Merchant Accounts vs. Payment API


When comparing and contrasting merchant accounts versus payment API, it’s best not to confuse either of the two because they most often go hand-in-hand. You see, a merchant account is the business side of the equation, something that can handle your transactions and batches, whereas a payment API is the software toolthat’s used by your business to communicate with the issuing and acquiring banks to verify fund availability and securely authorize payment for online or local transactions.

merchant account

Merchant Accounts

Merchant accounts are best thought of as banks, because they are underwritten by banks. This means that they must comfort and adhere to biding and rather stringent standards that are presented to them in the contracts by the banks they do business with. A bank will use a risk assessment algorithm to determine what validity and liability of any merchant account before approving it. This includes things like the risk of a chargeback, fraud and other related aspects.

Payment Gateways & API

A payment gateway and payment API are quite different, and are best thought of as software that’s used to achieve the common end goal: to process transactions securely and generate positive cash flow and revenue for your business.

A payment gateway will utilize an Advanced Payment Integration (API) to communicate with the processor networks to authorize payments. If you have merchant accounts in place, this API will generally also communicate with their servers along the way. The gateway is tasked with talking to the banks of the cardholder to verify that the funds are available to complete the transaction. It will later submit these charges for processing and settlement so you can receive payment for services rendered.

How it Works

Processors are a vital component to this metric. This is a complex system where the bank of the cardholder communicates to assure that the funds are available, placing an authorization or hold on the allocated funds. It will later deliver this money to the merchant’s bank when the settlement has been issued. All of this data is streamed securely through a gateway that uses a payment API.

Payment API vs. Merchant Accounts 

For a long time, businesses would get merchant accounts and payment gateways from different vendors. As other posters have mentioned, there are new services that are “full stack” payments providers, and enable you to sign up with one vendor to get merchant account services and a payment gateway from one place. There are a lot of advantages to this: it’s a lot less work to get started, you get one point of contact for everything related to accepting credit cards, and as a bonus, and you usually get a much more modern payment gateway.