What is a Payment Aggregator?

Payment Aggregators can be great for some businesses, but not for most.

About Payment Aggregation

For most merchants, accepting payments is a critical part of doing business. What isn’t always critical is having your own merchant account. There are some situations where leveraging a provider with a master account is a better solution. You are likely familiar with some of the major Payment Aggregators – companies like PayPal, Square, and Shopify Payments are perfect examples.

Let’s talk about the pros and cons of using a payment aggregator versus having your own merchant account.

What is Payment Aggregation?

Payment aggregation (also known as merchant aggregation), is a business model where a payment provider signs up merchants directly under its own Merchant Identification Number. This allows all their merchants to process transactions through a single master account. Merchants who process this way are known as sub-merchants to the payment aggregator.

A payment aggregator makes it possible for a merchant to start accepting credit cards without going through the process of signing up for your own merchant account, Because of this, getting started is much quicker – an example being running down to your local office supply store and picking up a card reader from Square and taking payments immediately.

What are the benefits of payment aggregation?

If your priority as a merchant is to get up and running as quickly as possible without any fuss, then a payment aggregator is a great solution. Payment aggregators are pretty hassle-free, allowing you to start taking payments almost immediately.

Some advantages of a payment aggregator are:

  • Easy application process: becoming a sub-merchant to a payment aggregator is a painless process, with minimal paperwork and compliance checks;
  • Approval speed: approvals under a payment aggregator can be as quick as instantaneous, making it well suited when time is critical;
  • Take payments immediately: once you are approved, you can take payments immediately, either through a virtual terminal or with a swipe purchased locally;
  • Simplified fee structure: payment aggregators typically work on a one-size-fits-all fee structure, something like 2.9% for any transaction, no matter the size.

What are the downsides of payment aggregation?

The payment aggregation model is well suited to very small merchants with low transaction volumes and low transaction sizes. If you have a larger volume, or larger transaction sizes, the fee structure of a payment aggregator may become cost-prohibitive very quickly. Most merchants will eventually outgrow the payment aggregator model.

Some disadvantages of payment aggregation are:

  • Payment holds: payments considered outside the norm for your aggregator – too big a ticket, or too many transactions too quickly – are likely to be held for a period of time to ensure they clear. This delayed payment to you as a merchant can be devastating if you rely on cashflow to run your business. Because the payment aggregator is assuming all the risk for fraud, chargebacks, etc., anything that looks suspicious can put your account on hold. Sometimes the holds are a day or two, sometimes they can go as long as a month. When you have your own merchant account instead of a sub-merchant account with a payment aggregator, these risk factors are already considered for your account, reducing the likelihood of a hold.
  • High transaction volumes equal higher costs: payment aggregators are perfect for low volume, low risk merchants. As your volume grows, so does the risk the payment aggregator is taking on on your behalf, and therefore your fees grow as well. Some payment aggregators have published rate bands and volume limits, but with others, you won’t know you’ve crossed a threshold until your rates go up, or the payment holds start.

Being a sub-merchant v. having your own merchant account

As we discussed above, getting started as a sub-merchant to a payment aggregator is a fast, and relatively painless process. But it can be expensive, comes with a lot of rules around volume and transaction size, and can result in holds if the rules are violated.

On the other hand, having your own merchant account via someone like Dharma means that the account is completely tailored to you and your business. While the startup takes more time and has more documentation required, the end result is a fee structure that is open, transparent, and completely aligned with your processing needs. With the approval of your Dharma account comes a more flexible set of parameters around transaction volume, transaction size, average and high tickets, etc., all meaning that things like holds happen much less often. And your Dharma account is designed to grow with you automatically, so next year’s volume increase won’t be a problem (we want you to grow and be successful!).

The important thing to do in any case is look carefully at what is most important. With a payment aggregator you are trading off ease of getting started with fixed fees and limited growth; with your own merchant account, you are in a position to grow faster, control costs, and tailor the account to your specific business needs.

A partner like Dharma is here to help you make the best decision possible given your own circumstances. Part of our commitment to transparency is telling you when we think a payment aggregator is a better solution for you than what Dharma can offer.