When you consider collecting the payments online, you come across various technical terms related to it, which would include a payment gateway and merchant account. Many confuse them to be one and the same, however, there is a wide difference between the two and they both are altogether a separate entity. This article would define both of these terms for better clarification.
There are various methods of collecting online payments like credit cards, debit cards, wallets, UPI bank transfer, QR code scanning, etc. All these ways facilitate the payment over the internet without using the cash.
For an eCommerce online store, you must have noticed that they have checkout at the end for the payment process after you have selected the item to be purchased. There, all these online payments are shown all together at one place so that the customer can select one and can make payment with their preferred payment option. This checkout is provided by the payment gateway.
Thus, payment gateway is basically a checkout provided to the customers to make the payment with their selected preferred payment method from all the available multiple payment options.
This is its function; however, its mechanization is way too complex then it can be seen in this definition of payment gateway. The backend process is too complicated.
- You see, all these payment options are a separate entity so the payment gateways do the tie-ups and integrate all of them in one checkout form, which requires a lot of technical work, coding and collaborations with each of them including banks, wallets, etc.
- It is responsible to facilitate the online payments and its back and forth transfer between the various entities. The sending of the request and responses to and fro is done by the payment gateway.
- Payment Gateway is responsible for a secure payment transfer between the parties and that the details are transferred in a safe and secure way. For that, they need to have strong security compliances and standards to be followed.
- A payment gateway is to be integrated on the eCommerce website. In simple words, it needs to be added technically with the help of codings.
(These days the payment gateways provide the ready plugins and SDKs which are in the form of ready codings and ready-to-use form just after a few things to be added to is like Secret API and Encryption Key)
The payment gateway can be explained better through its process and how does it perform at various stages of an online payment transfer-
- When the customer places an order the order details are captured and sent to the merchant through the payment gateway
- Later, the payment request with the payment information is encrypted and passed on to the payment gateway in an encrypted manner (secure-way)
- The Payment Gateway then sends the authentication request to deduct the payment from the issuing bank and receives the authorization for it from the bank.
- Upon authorization, the payment is deducted and retained by the payment gateway in a dedicated account; settled to the service provider/merchant as per their settlement cycle.
So, as you can get an idea, the payment gateway is present at each stage and is responsible for the sending the requests, and getting the responses and acting upon the same between the various parties involved until the funds are settled to the merchant.
The funds which are paid by the customers and deducted from their selected payment method are first deposited in an online bank account, which is known as the Merchant Account.
They are not like normal bank accounts from which we can withdraw or do any other banking operations. These accounts are solely for this purpose of making the process of online funds transfer possible by the payment gateway. This account is separate from the payment gateway but in a way represents the payment gateway.
The sole function of these types of accounts is to facilitate the settlement of online payments. The funds are the third-party money, they are neither of the payment gateway nor of any other party. They belong to the respective merchant and meant to be transferred to his bank account in the duration of the settlement cycle fixed which can vary from t + 3 to 7 working days (t is the transaction date) and upon the successful completion of the promised services to be provided to the customer.
If the customer does not receive the services then the funds can be refunded to the customers. Also, the merchant can issue the refund to the customer because of some reasons.
It can collect a single merchant’s multiple online payments and settle them together at a time instead of so many payments making multiple entries. They are provided by the acquiring bank and together with the card processors, they are also responsible for the fraud detection on the attempted transaction by the customer.
As mentioned earlier, the amount kept as deposit in the merchant account belongs to only the merchant. And needs to be transferred to them in a pre-defined time period known as the settlement cycle.
Depending upon the merchant’s reputation, business reputation, type of business, payment method type, etc this settlement cycle can be decided.
Types of Merchant Accounts
There are mainly two types of the merchant account – Dedicated and Aggregate
The payment gateway provides its services to a lot of merchants and all of them may be associated with one merchant account. As per their defined settlement cycle, the funds might be settled to their respective accounts. This type of account is an Aggregate Merchant Account. It is easier to get than the dedicated merchant account; though a few basic details and documents need to be submitted to obtain it.
Whereas, the dedicated merchant account solely transfers the funds of that merchant to whom it belongs. The advantage of customised rates can be taken when the transactions volume is high. The process to get a dedicated account is a little complicated and in-depth credit check and underwriting process.
PayKun Payment Gateway
The PCI DSS compliant and following 256 bit AES encryption standards, PayKun provides safe and reliable payment transfer and dedicated merchant account for each registered merchant.
It facilitates 120+ online payment methods as well as payment & master links, which means the website is not compulsory to provide a checkout to the customers. It also facilitates a fast settlement process through the merchant account and makes the whole payment transfer speedy.
Like an ideal payment gateway, it has a smart merchant dashboard giving graphical analysis and comparisons and providing with the details of the payments, transactions, refunds, settlements, etc.