Merchant accounts vs payment gateways: what you need to know

Key takeaways

• A merchant account is where your customers' funds sit temporarily before they reach your business account. A payment gateway is what securely captures and sends payment data so that transfer can happen.

• Most businesses need both, but modern payment service providers (PSPs) usually bundle them into one platform, so you don't have to manage them separately.

• Airwallex brings together merchant account and payment gateway functionality with multi-currency support, 160+ payment methods, and competitive FX rates, all in one platform.

If you're taking one-off payments, running recurring subscriptions, or growing globally, you need payment systems that can keep up.

But, as soon as you start looking into payment systems, you run into pages upon pages of confusing jargon: merchant accounts, payment gateways, acquirers, processors. Before long, you're wondering whether you need all of them or whether someone's just trying to sell you expensive solutions. We'll spare you the hassle.

Merchant accounts are where customer payments land for a short time before they reach your business account. A payment gateway is the technology that securely captures and sends those payment details.

In this guide, we'll walk through what each one 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 account that lets your business accept payments. It isn't the same as your regular business account for paying staff or suppliers. Think of it as a temporary stop where customer payments land before moving to your main business account.

Any business that wants to get paid electronically needs this function. If you sell online, run a brick-and-mortar shop with card terminals, offer subscription services, or take payments over the phone, you'll most likely need a merchant account. Without one, you're basically telling customers, "Sorry, cash only," which could mean turning away up to 91% of UK shoppers by 2028.¹

How a merchant account works

• Your customer taps, inserts, or enters their card details for a purchase

• Their payment information goes to your merchant account provider (acquiring bank)

• The acquiring bank sends the request through the card network (Visa, Mastercard, etc.) to the customer's issuing bank to check they have the funds

• If approved, the money lands in your merchant account

• After a settlement period, the funds move to your business account

• Your merchant account provider takes a fee, including interchange fees, from the transaction

Types of merchant accounts

When you start comparing merchant accounts, you'll usually come across three main types.

• Dedicated merchant accounts: These are set up just for your business, usually with lower fees for higher volumes and more control. They take longer to approve and may come with monthly minimums. Traditional dedicated providers include banks and specialist acquirers like Worldpay.

• Aggregated merchant accounts: These are shared accounts used by multiple businesses, like PayPal and Square. They're quick to set up and have simple pricing for small businesses, but they often cost more per transaction and give you less control over payout timing.

• High-risk merchant accounts: These are for businesses in industries with higher chargeback rates or more regulatory scrutiny, like gambling, adult entertainment, travel, or CBD products. They usually come with higher fees, but they work for businesses that standard providers might turn down.

What is a payment gateway?

Now that we've covered where the money lands, let's look at how it gets there. If a merchant account is where a customer's money is held for a short time, a payment gateway is what gets it there in the first place. A payment gateway securely captures your customer's card details, encrypts them, and sends them to the payment processor without exposing sensitive data.

Any business handling digital transactions, where card details have to be collected and sent securely, needs a payment gateway. Without one, you'd have no secure way to collect payment information online or by card. They're essential for eCommerce, digital service-based businesses, and brick-and-mortar stores that don't want to build their own payment security setup from scratch.

How a payment gateway works

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

• Your customer enters their card details

• The payment gateway encrypts this sensitive information

• The encrypted data is sent securely to the payment processor

• The processor checks with the customer's bank

• The bank sends back an approval or decline response

• Once approved, funds are transferred from the customer's account to your merchant account

Types of payment gateways

Payment gateways come in a few different forms, so you can pick the setup that matches your technical resources and the kind of customer experience you want.

• Hosted payment gateways: These send customers to another site to complete payment. You'd use this if you want very little technical setup and don't mind customers leaving your site for a moment, like PayPal's checkout page. It's simple to put in place, but that redirect can sometimes increase cart abandonment.

• Integrated (self-hosted) payment gateways: These keep customers on your site during checkout, with payment forms built directly into your pages. Shopify and WooCommerce use this approach. You get more control over the look and feel, though you'll need to handle some PCI compliance requirements.

