I am often asked about payment gateways and merchant accounts so below i have described both in a nutshell.
A payment gateway is your online “point of sale” – where your customer pays for the item from your store. This can be as simple as PayPal’s most basic service or one custom tailored to your needs by your bankor a specialized merchant provider. The payment gateway is separate from your shopping cart – indeed, the most basic PayPal solutions take your customer from your site to PayPal.com to conduct the transaction, then return you to your site.
A merchant account is a financial service to which you (as the merchant) directs transactions from your payment gateway. Integrating your online store with a merchant account allows you to process the transaction “in house” – your customer never needs to leave your own website to make the purchase. Very small businesses may not need a standalone merchant account (and services like PayPal are essentially a payment gateway and merchant account rolled into one, directing your revenue directly to your PayPal account.) However, the larger and more complex your online business the more you are likely to require a merchant account, because this can allow for better rates, more methods of payment and more direct support in case of payment resolution issues.