Merchant Account, Payment Gateway, or Both?

March 16, 2023

Merchant Account Payment Gateway

Often the terms payment gateway and merchant account are used interchangeably. However, these two payment processing tools are quite different and work with each other in an online transaction. In this current digital era where electronic payments and e-commerce are mainstream, we come across more terms and concepts to keep top-of-mind. Let’s explore some of the finer points of merchant accounts vs payment gateways, and how operating a high risk business will impact how you process your customers’ credit card payments.

Payment Gateways

Payment gateways are primarily ecommerce services that authorize a customer’s credit card payment data to be processed by an acquiring bank and then transferred to your business’ bank account. The most popular ecommerce platforms like BigCommerce, Shopify, and Magento have built-in payment gateway integrations that can make accepting credit card payments a breeze.

However, if you know your business is high risk, you want to avoid signing up for an ordinary payment gateway from the start. Otherwise, you’re almost guaranteed to get your account frozen and credit card sales interrupted once the underwriting process is done. If you know your business is high risk, before you sign up with a payment gateway, you need to get a high risk merchant account approved so the gateway has a secure place to send your payments.

Merchant Accounts

A merchant account is a bank account for your business. Merchant accounts have been around since credit card payments have been accepted in stores, but they also play a big role in ecommerce and the aforementioned payment gateways. Merchant accounts are at the end of the payment processing journey. Payments typically get encrypted, processed, and approved through payment gateways, and then the funds end up in a business’ merchant account.

There are two types of merchant accounts, dedicated and aggregate. As a high risk business owner, you want to seek a dedicated merchant account for your business because your high risk status will prevent you from using an aggregate merchant account anyway. Dedicated merchant accounts are set up for your business alone and you will receive custom processing rates depending on your business’ risk profile.

High Risk Processing Industries

Before weighing the options between merchant accounts and payment gateways, you must first determine if your business belongs in a high risk processing industry. This matters especially when you’re opening an ecommerce store because the most popular and easy to access payment processing solutions offered through PayPal, Stripe, or Square will not approve payments through either once their underwriting process has found your business to be high risk.

If you’re wondering if your business could be classified as a high risk processing industry consider the following. Are the credit card chargeback rates typically high in your industry? Does your business operate on a subscription, recurring, or continuity billing model? Are purchases considered high ticket items? Does your industry have, for lack of a better word, a taboo reputation (for instance, adult entertainment or gentlemen’s clubs)? Does the industry face heavy government regulations or laws like CBD?

If you answered any of those questions with a yes or even a maybe, then you have a high risk business on your hands. Don’t stress about it though, you’re in the right place. We here at PayKings specialize in finding payment processing solutions for high risk businesses.

What Is A Payment Gateway

High Risk Merchant Accounts – Rolling Reserves and Processing Rates

Separate from ordinary dedicated merchant accounts, there are high risk merchant accounts. As a high risk business, this is what you are looking for. High risk merchant accounts usually always come with higher rates due to the risk of credit card chargebacks. The acquiring bank that sets up your high risk merchant account utilizes what’s known as a rolling reserve. That’s a percentage of each transaction that is held for a certain amount of time that protects the acquiring bank from financial losses due to potential chargebacks.

Getting approved for a high risk merchant account is easier than you think. We at PayKings have 20+ relationships with acquiring banks and can work on your behalf to negotiate good rates and get you accepting credit card payments quickly.

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March 16, 2023 | Merchants | Guest Post