• API-based payment gateways: These give you full control over the payment experience through direct integration with your systems. Larger businesses with development resources go this route when they want fully customised checkout flows. You get maximum flexibility, but it takes technical expertise to build and maintain.

• Platform-based payment gateways: These are built into eCommerce platforms or marketplaces that handle payments as part of a wider service. If you're selling through a marketplace like Amazon or Etsy, the platform's gateway handles everything. It's convenient if you're already on the platform, but you're tied to their fees and features.

How the payment processing flow works end to end

Think of your payment system like a relay race. The payment gateway runs the first part, collecting card details and passing them through authorisation securely. It doesn't touch the money. It just handles the information. The merchant account runs the second part, holding the approved funds for a short time while they're processed and then moving them on to your business bank account.

But, there are more runners in this race than just those two. Here's the full chain:

• Your customer enters their card details at checkout

• The payment gateway encrypts the data and sends it to the payment processor

• The payment processor, the company that routes transaction data between all parties, forwards the request to the card network (Visa, Mastercard, etc.)

• The card network passes the request to the customer's issuing bank (the bank that issued their card)

• The issuing bank checks the customer has sufficient funds and approves or declines

• The response travels back through the card network and processor to your gateway

• If approved, the funds move from the issuing bank to your acquiring bank (your merchant account provider)

• The acquiring bank deposits the funds into your merchant account

• After the settlement period, the money reaches your business account

A payment processor, then, is the traffic controller in this chain. It doesn't hold your money or collect card details, but it makes sure the right information gets to the right place at each step. When all these pieces work together well, the customer clicks "pay", everything happens behind the scenes, and you get paid.

With both pieces in place, here's how they compare.

Merchant account vs payment gateway: Key differences

Most payment providers now offer merchant accounts and payment gateways as a package, but it still helps to understand what each one does so you can make better choices about your setup.

Functionality

• Merchant account: A financial account that holds your customers' payments before they reach your business bank account.

• Payment gateway: The technology that collects and securely sends payment data from your customer to the processing networks.

Costs

Most providers roll fees into one pricing structure, so you may see a blended rate instead of separate line items. Still, here's a snapshot of the average individual costs, including typical payment gateway fees, if you're comparing providers that charge separately.

Security and compliance

• Merchant account: Must follow banking regulations and card network rules. Compliance responsibilities are shared between you and the provider.

• Payment gateway: Must be PCI DSS compliant. The better gateways handle most of this work for you, which lowers your compliance burden.

Ease of setup

• Merchant account: Needs a longer application process, especially for dedicated accounts. It may involve credit checks and reviews of your business history.

• Payment gateway: Can range from a simple plugin setup to a complex API integration, depending on what you need and the technical resources you have.

How each affects your business

• Your merchant account choice affects your cash flow, transaction fees, ability to process higher-risk transactions, and the currencies you can accept and settle in. For example, if you choose a provider with weekly settlement instead of next-day settlement, you'll wait longer to access your funds, which matters if you're managing tight cash flow.

• Your payment gateway choice affects your customer checkout experience, the payment methods available on your website, and your ability to sell internationally. If a gateway offers limited payment options, customers may abandon their carts because they can't pay the way they prefer.

What is a payment service provider (PSP)?

A payment service provider (PSP) is a company that bundles merchant account, payment gateway, and often payment processing functions into one service. Instead of setting up each part separately with different providers, you get everything from one place.

Think of it like booking a holiday through a travel agent who handles flights, hotels, and airport transfers, instead of booking each part yourself on different websites. With the travel agent approach, you get one point of contact, one booking confirmation, and someone to call if anything goes wrong.

PSPs, sometimes called "payment facilitators" or "all-in-one payment platforms", give you one provider, one contract, and one dashboard. For most businesses, that simplicity matters more than any small cost difference from piecing together separate providers.

So, if a PSP bundles everything, do you still need to think about merchant accounts and gateways as separate things?

