What is a Payment Aggregator?

About Payment Aggregation

For many merchants, accepting payments is essential for business operations. However, having an individual merchant account isn't always necessary. Sometimes, it can be more beneficial to use a provider with a master account. Notable Payment Aggregaters include PayPal, Square, and Shopify.

Let's explore the advantages and disadvantages of using a payment aggregator compared to having your own merchant account.

What is Payment Aggregation?

Payment aggregation, or merchant aggregation, is a system where a payment provider registers merchants under its own Merchant Identification Number. This setup allows all merchants to process transactions using a single master account. Merchants operating this way are called sub-merchants of the payment aggregator.

A payment aggregator enables merchants to accept credit cards without the need to set up an individual merchant account. This makes the onboarding process much quicker; for instance, you could buy a card reader from Square and start taking payments immediately.

Advantages of Payment Aggregation

If your priority is to start accepting payments quickly and with minimal hassle, a payment aggregator is an excellent choice. These providers generally allow merchants to begin transactions almost immediately.

Benefits Include:

• Easy Application Process: Becoming a sub-merchant involves minimal paperwork and compliance checks.

• Fast Approval: Approvals can be nearly instantaneous, perfect for time-sensitive needs.

• Immediate Payment Processing: Once approved, you can start taking payments immediately, either through a virtual terminal or a purchased swiper.

• Simplified Fee Structure: Payment aggregators often have uniform fee structures, like a flat 2.9% per transaction, regardless of size.

Downsides of Payment Aggregation

The payment aggregation model is ideal for very small merchants with low transaction volumes and values. However, as transaction sizes or volumes grow, the fee structure may become inefficient. Most merchants eventually outgrow this model.

Disadvantages Include:

• Payment Holds: Transactions outside the aggregator’s norms, such as large amounts or quick successive transactions, can trigger holds to ensure they clear. This can disrupt cash flow, especially for businesses relying on steady revenue. Payment aggregators assume all fraud and chargeback risks, so anything suspicious can freeze your account for days to weeks.

• High Costs for High Volumes: While great for low-volume merchants, high transaction volumes increase the aggregator’s risk and, consequently, your fees. Some aggregators have transparent rate bands and volume limits, but others may surprise you with rate hikes or holds when you exceed certain thresholds.

Being a Sub-Merchant vs. Having Your Own Merchant Account

Starting as a sub-merchant with a payment aggregator is quick and straightforward, but it can also be costly and restrictive. There are many volume and transaction size rules to follow, often resulting in payment holds for violations.

Conversely, having your own merchant account, such as with Allied Payments, offers a customized solution tailored to your business. This route initially requires more time and documentation but results in a clear and flexible fee structure that aligns with your processing needs. Approval grants broader transaction parameters, minimizing holds. Additionally, an Allied Payments account is designed to scale with your business, avoiding issues as your volume grows.

Making the Best Choice

The key is to evaluate what aspects are most important for your business carefully. With a payment aggregator, you benefit from immediate payment processing with fixed fees and limited growth. With your own merchant account, you gain control over costs and scalability tailored to your unique business needs.

A partner like Allied Payments aims to help you make the best decision tailored to your situation. Their transparency means they'll guide you on whether a payment aggregator might be more suitable than what Allied Payments offers.