Merchant Account vs Payment Gateway: What’s the Difference?
Merchant Account vs Payment Gateway: What’s the Difference?
Both are required for card payments—but they do very different jobs. This guide explains merchant account vs payment gateway, how the processor fits in, and which setup you need for Shopify, WooCommerce, subscriptions, and high-risk industries.
Quick definitions (plain English)
Merchant account
A special bank account where approved card funds are routed before they settle to your business bank. It’s issued to you (your MID) after underwriting.
merchant account meaning do I need a merchant accountPayment gateway
Secure software that encrypts card data and sends it for authorization. Think of it as the “bridge” between your checkout and the processor/network.
payment gateway meaning gateway vs processorHow they work together
- Customer enters card → Gateway encrypts and transmits.
- Processor talks to the networks (Visa/Mastercard/AmEx/Discover).
- Approval returns → funds route to your Merchant Account → settle to your business bank.
Takeaway: Gateway = secure “pipe”; Processor = network “messenger”; Merchant Account = where your money lands.
Why people mix up gateway vs processor vs merchant account
- All-in-ones (e.g., Stripe, PayPal): bundle gateway + processing + a pooled merchant account.
- Traditional stacks: you pick a gateway (e.g., NMI, FluidPay) and get your own dedicated merchant account through a processor (e.g., Worldpay).
- High-risk brands: often can’t use all-in-ones; they need a dedicated merchant account with clear underwriting.
payment processor vs gateway
stripe gateway or processor
Do I need both a merchant account and a payment gateway?
- All-in-one (simple/low-risk): You can start without a separate merchant account; you “rent” space in a shared pool.
- Dedicated stack (scaling/high-risk/B2B): Yes—get your own merchant account and a gateway. You’ll have more control, better stability, and clearer chargeback handling.
Best setups by scenario
Subscriptions & memberships
- Gateway with robust recurring tools + dunning
- Dedicated merchant account to avoid sudden shutdowns
High-risk (CBD, hemp, kratom, adult, supplements)
- Dedicated merchant account (underwritten for your vertical)
- NMI or FluidPay gateway (cards + ACH/eCheck)
Shopify / WooCommerce
- Plugin-ready gateways, AVS, 3D Secure where supported
- Clear descriptor to match your brand
In-store + online
- Same MID across countertop terminal and online gateway (when allowed)
- Unified reporting and settlements
Costs & contracts (what to expect)
- Merchant account: interchange-plus pricing, monthly statement fee, potential rolling reserve (5–10% for high-risk).
- Gateway: monthly fee + per-transaction gateway fee.
- Processor: network assessments and authorization fees.
Underwriting checklist
- Articles of Organization, EIN letter
- Voided check or bank letter
- Processing statements (if any)
- Website with products, refund/ship/terms, contact info
FAQ
Is Stripe a gateway or a processor?
Both—an all-in-one that also uses third-party acquiring behind the scenes.
Can I switch gateways later?
Yes. Your merchant account can often connect to multiple supported gateways (e.g., NMI ↔ FluidPay).
Will a dedicated merchant account prevent holds?
It reduces surprises but doesn’t eliminate risk. Good descriptors, AVS, and clear policies help.
Do I need ACH/eCheck?
Often yes—lower fees, a useful backup if card risk rises.