Whether you’re taking one-off payments, managing subscriptions, or expanding globally, you need a payment system that can keep up. But researching payment systems means encountering confusing jargon: merchant accounts, payment gateways, acquirers, and processors. For instance, when looking for a payment gateway in Bangladesh, the UK, or the US, the options and terminology can differ, making it easy to wonder if you need them all or if you’re being sold expensive, unnecessary solutions.

Let’s break it down. A merchant account is where customer payments are held before they reach your business account. A payment gateway is the technology that securely captures and sends payment details. This guide will explain what each component does, how they work together, whether you need both, and how to choose the right setup for your business.

What is a merchant account?

A merchant account is a specialised bank account that allows your business to accept electronic payments. It’s different from your regular business bank account, which is used for paying staff or suppliers. Think of it as a holding area for customer payments before they’re transferred to your main business account.

Any business that wants to accept electronic payments needs this function. Whether you sell online, use card terminals, offer subscriptions, or take payments over the phone, you’ll likely need a merchant account. This is true for businesses across the globe, with various providers offering services like merchant payment solutions in Bangladesh or comprehensive packages in the US.

How a merchant account works:

  1. A customer taps, inserts, or enters their card details.
  2. Their payment information is sent to your merchant account provider (the acquiring bank).
  3. The acquiring bank sends the request through the card network (e.g., Visa, Mastercard) to the customer’s issuing bank to verify they have enough funds.
  4. If approved, the money is deposited into your merchant account.
  5. After a settlement period, the funds are transferred to your business bank account.
  6. Your merchant account provider deducts a fee from the transaction.

Types of merchant accounts

When comparing merchant accounts, you’ll find three main types:

  1. Dedicated merchant accounts: Set up exclusively for your business, these often offer lower fees for higher volumes and more control. However, they can take longer to approve and may have monthly minimums. Providers include banks and specialist acquirers like Worldpay.
  2. Aggregated merchant accounts: These are shared accounts used by multiple businesses, offered by providers like PayPal and Square. They are quick to set up with simple pricing, making them ideal for small businesses, but they often have higher per-transaction costs and less control over payout schedules.
  3. High-risk merchant accounts: Designed for businesses in industries with higher chargeback rates or greater regulatory scrutiny, such as gambling or travel. They usually have higher fees but provide a solution for businesses that standard providers might reject.
Merchant account setup
Merchant account setup.

What is a payment gateway?

While a merchant account holds customer funds, a payment gateway is the technology that gets the money there. It securely captures and encrypts your customer’s card details, then sends them to the payment processor without exposing sensitive data.

Any business that handles digital transactions needs a payment gateway to securely collect payment information. They’re essential for eCommerce, digital services, and even brick-and-mortar stores. Instead of building their own payment security from scratch, businesses can integrate a specialized service, such as a popular Bangladesh payment gateway or another regional provider, to handle transactions safely.

How a payment gateway works

Here’s what happens when a customer buys something on your website:

  1. The customer enters their card details.
  2. The payment gateway encrypts this information.
  3. The encrypted data is sent to the payment processor.
  4. The processor communicates with the customer’s bank.
  5. The bank approves or declines the transaction.
  6. Once approved, funds are transferred from the customer’s account to your merchant account.

Types of payment gateways

Payment gateways come in a few forms, allowing you to choose one that matches your technical resources and desired customer experience:

  1. Hosted payment gateways: These redirect customers to another site (like PayPal) to complete their payment. They require minimal technical setup but can increase cart abandonment.
  2. Integrated (self-hosted) payment gateways: These keep customers on your site with payment forms built into your checkout pages, like those used by Shopify and WooCommerce. This offers more design control, but you’ll handle some PCI compliance.
  3. API-based payment gateways: These provide full control over the payment experience through direct integration. Larger businesses often choose this for customised checkout flows, but it requires technical expertise.
  4. Platform-based payment gateways: These are built into eCommerce platforms like Amazon or Etsy. The platform’s gateway handles everything, which is convenient but ties you to their fees and features.

How does payment processing work?

Think of your payment system as a relay race. Whether you’re using a global provider or a specialized service like an online payment gateway in Bangladesh, the core process is similar. The payment gateway collects card details and securely passes them for authorisation, handling the information, not the money. The merchant account holds the approved funds and then moves them to your business bank account.

But there are more runners in this race. Here’s the full chain:

  1. Your customer enters their card details.
  2. The payment gateway encrypts the data and sends it to the payment processor.
  3. The payment processor routes the request to the card network (e.g., Visa, Mastercard).
  4. The card network passes the request to the customer’s issuing bank.
  5. The issuing bank checks for sufficient funds and approves or declines the transaction.
  6. The response travels back through the network and processor to your gateway.
  7. If approved, the funds move from the issuing bank to your acquiring bank (your merchant account provider).
  8. The acquiring bank deposits the funds into your merchant account.
  9. After the settlement period, the money reaches your business account.

