP has its own proprietary software used to process, store, and analyze merchant’s transactions. Many PSP’s offer gateway services only, while others have additional features such as online checkout interfaces and a larger breadth of reporting and security features. PSP’s help merchants to simplify their business routines by offering a suite of support features. 

Merchant Account 

To understand a merchant account, consider it an agreement between you as a merchant and your acquiring bank. It is the terms that are set up from a practical sense which allow you to receive payments from your customers using credit and debit cards. It is crucial to set up a merchant account – consider it even a starting point for launching your business – as more and more consumers are going cashless and instead opting for credit card payments for goods and services. 

When choosing a merchant account, consider factors such as your audience and their needs. What cards are most popular amongst the customers you are reaching? Consider also your payment model. Will you need to accept solely one-time payments, or will customers set up recurring payments for your products or services? Ensure your eCommerce site complies with Visa and MasterCard standards, as well, as merchant account providers will check before signing a contract with you. 

Understanding the components of eCommerce will empower you to take your products or services from a local audience to a global market. Using a professional PSP like DPO will help ensure that as your business grows, your transaction and customer data remain secure, while you can continue to manage your finance and business operations with ease. 

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