Merchant accounts vs payment gateways: A 2025 guide for UK business owners

If you're processing one-off payments, managing recurring subscriptions, or expanding globally, you need payment systems that can keep up. But the moment you start researching, you're met with pages of confusing jargon: merchant accounts, payment gateways, acquirers, processors…

Suddenly, you're left wondering if you need all these things or if someone's just trying to sell you expensive solutions.

We get it. That's why we created this guide – to explain what merchant accounts and payment gateways actually do, whether you really need both, and how to make smart choices for your business.

What is a merchant account?

A merchant account is a specialised account that allows your business to accept payments. It doesn’t have to be your regular business account for paying staff or suppliers – think of it as a financial holding area where customer payments land before moving to your main business account.

How a merchant account works

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

2. Their payment information makes its way to your merchant account provider (acquiring bank)

3. The acquiring bank checks with the customer's card issuer (Visa, Mastercard etc) that they have the funds

4. If approved, the money lands in your merchant account 

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

6. Your merchant account provider takes a fee from the transaction

Types of merchant accounts

When shopping around for a merchant account, you'll come across three main types.

• Dedicated merchant accounts Set up specifically for your business, typically with lower fees for higher volumes and more control. They take longer to approve and may have monthly minimums. Examples: Worldpay and Clover.

• Aggregated merchant accounts Shared accounts used by multiple businesses (like PayPal and Square). Quick setup and simple pricing for small businesses, but often higher per-transaction costs and less control over payout timing.

• High-risk merchant accounts For businesses in industries like gambling with higher chargeback rates or regulatory scrutiny. Often higher fees but they accommodate businesses standard providers might reject.

Who needs a merchant account?

Any business that wants to get paid electronically: 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 essentially telling customers, ‘Sorry, cash only,’ which could mean turning away up to 91% of UK shoppers by 2028.

What is a payment gateway?

If a merchant account is where a customer’s money is temporarily held, a payment gateway is how it gets there in the first place. A payment gateway securely captures your customer's card details, encrypts them, and sends them off to the payment processor without exposing sensitive data. 

How a payment gateway works

Here's what happens when a customer makes a purchase on your website:

1. Your customer enters their card details

2. The payment gateway encrypts this sensitive information

3. The encrypted data is sent securely to the payment processor

4. The processor verifies with the customer's bank

5. The bank sends an approval or decline response

6. Once approved, funds are transferred from the customer’s account to your merchant account

Types of payment gateways

Payment gateways come in all shapes and sizes so you can customise features as needed.

• Hosted payment gateways redirect customers to another site to complete payment. 

• Integrated payment gateways keep customers on your site during checkout, like Shopify or WooCommerce. 

• API-based payment gateways are good for larger businesses wanting complete control over the payment experience. Maximum flexibility but requires technical expertise.

Who needs a payment gateway?

Any business handling digital transactions where card details need to be collected and transmitted securely. Without one, you'd have no secure way to collect payment information online or via 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 infrastructure from scratch.

The key differences between merchant accounts and payment gateways

Most payment providers today offer merchant accounts and payment gateways as a package, but understanding each can help you make smarter choices.

Functionality: what each does

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

• Payment gateway: the tech that collects and securely transmits payment data from your customer to the processing networks.

Costs

Most providers combine fees into a single structure, but here's a snapshot of the average individual costs.

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 burden for you.

Ease of implementation

• Merchant account: requires a lengthier application and verification process, especially for dedicated accounts. May involve credit checks and business history reviews.

• Payment gateway: ranges from simple plugin setups to complex API integrations, depending on your requirements and technical resources.

How each impacts your business

• Your merchant account choice may impact your cash flow, transaction fees, ability to process ‘higher-risk’ transactions, and the currencies you can accept and settle in.

• Your payment gateway choice may impact your customer checkout experience, available payment methods on your website, and your ability to sell internationally.

How do merchant accounts and payment gateways work together?

Think of your payment system as a relay race.

The payment gateway runs the first leg, collecting card details and sprinting them securely through authorisation. It doesn't touch the money; it just handles the information.

The merchant account runs the second leg, temporarily holding the authorised funds while they are processed, then completing their journey to your business bank account.

Most modern payment providers bundle these together, giving you a single team to manage the entire relay. When they work well, the customer clicks ‘pay’, processing happens behind the scenes, and you get paid. 

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

Most likely, yes. You need both if you want to:

• 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 shop separately for merchant accounts and payment gateways (which is why we have separate terminology), but today, financial platforms like Airwallex, Stripe, PayPal, and Worldpay offer both functions in one service. This eliminates the headache of coordinating separate providers.

Choosing the right option for your UK business

Your ideal payment solution will depend on your business model, size, and technical needs. 

Smaller or newer organisations tend to favour the all-in-one approach, whereas some larger enterprises with complex needs or very high transaction volumes may benefit from separate merchant account and gateway providers.

Here’s what to consider when you’re deciding.

Cost structure

• All-in-one providers typically charge higher per-transaction fees but have minimal monthly costs.

• Traditional merchant accounts offer lower transaction rates but higher monthly fees and minimum requirements.

Your monthly transaction size and volume will determine which provider is most cost-effective for you.

Settlement speed

How quickly do you need your money? Settlement times range from next day to weekly, with faster access typically costing more.

Business type and needs

• eCommerce stores usually want maximum shopping cart compatibility and smooth checkouts.

• SaaS companies typically require reliable recurring billing capabilities.

• International sellers need multi-currency support, global payment methods, and fair exchange rates.

Traditional banks vs fintech providers

While traditional banks like Lloyds or HSBC might seem convenient if you bank with them, you may experience a slower setup, limited support, and more expensive multi-currency options.

Fintech providers like Airwallex typically offer a faster setup, better online payment options and more global payment methods, though pricing may evolve more frequently.

Why use Airwallex?

By now, you know both merchant accounts and payment gateways are essential, but managing them separately can be a hassle. 

This is where Airwallex stands out for UK businesses with global ambitions.

Unlike providers that focus mainly on domestic transactions, Airwallex combines merchant account and payment gateway functionality with powerful global capabilities – which is crucial, because the use of digital wallets is expected to surge 15% every year.³

With Airwallex handling both, you can accept payments from 180+ countries using 160+ payment methods and avoid unnecessary currency conversion fees that eat into your margins. You can also hold funds in multiple currencies, settle directly in 12+ currencies and enjoy competitive FX rates (0.5-1% above the interbank rate).

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

References

1 https://www.expertmarket.com/uk/merchant-accounts/what-is-a-merchant-account#:~:text=A%20dedicated%20merchant%20account%20is,rates%20specific%20to%20your%20business

2 https://gocardless.com/guides/posts/how-much-are-credit-card-merchant-fees/#:~:text=,to%2010p%20per%20transaction

3 https://www.merchantsavvy.co.uk/card-processing-fees/#:~:text=service%20package%20and%20charge%20a,monthly%20fee

4 https://www.merchantsavvy.co.uk/card-processing-fees/#:~:text=PCI%20compliance%20fee