The payment processor acts as the traffic controller, ensuring the right information gets to the right place. Whether you’re a local business or using an international payment gateway in Bangladesh or elsewhere, when these pieces work together seamlessly, the customer clicks “pay,” and you get paid.

Payment gateway flow
Payment gateway flow.

Merchant account vs. payment gateway: Key differences

Most providers now offer merchant accounts and payment gateways as a package, but understanding what each does helps you make better choices.

Functionality:

  1. Merchant account: A financial account that holds customer payments before they reach your business bank account.
  2. Payment gateway: The technology that collects and securely transmits payment data.

Costs

Transaction fees:

  1. Merchant account: Typically 0.8–3% per transaction, sometimes with a 2–4p authorisation fee.
  2. Payment gateway: Typically 6–10p per transaction.

Monthly fee:

  1. Merchant account: Varies; some have no monthly fee.
  2. Payment gateway: Varies. Some charge £15–25/month, while many have no monthly fee.

Setup costs:

  1. Merchant account: Sometimes £50–£100.
  2. Payment gateway: Varies; some have setup fees.

PCI compliance fee:

  1. Merchant account: Varies. Some charge £20–25/month; others include it.
  2. Payment gateway: Usually included.

Minimum monthly charge:

  1. Merchant account: Often required.
  2. Payment gateway: Rarely required.

Chargeback fees:

  1. Merchant account: Yes, usually £12–£25 per chargeback.
  2. Payment gateway: Not applicable.

Security and compliance:

  1. Merchant account: Must follow banking regulations. Compliance is a shared responsibility.
  2. Payment gateway: Must be PCI DSS compliant. Good gateways handle most of this, reducing your compliance burden.

Ease of setup:

  1. Merchant account: Requires a longer application process, often involving credit checks.
  2. Payment gateway: Can range from a simple plugin installation to a complex API integration.

How they affect your business:

  1. Your merchant account affects cash flow, fees, and the currencies you can accept. For example, a provider with weekly settlement means waiting longer for funds than one with next-day settlement.
  2. Your payment gateway affects the customer checkout experience and payment methods. If a gateway has limited options, customers may abandon their carts.

What is a payment service provider (PSP)?

A payment service provider (PSP) combines a merchant account, payment gateway, and payment processing into a single service. This means you get everything from one provider instead of setting up each component separately. PSPs simplify the payment process with one contract and one dashboard, making them a popular choice for businesses that value simplicity and predictable costs.

For example, when evaluating options, a business might compare the all-in-one fees of a PSP against the separate costs of individual services, such as the typical payment gateway price in Bangladesh, to see which model is more economical. These providers are also known as “payment facilitators” or “all-in-one payment platforms.” Since PSPs bundle everything, do you need to understand the separate components?

Do you need both a merchant account and a payment gateway?

Yes, you need both functions if you plan to:

  1. Accept online payments.
  2. Process in-store card payments.
  3. Handle recurring billing.
  4. Take payments without the customer being physically present.

In the past, businesses had to source these separately, which is why the terms remain distinct. Today, modern PSPs offer both in one service, removing the hassle.

However, large enterprises with high transaction volumes might benefit from separate providers, especially if they require custom rates that bundled solutions don’t offer. For most businesses, the bundled approach saves time and simplifies operations. Once you decide between a bundled PSP or separate providers, here’s what to consider.

Business payment processing
Business payment processing.

Choosing the right setup for your business

Your ideal payment setup depends on your business model, size, and technical needs. Whether you’re comparing payment service providers in Bangladesh or evaluating options in North America, consider these key factors.

Cost structure:

  1. All-in-one providers often have higher per-transaction fees but low monthly costs, making them suitable for businesses with lower transaction volumes.
  2. Traditional merchant accounts offer lower transaction rates but have higher monthly fees, which is better for high-volume businesses.

Your monthly transaction volume will determine the most cost-effective option. Ask providers for a total cost estimate, not just the per-transaction rate.

Settlement speed

How quickly do you need your funds? Settlement times can range from the next day to weekly. Faster access to cash often costs more, so if cash flow is a priority, look for providers with quick settlement times.

Business type and needs:

  1. E-commerce stores need broad shopping cart compatibility and a seamless checkout.
  2. SaaS companies require reliable recurring billing with automated retries for failed payments.
  3. International sellers need multi-currency support and fair exchange rates. Look for providers that let you settle in multiple currencies rather than converting everything to your primary currency.