Merchant Account vs. Payment Gateway: What’s the Difference?

Nov 27th, 2023

Payment Processing

When it comes to accepting payments for your vacation rental business, it's crucial to understand some of the basic terminology and concepts involved. Both merchant accounts and payment gateways are an integral part of accepting online payments for your bookings, but they serve different purposes. 

How does a merchant account vs. a payment gateway stack up? 

If you are wondering how you can more readily accept online payments for your bookings, this detailed breakdown will help you identify what you need to get off the ground. 

 

What is a Merchant Account? 

Before we dive deeper into the differences, let’s take a closer look at exactly what a merchant account is. Merchant accounts are bank accounts specifically set up to allow businesses to accept electronic payments (such as credit and debit cards). These accounts, which are typically provided by a financial institution or payment processor, are designed to help you process and settle these electronic payments rather than dealing with the day-to-day banking you might do to keep the wheels on your rental management. 

How does it work? 

When your guest wants to book a rental, they will enter their credit or debit card information into the platform. Your merchant acquirer will request that the payment be issued from the cardholder and acquire the funds.

In some instances, money moves from the guest’s account into your merchant account minus any fees for transactions (such as credit card processing fees) before moving into your business bank account. However, in most cases, monies are transferred from the card holder's bank to your account in full and fees/charges are taken out at the end of the reporting period.

Merchant accounts are tied to the Merchant of Record (MOR), which is the entity that can authorize and process customer payments on behalf of your rental business. 

Some short-term rental platforms like Airbnb serve as the MOR, so they will manage the merchant account and payment processing on your behalf. Other OTAs place you as the MOR, which means you will directly manage and control the merchant account. 

In reality, you don’t have to be the merchant of record but there are some benefits. Namely, it allows you more flexibility and control over how you handle guest payments if you will be dealing with direct bookings. 

 

What is a Payment Gateway?

A payment gateway is an online service that allows you to accept electronic payments via a secured connection over the internet. It’s essentially a tunnel that facilitates communication between both parties involved in the transaction. Put another way, a payment gateway is the virtual equivalent of physical credit/debit card readers found in brick-and-mortar establishments.

When a guest books a reservation, vacation rental websites and software can’t communicate with the payment network, card issuing bank, and merchant processing bank on their own. Working with the payment processor, the payment gateway acts as a middleman to communicate card and guest information as well as the response from the issuing bank approving or declining the transaction.

Your payment gateway does not come free though. Most often, they charge a fee per transaction in addition to any monthly or setup fees, although this varies by processor. They might also provide benefits such as fraud prevention, chargeback management, and more comprehensive data transmission, which can reduce the rates charged by certain card brands. 

A payment gateway is a little different than a payment processor. A gateway is essentially a virtual point-of-sale terminal for online transactions and card-not-present scenarios. The processor, on the other hand, communicates the information collected via payment gateway between the merchant, the issuing bank, and the acquiring bank. Some gateways are specific to a single processor, while others can integrate into your payment processor of choice.

 

How Merchant Accounts and Payment Gateways Work Together

As you might have already guessed, it’s not a matter of “merchant account vs. payment gateway,” but rather “merchant account and payment gateway.”

Both merchant accounts and payment gateways are distinct, vital components of your successful rental management business. They work hand-in-hand to process secure payments for your guests in a way that allows you to access funds as quickly as possible. 

How do the two systems work in tandem to get you paid?

First, your guest makes a purchase through your direct booking website and pays with their credit or debit card. At this point in the process, your payment gateway will collect the data related to the credit card, encrypt it, and work with the payment processor to send it to the guest’s bank and verify the transaction.

The bank will verify the card, the account balance, and the authorization from the client. If everything checks out, the guest’s bank lets the payment gateway know that the money is good. 

From here, the payment gateway sends all of that payment information to your merchant account to be processed. The merchant account then verifies the payment, processes it, and does the heavy lifting of moving the money from the guest’s account into your business bank account. 

Finally, the payment gateway communicates with your booking website that the payment was good and the guest can complete their reservation. In a few days, you will see the funds in your business bank account. 

 

Get Help with Payment Gateways at Ascent

Understanding the ins and outs of accepting payments can involve many moving pieces, and Ascent is here to make the process smoother. We offer rental managers a state-of-the-art gateway solution with tokenization, secure sessions, and automatic authorization reversals to help you easily accept payments with PCI compliance. Our preferred gateway, Slim CD, is integrated with many of the leading software providers in the vacation rental industry. We also work with other integrated gateways, such as AUTH.net.

Ascent offers payment processing solutions that give you access to a high level of service, built-in security, and robust solutions so that you can focus more on the day-to-day of running your vacation rental business. If you want to offer guests flexibility, we provide the ability to accept various payment types at competitive rates, including credit and debit cards, ACH/e-check, and cryptocurrency. 

No matter which way you decide to go, Ascent is here to ensure that every transaction is safe and secure for both you and your guest. Reach out to us today to learn more about accepting payments with Ascent!