Merchant accounts and payment gateways are important tools for businesses that accept electronic payments, such as credit and debit card transactions. With the total transaction value of global digital payments projected to surpass $20 trillion in 2025, accepting electronic payments can help businesses compete and thrive in the digital economy. By processing transactions securely and reliably, these components of modern payment systems help businesses expand their customer base, increase sales, improve cash flow, reduce the risk of fraud, and increase customer satisfaction.

A business’s payments infrastructure, hardware, and software form the backbone of customer payment experiences and transaction processing. For businesses looking to build a payments system that meets their particular needs, it’s important to understand what each part does and how they work together.

Below, we’ll explain what merchant accounts and payment gateways are, how they’re different, how they work together, and how Stripe can provide businesses with these tools.

What’s in this article?

• What is the difference between merchant accounts and payment gateways?
  
• What is a merchant account?
  
• Who needs a merchant account?
  
• What is a payment gateway?
  
• Who needs a payment gateway?
  
• How do merchant accounts and payment gateways work together?
  
• How Stripe Payments can help
  

What is the difference between merchant accounts and payment gateways?

Merchant accounts and payment gateways are part of a payments system that enables businesses to accept electronic payments. Although they are closely related and work together to process payments electronically, they serve different functions:

• The payment gateway acts as an intermediary between the customer and the business, transmitting payment information and authorizing transactions. It encrypts payment data and sends it to the business’s designated merchant account for processing.
  
• The merchant account is a specialized bank account that enables businesses to accept electronic payments, process transactions, and settle funds. It receives payment information from the payment gateway, processes the transaction, and transfers the funds from the customer’s bank to the business’s bank.
  

Merchant accounts and payment gateways provide a simple payment processing experience, ensuring that transactions are authorized, processed, and settled as quickly as possible, while upholding strong security standards.

What is a merchant account?

A merchant account is a specialized bank account that enables businesses to accept electronic payments, such as credit and debit card transactions. Businesses use merchant accounts specifically for processing and settling electronic payments, while they use regular business bank accounts for general banking transactions, such as deposits and withdrawals.

When a customer pays for goods or services using a credit or debit card, the merchant acquirer requests the card issuer to authorize the transaction. If the issuer authorizes the transaction, the acquirer “captures” the funds, meaning they send a request to the issuer to transfer the funds from the customer’s account to the merchant account. The merchant account provider processes the transaction, deducts any fees, and deposits the remaining funds into the business’s regular bank account.

Who needs a merchant account?

Any business that wants to accept card and electronic payments needs a merchant account. This includes businesses of all sizes and types, from small startups and local retailers to large multinational corporations.

Electronic payments are particularly important for businesses that operate in industries with high transaction volumes, such as retail, ecommerce, hospitality, and healthcare. They are also important for businesses that want to grow their customer reach, improve their cash flow, and streamline their payment processing operations.

Electronic payments are the preferred method of payment for many customers. In 2024, about 9 in 10 consumers in the US and Europe reported having made some type of digital payment over the previous year. Businesses that want to remain competitive and meet rising customer expectations must have access to merchant account functionality.

But the need for merchant account functionality doesn’t mean every business needs to open its own merchant account. Further below, we’ll explain how Stripe offers businesses full merchant account functionality without requiring them to open and maintain their own merchant account.

What is a payment gateway?

A payment gateway is an online service that gives businesses the ability to securely accept electronic payments over the internet. It acts as an intermediary between the business and the customer’s bank, processing the transaction and ensuring that the funds transfer securely.

When a customer makes a purchase on a website, the payment gateway securely collects and encrypts their card information and transmits it to the customer’s bank for verification. Once the transaction is authorized, the payment gateway sends a confirmation to the business, and the customer can complete their purchase.

Payment gateways typically charge a fee for each transaction processed, as well as other fees such as setup fees and monthly maintenance fees. They usually also offer a range of features and services, including fraud detection and prevention, chargeback management, and multicurrency support.

Who needs a payment gateway?

Any business that needs a merchant account also probably needs a payment gateway. This applies to businesses in a range of industries, markets, and stages of development.

For instance, any business that has a website or an online store will need a payment gateway to enable its customers to make purchases electronically. Even if a business primarily operates in-person, such as a brick-and-mortar retail store, it can benefit from a payment gateway to accept contactless payments and improve the checkout experience for its customers.

A business may also need a payment gateway if it wants to improve customer acquisition and retention and drive more revenue. Since electronic payments are the preferred method of payment for customers in most global markets, businesses that don’t offer this option will have a hard time staying competitive.

A business might also need a payment gateway if it is experiencing challenges with its current payment processor, such as long processing times, high transaction fees, or a lack of support for different payment methods.

How do merchant accounts and payment gateways work together?

Merchant accounts and payment gateways work together to process payments for businesses in a secure and efficient manner. Here’s how the process typically works for a card payment:

1. A customer makes a purchase on a business’s website or through a point-of-sale system and chooses to pay using a credit or debit card.

2. The payment gateway securely collects the customer’s payment information, such as the card number, expiration date, and security code.

3. The payment gateway encrypts the payment information and securely transmits it to the customer’s bank for verification.

4. The customer’s bank verifies the card’s validity, available balance, and whether the transaction is authorized by the cardholder.

5. If the transaction is approved, the customer’s bank sends a response to the payment gateway indicating that the funds are available.

6. The payment gateway sends the payment information to the business’s designated merchant account for processing.

7. The merchant account verifies the payment information, processes the transaction, and transfers the funds from the customer’s bank to the business’s bank.

8. The payment gateway sends a confirmation back to the business’s website or point-of-sale system, allowing the customer to complete their purchase.

9. The funds are settled into the business’s designated bank account, typically within a few business days.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.