Are you ready to start an online store? While it’s an important decision to make for your business, it can be challenging to determine which payment service is the best for your eCommerce business. To help you make that decision, this post will go through what payment gateways and payment processors are – as well as what merchant accounts have to do with all of it.

Payment gateway

To accept online payments, a gateway is mandatory. Essentially, a payment gateway allows merchants to process payments online; it’s a merchant service that facilitates eCommerce transactions. It’s often described as the online equivalent of a physical POS in a brick-and-mortar store. A payment gateway is like a buffer between your website and payment processor; it helps securely transmit the payment information to the payment ecosystem to be authorized. A payment gateway is necessary because it’s not secure to send payment details directly from your website to your payment processor. When a customer enters their payment information online, the payment gateway ensures the information is encrypted and secure. With a payment gateway, transactions can occur either via an integrated shopping cart or through an API. Below is a typical eCommerce transaction:

  • A customer fills out payment information on a merchant’s eCommerce website.
  • The payment gateway then encrypts and forwards the information to the payment processor.
  • The payment processor passes the transaction details to the card brand.
  • The card brand forwards it to the issuer who will approve or decline the transaction.
  • The issuer sends the result back to the card brand.
  • The card brand passes it to the payment processor.
  • The payment processor sends the authorization response to the payment gateway.
  • The payment gateway forwards it to the website.
  • And then the response is relayed to the cardholder and the merchant.

The process takes seconds, and the consumer sees immediately whether their online transaction went through or not. If you need a quick primer or want to brush up on what each payment entity does, check out this article.

Once an online transaction is approved, there are a few more steps (also known as settlement):

  • The merchant receives their money by submitting all their approved authorizations in a “batch” to the acquirer (via their payment processor) for settlement.
  • The approved funds are deposited into the merchant account within 1-2 business days, and the transaction is submitted to the card brand.
  • The card brand then debits the issuer’s account and pays the acquirer.
  • The issuer will then post the transaction to the cardholder’s monthly credit card statement to request payment.


Thanks to EMV, in-store transactions have now become much more secure – this is leading to an increase in online fraud. PCI-compliant payment gateways help with online fraud prevention by filtering out fraudulent transactions with anti-fraud tools like AVS (Address Verification System).

With a payment gateway, you also need a merchant account – which a payment processor provides.

Payment processor

Payment processors negotiate processing, set-up, and payment equipment rates, as well as set up the merchant account. They act as a middleman between merchants and acquirers. They may also provide the technology and hardware (traditional terminals) that enables the merchant to process credit and debit card transactions, which include sales, authorizations, and refunds.

As you saw in the eCommerce transaction path above, the payment gateway encrypts and transmits the data to the payment processor. In a typical in-store transaction, the same process occurs but without the payment gateway (authorization).

Merchant accounts

A merchant account is a type of mandatory bank account required to accept credit cards – whether online or in-store. You have two options: you either own your own merchant account or use a joint one.

Different types of payment processors

Some payment processors like Payfirma provide merchants with their own dedicated merchant accounts. Other payment processors are aggregators, who bundle several merchants together and allow them to process payments using a joint merchant account. Payment gateways are often aggregators. For the pros and cons of each payment processor type, read merchant account providers vs. processing aggregators.

Turnkey payment providers

If you want to sell online, you need a payment gateway on top of your merchant services. Merchants used to have to get traditional terminals, merchant accounts, and payment gateways from different vendors. But if you happen to a modern multichannel merchant and want to accept payments both online, in-person, and maybe even on the go, then you’re in luck. There are now turnkey payment providers, like Payfirma, that get you set up with a merchant account and all the necessary payment tools, including payment gateway services, to accept credit card payments – enabling you to partner with just one vendor and get your payment solutions all in one place.