Almost invariably, in the context of explaining to people what we do at PaySimple, the terms “merchant account” and “payment gateway” come up in conversation, and though they are both core parts of our platform, they can often be two of the hardest things to explain. Because there are so many moving parts and often terms are inaccurately used interchangeably, it can be just a little confusing to business owners (or even friends) who are not as experienced in the industry.
In these cases, I find it’s usually easiest to draw an analogy towards cell phones and cell phone service, something just about everyone can relate to (for better or for worse).
The “gateway” is your cell phone – it’s the system that you’re actually using on a daily basis to run payments, send invoices, run reports (or in the case of the cell phone – send text messages, check email, play games). And just like with a cell phone, the features available (and the usefulness to you) vary a lot depending on the type you get. While the newest version of the Galaxy is going to cost you more than a used Nokia, it also might provide you with a bunch of new features that you wouldn’t have were you to choose the lower-cost option. Just as you had to evaluate what you wanted in your phone outside of purely making calls, you will have to assess what your business needs to accept payments and manage your customers outside of swiping a credit card. When you have that list, you will be able to evaluate the differences in some of the potential systems out there. Finding the right fit for your business – even if there are fees outside of transaction costs — will benefit you by saving time, money, and most importantly, by making your life easier!
Meanwhile, the “merchant account” is less tangible but just as important. Back to your cell phone… even if you were able to get your hands on the Apple’s iPhone 6, it’s worthless without a cell phone provider (like AT&T or Sprint) to connect you the cell network. Same goes for your gateway! In order to be able to run payments and take advantage of all of the features you just invested in, you’ve got to have a merchant account to connect to the credit card (and/or ACH) network.
Quality matters when selecting your payment gateway and merchant account providers. If your gateway doesn’t offer the features (like mobile payments, recurring billing, and contact management) you need to run your business, then it really doesn’t matter how good of a merchant account you have. Or if your merchant account is sub-par, you might run into problems with things like held payments, missing deposits, and unexpected fees. When you can, it’s often best to try and bundle these two services together – this way you’ve got a one-stop-shop for setup, training, and trouble-shooting.
Understand more about Merchant Accounts and cut through the rest of the jargon in the A-to-Z guide to the Merchant Account “Monster.”