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12 July 2018
What is a payment aggregator and do you need one?
Accepting payments online is pivotal to keeping the lifeblood gushing through your business operations. In an increasingly cash-free and eCommerce inclined Australian economy, not being able to accept payments online can mean frustrated customers and lost business. Data such as the NAB Online Retail Index Report 2017 offers a peek into these changes. The report found that online shopping spiked by 10% in Australia over the past year. In contrast, in-store foot-traffic reported a meagre 3% increase.
For your customers to have the convenience of simply using their credit card to buy products or services, you’ll need to plug in the right solutions to accept and process payments. This is where your paths are most likely to cross with payment service providers (PSPs), payment gateways, and acquiring banks.
This is also where things can get complicated or, sometimes, even prohibitively expensive depending on your business circumstances. Not all businesses can hook their operations up with a merchant account thanks to lengthy application and approval times and high risk of online fraud. The payment aggregator business model can help simplify things here.
These questions will help you learn what the role of a payment aggregator is and whether your business needs one:
What is merchant aggregation?
Merchant aggregation also known as payment aggregation, is a business model where a third-party payment provider signs up merchants directly under its own merchant identification number (MID) to process transactions through a single master account. Merchants who process transactions under an aggregator are known as sub-merchants.
In other words, a payment aggregator makes it possible for merchants to start accepting credit card payments and online money transfers without an individual merchant account with a bank or financial services provider.
What is a third-party aggregator?
A third-party aggregator is a financial services provider who facilitates payments between the merchant and consumers via different payment methods such as bank transfers and credit or debit cards. Companies like PayPal are the best example of third-party payment aggregation as they facilitate payments between the merchant and consumers. The key benefits of a third-party aggregator are that they take niggling operational burdens off merchants while also saving them monthly processing and merchant account maintenance fees.
What are the benefits of going through a merchant aggregator?
As a merchant, if your priority is to quickly start accepting online and credit card payments with minimal fuss, then a payment aggregator is the best choice. Payment aggregators offer a hassle-free setup so you can start processing payments almost instantly.
Here are the advantages of a payment aggregator:
Ease of application: Applying for a merchant account involves a lengthy application and underwriting process, which also includes credit checks, a personal guarantee, a PCI compliance check and a close scrutiny of your business model. In contrast, going with a payment aggregator requires minimal paperwork and compliance checks for the sub-merchant.
Speed of approval: Approvals under a payment aggregator take only a few days, making it suited to small businesses for whom time is of the essence.
Accept payments instantly: Once the application is processed, eCommerce merchants can instantly start accepting credit card payments and bank transfers.
Simple fee structure: Since payment aggregators have a simple fee structure, typically without fixed contracts, it is easier for merchants to understand how much they will be shelling out for processing fees.
What are the disadvantages of payment aggregators?
While the payment aggregation business model is suited to small and medium businesses with low transaction volumes, the cost of operating under the aegis of a merchant aggregator can shoot up as you start processing more transactions.
The aggregator model works perfectly if you process only a handful of transactions. Sub merchants typically only have to pay when they process online payments, rather than shell out a monthly fee.
Depending on your business goals and projected growth, you may need to decide if a merchant account is better suited to your needs.
Here are some cons of the payment aggregator business model:
Possibility of account holds: Because payment aggregators assume considerable risks on behalf of the sub-merchants, including fraud-related chargebacks, any payment activity suspected of being fraudulent on your website could cause your account to go on hold. While hold times are usually as short as 24-48 hours, they may, in exceptional cases, last even a month. With individual merchant accounts, there is a lower chance of businesses experiencing such interruptions.
High transaction volumes vs cost-efficiency: As your transaction volumes increase, so do payment aggregator charges as large transactions elevate payment processing risk. Some payment aggregators may have pre-decided transaction volume limits, so it’s best to ask these questions before you sign up with one.
Payment aggregator fees: What should you expect?
Most payment aggregators either charge a nominal fee or, in some cases, no fees at all to create a sub-merchant account. Fees are charged when merchants accept payments online. Fees may also differ depending on the nature of the transaction. So for example, transactions with payment details keyed in may be charged differently to a card-swipe transaction or contactless payments.
Before you shortlist your chosen payment aggregators, asking if they offer essential services such as API integration and data analytics can help you stretch your dollars.
Interested in learning more? Read this blog post that explains the difference between a payment facilitator, payment gateway and merchant account.
If you need assistance with determining which payment processing options are best for your business, just drop our payments experts a line and we’ll be happy to help!
Victoria Galloway is Bambora APAC's Technical Copywriter, and has been writing and producing in the payments and eCommerce space for a number of years in the UK and Australia.