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

Most likely, yes. If you want to do any of the following, you need both functions:

• Accept online payments

• Process card payments in a store

• Handle recurring billing or subscriptions online or via card

• Take payments without a customer physically present

In the past, businesses had to look for merchant accounts and payment gateways separately, which is why the terms are still separate today. Now, modern PSPs like Airwallex offer both functions in one service, so you don't have the hassle of coordinating separate providers.

That said, some larger enterprises with complex needs or very high transaction volumes may still do better with separate merchant account and gateway providers, especially if they've negotiated custom rates or need specialised features that bundled solutions don't offer. For most growing businesses, though, the bundled approach saves time and makes operations simpler.

Once you know whether you want a bundled PSP or separate providers, here's what to weigh up.

Choosing the right setup for your UK business

Your ideal payment setup depends on your business model, size, and technical needs. Here are the main things to think about.

Cost structure

• All-in-one providers often charge higher per-transaction fees but have very low monthly costs, which is better for lower volumes.

• Traditional merchant accounts offer lower transaction rates but higher monthly fees and minimum requirements, which is better for high volumes.

Your monthly transaction size and volume will decide which option is most cost-effective. Ask providers for a total cost of ownership estimate, not just the per-transaction rate.

Settlement speed

How fast do you need your money? Settlement times range from next day to weekly, and faster access often costs more. If cash flow is tight, focus on providers with quicker settlement.

Business type and needs

• eCommerce stores usually want the widest possible shopping cart compatibility and a smooth checkout that doesn't interrupt the buying flow.

• SaaS companies often need reliable recurring billing capabilities with automated retry logic for failed payments.

• International sellers need multi-currency support, global payment methods, and fair exchange rates. Look for providers that let you settle directly in multiple currencies instead of converting everything to GBP.

How Airwallex brings merchant accounts and payment gateways together

If you want one platform that handles merchant account and payment gateway functions alongside multi-currency accounts and spend management, that's exactly what we built Airwallex to do.

Unlike providers that mainly focus on domestic transactions, Airwallex combines both functions with strong global capabilities. You can accept payments from 180+ countries using 160+ payment methods, hold funds in multiple currencies, and settle directly in 12+ currencies. Our FX rates sit at 0.5–1% above the interbank rate, which is competitive compared to traditional providers that often mark up by 2–3%.

Instead of juggling multiple providers, you get merchant accounts, a payment gateway, global business accounts, multi-currency capability, and expense management in one dashboard with transparent pricing.

Open a free account to see how it works.

Frequently Asked Questions (FAQs)

What's the difference between a merchant account and a payment gateway?

A merchant account holds funds from customer payments before they reach your business account. A payment gateway securely captures and sends payment data to start the transaction. They work together: the gateway handles the information, and the merchant account handles the money.

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

Yes. If you want to accept card or online payments, you need both functions. The good news is that most modern payment service providers bundle them together, so you don't have to set them up separately or manage multiple relationships.

What are the four types of payment gateways?

The four main types are hosted (sends customers to pay on another site), integrated or self-hosted (keeps customers on your site), API-based (fully customisable for developers), and platform-based (built into marketplaces like Amazon or Etsy).

Can I accept payments without a merchant account?

Yes, if you use a payment service provider (PSP) that acts as the merchant of record on your behalf. The PSP effectively gives you the merchant account function as part of its service, so you don't need to set one up separately.

What is a payment service provider (PSP)?

A PSP is a company that bundles merchant account, payment gateway, and processing functions into one service. Airwallex is one example. Instead of managing separate providers, you get everything in one platform with one contract and one dashboard.

Sources and references

1. https://www.ukfinance.org.uk/sites/default/files/uploads/pdf/UK-Finance-UK-Payment-Markets-Report-2019-SUMMARY.pdf

2. https://www.expertmarket.com/uk/merchant-accounts/what-is-a-merchant-account

3. https://gocardless.com/guides/posts/how-much-are-credit-card-merchant-fees/

4. https://www.merchantsavvy.co.uk/card-processing-fees/