What is the difference between merchant account and payment gateway?

I am still a newbie on the topic of merchant account and payment gateway. I tried to look around for information on merchant account and payment gateway, but I can not find a satisfying answers on the difference between them. What is the difference between merchant and payment gateway? Do I need to have both of them to roll out a recurring billing? Or can I just use either one?

A merchant account is an account that allows businesses to accept payments by debit or credit cards. A merchant account is always linked to a business bank account. Credit card payments go into the business bank account and refunds, charge backs, and fees come out of it. A merchant account requires an agreement between a business and a merchant bank for the settlement of credit card and/or debit card transactions.

A payment gateway is a service that authorizes payments for a merchant account, acting as a middleman between the merchant account and the actual credit card companies. No one but payment gateways "talk" to the actual credit card companies.

To help you understand this, think of it this way. Most businesses that accept credit cards have two or more merchant accounts. One for Visa/Master Card and a separate one for American Express. Those businesses will typically have only one payment gateway that will handle both merchant accounts.

If you don't already have a merchant account, you have several options: You can go to a bank, use a third party, or go through your Internet service provider (ISP). E-commerce software usually doesn't include merchant accounts, so in most cases, you can expect to get an account on your own.

Banks generally charge a monthly fee as well as a per-transaction fee for merchant accounts. You don't want to spend more than you need to, so do comparison shopping at different financial institutions to find the best deal. Some banks require payment even if no transactions are made. Other accounts can be costly because their terms exceed the life span of an e-commerce initiative.

Instead of going through a bank, you can get a third-party merchant account such as PayPal. The cost for using one of these accounts may be less than setting up an account through your bank.

Your Internet service provider may offer an e-commerce package that includes a merchant account and e-commerce software.

To be safe and cost-conscious, be sure you understand all of the terms, restrictions, and charges, whether you get an account from your bank, through your ISP, or through a third party.

I hope that provides you with some options to think about.