Receiving payments by credit card is a convenience that can be a headache to set up, given the many payment processing systems available. Some systems charge a range of fees and require additional hardware, while others skip the setup fees and integrate the payment features into an existing website. If your organization wants to accept credit cards, you'll have to set up accounts to receive payments in general before accepting credit cards. This means establishing a business bank account if you incorporated your business, as well as obtaining tax ID numbers from the federal government and state where you conduct business.
A merchant account allows payors to use Visa, MasterCard or other credit cards for payment, which is transferred to the bank account you specify. Merchant account providers are typically banks or other financial institutions that provide physical equipment such as point-of-sale terminals along with processing services. Examples of providers include Dharma Merchant Services, Gotmerchant and Merchant Warehouse. To set up the merchant account, expect to pay startup fees, monthly statement fees and transaction fees based on the volume or number of transactions.
While a merchant account with a POS system works for in-person, offline credit card transactions, you need a payment gateway to process online payments. A payment gateway is a piece of software that securely transfers credit card information from a payment device such as a website or phone to the bank that processes the transaction. Direct payment gateways such as Authorize.Net, BluePay and Elavon allow customers to stay on a website to pay, while hosted gateways redirect a payer to a separate site. Whether the payment gateway is used for an online store or a mobile payment application, the payment gateway is really just one component of an overall merchant account system.
Account + Gateway
Some merchant account providers hook you up with a payment gateway together with your merchant account for free as part of a package to accept credit payments; others expect you to get your own. According to e-commerce resource Big Commerce, applying for the merchant account and the payment gateway are two distinct processes, each requiring application approval and review of your financial information. Once both are in place, your account is linked to your gateway, then the gateway to the store.
You aren't limited to the merchant account plus payment gateway scheme in accepting credit cards. Services such as PayPal and 2Checkout combine the two schemes in one, and they allow you to accept all major credit cards at favorable transaction rates without charging monthly and setup fees for starting a basic account. Credit card payment processors such as Stripe are yet another route to streamline the process of taking credit cards and are similar to all-in-ones in price, but unlike them, customers pay on your site. You won't need a separate merchant account or payment gateway for these alternatives, and the setup process is faster than the merchant-gateway combo.