Wondering which option wins the credit card gateway vs. merchant account battle?
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Here, we’ll not only give you a detailed comparison of both but also discuss why it’s important for you to have this knowledge.
As a seller, if you’ve gotten your customer to the check-out line, then you have done something right. However, before you start to celebrate with your victory walk, you must look into a few more things.
You need to start by ensuring that the transaction follows through smoothly. This can only be done by offering various payment options to your customers.
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While marketing tools are important to capture your target market, taking care of the financial side is just as crucial. Moreover, selling online comes with its pros and cons. The payment methods you accept have a great impact on your business’s overall success. E-commerce transactions are undoubtedly more complex, so you have to be cautious if you want higher conversion rates.
Furthermore, the share of online sales in the ‘purchase pie’ is increasing exponentially every year. This shows that you should particularly focus on improving your online payment methods if you are a retailer who offers products in-store and online.
Research shows that 54% of all purchases made by millennial persons in 2016 were done online. These numbers have been increasing markedly ever since.
Why You Should Focus on Improving Your Online Payment Methods
It’s easy to believe that you have all the required payment systems in place and that there’s no need for an upgrade. However, an enhanced payment system will surely help your business rise to new heights.
Setting up payment systems for your e-commerce business has many advantages. It is an integral part of your business that could add value to your customer experience. Additionally, doing so could increase the financial security of your business.
Understanding the Complexity of Online Payment Systems
Once you understand how online payment systems work, you will be able to improve the payment methods that your online business supports. As a result, you will be in a more informed position to help your e-commerce business succeed. Here, we will discuss the various payment options available for online businesses.
What Is A Credit Card Gateway?
In order to help you understand which method is better (i.e. credit card gateway vs. merchant account), we must first explain them both.
A credit card gateway is a direct type of payment gateway. It is the technology that connects merchants of all kinds to payment networks. It works like a credit card machine and allows your customers to enter payment information online. Almost every business in this digital age needs to be able to accept credit card payments online to survive.
A credit card gateway may offer the following basic functions:
- It enables your online store to process credit cards to improve your business operations.
- A credit card gateway encrypts your customer’s credit card information while transmitting it in order to maximize security.
- It creates a route of information to a payment processor or the acquiring bank. The acquiring bank then takes over the transaction and does fraud screening. After this, the transaction enters the card networks.
- It sends a request for approval or decline to the merchant. This way the online seller can choose to accept the payment and redirect the buyer to a confirmation page. Otherwise, if they choose to decline the transaction, the merchant will ask the buyer to choose another payment method.
- It maintains a customer database, which eases the payment process for repeat customers since they wouldn’t have to re-enter their payment details every time. This usually translates to increased sales.
Overall, a payment gateway is a software application that creates a communication link between your e-commerce website and your account provider’s payment system. A credit card gateway essentially allows your customers to make purchases on your website using their credit card.
Additional Services A Payment Gateway Can Provide
While every credit card gateway usually helps in all of the ways mentioned above, some even go as far as providing multiple payment methods. Credit cards aren’t the only way people want to make payments online. Sometimes, they also want the option to use their debit cards or e-wallets. For this reason, it’s great to have more than just a credit card gateway option.
When a website has multiple payment options, this will more than likely help to attract and retain a larger customer base. Moreover, some payment gateways provide fraud protection services. This is a great asset considering that online businesses have a high risk of security breaches every time a payment is made. Therefore, it’s a good idea to invest in a payment gateway that has a strong fraud detection system in place. This can help you avoid unnecessary charge-backs, loss of merchandise, or even harm to your hard-earned reputation.
Additionally, some enhanced payment gateways even provide you with detailed analytics. This gives you access to detailed payment data so you can discover trends and gather insights related to the mode of payments. This can help you make more informed decisions about your e-commerce business, which could have a direct impact on your customer experience and ultimately, on your sales.
Furthermore, some payment gateways even offer business owners the option to open a merchant account so that the money deposited through multiple channels can all be gathered in one place.
What Is A Merchant Account?
A merchant account is basically an account that enables merchants to process online credit as well as debit payments. All the funds from your online sales are deposited into this account. It’s simply a holding place for your money. You have no other control over your merchant account.
You cannot transfer money from your merchant account or spend it as you wish. Instead, you designate a schedule at which these payments are automatically transferred from your merchant account to your business bank account.
As an online seller, there are many options for returns. In such situations, a merchant account offers safe refunds. So, the customer is easily paid back from this account as it has the initial payment that was received from them. This eliminates a certain degree of risk for the merchant.
In a merchant account, returns are subtracted from the total deposits and the remaining amount is transferred to your business account after a certain time.
Furthermore, your merchant account can pool together deposits from multiple sources. It can collect all the different deposits in one place and then combine them into a single deposit for your business account. This creates a more organized and systematic way of transferring accumulated funds.
What Makes Some Merchant Accounts Even More Attractive?
Some merchant accounts make global commerce easier due to the facilities they provide. A typical merchant account can only receive money in US dollars. On the other hand, an international payment gateway provider can set up a merchant account which can receive multiple currencies. So, if you want to grow your business at a global level, it would be smart to set up a multi-currency e-commerce merchant account.
Another factor to consider when choosing a merchant account is the type of account you are signing up for. There are two major types of merchant accounts: dedicated accounts and aggregated accounts. In aggregated accounts, all the merchants that the payment gateway provides service to are sharing an account. This means that your risk profile is blended with all the other merchants in the pool.
This can be an advantage for some merchants or a setback for others. So, before you enter into business with a provider, ensure to ask them whether you have a dedicated or aggregated merchant account.
Furthermore, some merchant accounts offer a more sophisticated underwriting process. The customized underwriting process has fewer problems in the long-run. This helps mitigate the risk of problems due to miscalculations and unexpected shutdowns of merchant accounts.
Since not all merchants share the same level of risk in their transactions, they should get different treatment. This is something that payment gateway providers should take into account during the underwriting process.
Credit Card Gateway vs Merchant Account
Ultimately, the financial services you choose for your business is your decision. It depends on the business strategy you want to implement in the future and what best suits your growth strategy.
For business owners who desire stability, it’s best to stick to a traditional approach. If you want a simple payment method which allows you to take payments online, then you can sign up for a credit card gateway instead. You need to decide which option makes the most sense for your business.
If you’re an aspiring entrepreneur looking to take your business to new heights, then you must choose wisely. To truly progress, you must choose the financial services that would allow you to do so and this means signing up for a merchant account.
A merchant account can help you expand your horizons and let you make transactions in multiple currencies. Furthermore, if you are looking to expand aggressively and want to establish your company as a global business, then we suggest opting for a merchant account.
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