Businesses that sell in person and online may differ in the products they offer and their marketing strategies, but they have one thing in common: 

Everyone needs to find secure and effective ways for customers to complete payment transactions. Traditionally, retailers have opted to obtain a merchant account in order to make this possible. 

However, considering the numerous changes in the commercial and shopping ecosystem, many online entrepreneurs are now asking if having a merchant account is necessary. It may surprise you to learn that there is no one-size-fits-all answer.

Merchant accounts defined.

Before we dive into this subject, it’s important to understand what a merchant account is and how it works. 

Provided by a payment processing company or bank, this type of business account makes it possible for you to accept electronic payments from customers. 

You can think of this account as an intermediary that facilitates the transfer of funds between your customer’s bank and your store. It is here where the money is temporarily held until all aspects of the transaction have been resolved. 

At that time, the profits of your sale will be sent to your business account.

In the past, businesses underwent a rigorous application process, credit checks, and set-up fees when obtaining a merchant account from a processing company. 

Once a retailer’s application was approved, they could look forward to a direct relationship with the conventional banking system. In addition, many larger stores benefited from lower transaction fees for high sales volumes. 

However, new businesses or those with a limited sales profile often found themselves needing to pay higher costs for services they did not necessarily need.

The modern alternative to traditional merchant accounts.

Even today, many entrepreneurs fall into the trap of believing that bigger is always better. Payment gateways provide a way to avoid these mistakes in thinking. 

In reality, modern payment gateways offer a very viable alternative that often completely meets a store’s requirements without the need to endure a long application process or pay for a full-fledged merchant account.

To put it simply, a payment gateway is an internet application that provides online payment processing without the need for an external merchant account. 

When a customer initiates a purchase via your shopping cart, the gateway screens the details, sends them on to the other players in the payment process and communicates the acceptance or declination to the merchant. 

Just as a merchant account does, the gateway holds onto the funds until full settlement occurs and then gives you access to your profits.

Now that you have learned a bit about payment gateways, you probably have at least one question: 

What types of businesses would benefit most from this payment solution? And, by the same token, are there others who would be better served by enrolling in a conventional merchant account? 

As you look to make this decision for your own business, there are a few factors to consider.

Business size and sales volume.

If you are launching a new business or running a small operation, your sales volumes might be relatively low. That leaves you without a lot of extra capital to spend on anything, including the payment processing solution you choose to use. 

For companies in this situation, payment gateways offer significantly lower set-up fees and monthly costs. 

On the other hand, established retailers with higher sales numbers may opt to benefit from the more cost-effective bulk prices that a conventional merchant account can provide.

Ease of use and integration.

The beauty of turnkey solutions is that they are designed to seamlessly fit into your existing ecommerce platform. You don’t need extensive technical expertise or a significant investment of time and resources; the gateway just works without leading to any delays or difficulties. 

Larger operations looking for the ability to customize their systems often find that the traditional merchant account is a better option than the cookie-cutter nature of modern payment gateways.

Fees and costs.

Bearing the burden of high set-up and monthly charge costs can be difficult for small businesses or those in their infancy. Some payment gateways feature transparent fee structures and no set-up costs, making them particularly attractive to sellers operating on the thinnest of profit margins. 

Larger sellers, on the other hand, provide lower per-transaction fees for high-volume retailers. For them, it makes economic sense to swallow the added monthly charges and set-up fees that merchant accounts levy.

Customer familiarity.

When you sell merchandise online, one of your biggest challenges lies in earning the trust of shoppers. With competition more cutthroat than ever, you need to do everything you can to make the checkout experience seamless and secure. 

Because customers are familiar with turnkey payment gateways, they can become the preferred solution for companies looking to inspire trust. 

However, some larger operations prefer the customizability that traditional merchant accounts offer since they allow sellers to tailor their checkout to reflect their unique brand voice.

In the end, the decision of whether to use a traditional merchant account or a payment gateway is a very individual one. The good news is that should your needs change at some point in the future, you can always modify your systems to scale with your needs.

The way to make an intelligent choice in this regard is to carefully examine your company’s specific goals and priorities. 

Factors to consider should include your business size and sales volume, budget and technical resources. Additionally, take some time to think about your customer base, including their payment preferences and expectations. 

Ultimately, partnering with the optimal payment processing solution will give you the behind-the-scenes efficiency and security that will lead to safe payments, cost effectiveness and satisfied customers.