Merchant account vs. payment gateway: Basic differences
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What is a merchant account
A merchant account helps businesses in Singapore collect cashless payments, mostly through credit or debit cards. As a founder, you will enter a contract with an acquiring bank, which will then open & control your dedicated account.
A merchant account is necessary in most cases for a business to accept card payments, unless they avail of bundled services from respective payment providers.
There are 2 types of merchant accounts, traditional and payment facilitator, both serving different purposes:
- Traditional merchant accounts will have direct relationships with the associated acquiring banks, offering dedicated accounts to businesses, individual underwriting, and interchange-plus pricing. All of this is decided based on your business transaction history and risk profile.
- Payment facilitator or sub-merchant accounts imply sharing of a master account with multiple businesses. Here, you will be getting flat-rate pricing for the services and faster onboarding with minimal underwriting criteria.
What is a payment gateway
A payment gateway is your technology infrastructure that securely collects the card data, encrypts it, and then routes it to the respective payment processors. It tokenises the sensitive payment credentials to ensure that your business servers never handle them directly.
Payment gateways have fraud filters to flag certain transactions before they can reach the networks. Moreover, an efficient payment gateway reduces false payment declines and also records every transaction for the finance team to compare it with the deposits in the merchant account.
Merchant account vs. payment gateway: Beyond the basics
A payment gateway and merchant account in Singapore serve varying purposes, but work together to power electronic and online payments. However, here’s what sets them apart:
- Merchant accounts require payment providers to validate business identity and assess the risk potential prior to enabling card-payment acceptance. This helps simplify payments. On the other hand, payment gateways work alongside merchant accounts. This means you will need a merchant account to partner with any payment gateway if you’re not using a Payment Service Provider (PSP).
- A merchant account focuses mainly on fund management aspects, whereas a payment gateway prioritises security aspects such as encryption and authorisation, ensuring safe exchange of the payment.
- A merchant account is always specific to one business and might have contractual obligations, compliance requirements, and fees.
- A payment gateway in Singapore is more adaptable and can integrate with diverse payment processors without the need for handling funds.
How do a merchant account and payment gateway work together
A payment gateway is different from a merchant account, as they handle two different processes. Here are some ways a merchant account and payment gateway are related to successfully execute a transaction:
- The payment gateway is considered the first link in any transaction chain.
- Client/customer enters their details at the gateway, either through an online portal or in-store POS.
- The payment gateway will then route the information to the linked payment processor.
- The processor will then route the card data through the respective network to the customer's bank.
- Upon authorisation, the processed funds are captured and deposited in the merchant account of your business, and alerts are sent to you as well as the customer, informing them about the successful transaction.
- The funds are then transferred from the merchant account to the business’s Singapore bank account.
What are Payment Service Providers (PSPs)
A PSP connects businesses in Singapore to a more comprehensive financial system, enabling you to accept electronic and online payments. Most PSPs bundle payment gateway and merchant accounts into one single service, ensuring you don’t have to set up and manage them separately.
Instead of applying for a merchant account and partnering with a payment gateway provider, you can simply sign up with a PSP and get both services bundled as one.
A dedicated merchant account is registered specifically to your business, giving you direct control over the settlement terms or associated rates. A PSP, on the other hand, will be processing your payments under its own master merchant account that’s shared across multiple businesses. This means you can skip the bank’s strenuous underwriting process and cut the onboarding time from weeks to days.
For early-stage founders who want to accept payments fast, PSPs can be the practical choice.
Simplify your business payment infrastructure with Aspire
Knowing the difference between a merchant account and a payment gateway will help you choose the right business combination, ensuring lower transaction fees, on-time payments, and smooth processing. However, for a thriving business, managing payments is much more than just processing transactions.
Your business will also need an efficient way to receive funds, manage multi-currency transactions, make international transfers, monitor expenses, and optimise financial operations. That’s where Aspire can help.
Receive payments in more than 30 currencies with low, transparent fees, and manage them in your multi-currency accounts without your finance team moving between systems. From collecting payments and managing multi-currency accounts to issuing corporate cards and controlling budgets, Aspire provides you with a unified view of all your finances. You can cut down manual efforts and move faster to make impactful financial decisions.
So, while a merchant account helps with receiving & settling funds, and a payment gateway helps facilitate the transaction, Aspire gives you real-time visibility into your cash flow, alongside the ability to approve expenses, track transactions and set limits, all from a single dashboard.
Simplify the way your business manages the money. Open an account and manage your payments, cash flow, and financial infrastructure, all from a single platform. Reach out to us today.
FAQs
1. What is the difference between a merchant account and a payment gateway?
A payment gateway will capture & transmit customers’ card data at checkout. On the other hand, a merchant account will hold those funds temporarily, prior to settling them in your Singapore business account. You need them both, as one moves the data and the other moves the funds.
2. Will I need a merchant account for partnering with a payment gateway provider?
Yes. A payment gateway doesn’t have the functionality to process card payments all by itself. It needs a merchant account working behind it to actually receive and settle those funds. Most payment providers today offer bundled services to serve both purposes in a single setup, while ensuring the two functions remain separate.
3. Payment Gateway or Merchant Account in Singapore- Which among the two costs more in terms of fees?
The payment gateways usually charge a flat per-transaction fee, plus a monthly fee for the services. Merchant accounts have interchange fees, markup percentages, and per-transaction assessment fees. In real practice, the merchant account costs tend to add up faster when your business and transaction volume scale.
4. Can I connect different payment gateways to a single merchant account?
Yes, and it is recommended for founders to link multiple payment gateways, especially when you are processing a considerable volume of transactions. Linking multiple gateways to a single merchant account gives you a fallback strategy, ensuring you don’t lose out on sales if a gateway is experiencing downtime.
5. How long will it take for the funds to move from merchant accounts to my business bank accounts?
It takes 1-3 business days once the transaction is settled. If your business is flagged as high-risk, the acquiring bank might hold the funds longer. Therefore, if you are in that category, it is better to plan your cash flow in advance.
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