Merchant Aggregation – Exploring the Opportunities
October 12, 2012
David Fish
Mercator Advisory Group
It’s no secret that merchant aggregators, firms that act as merchants-of-record for sub-merchants, have existed in the payments industry for a long time. After all, eBay has been able to exist as the merchant-of-record for thousands of sellers on the auction site for 15 years, and billions of dollars of card-based payments fund PayPal accounts every year. With the rise of mobile-card acceptance services such as LevelUp, Square, Intuit GoPayment, and Pay Anywhere, thousands of micro-merchants and small businesses all process millions of transactions through mobile devices linked to a single merchant account at each of those providers.
Prepaid card programs that enable direct loads and reloads such as InComm or Stored Value Solutions are merchants-of-record on transactions where the prepaid cardholder uses a bankcard of some kind to fund the load. Internet Payment Service Providers (IPSPs) such as Adyen, Global Collect, or Arvato Bertelsmann that manage payments connectivity, processing, and security for e-commerce merchants can utilize their gateway platforms to enable multi-currency payment acceptance through a variety of acquirer relationships.
Certainly, merchant aggregation firms that deal in the offline world have a long and growing presence in the payments market too, serving sub-merchants in categories as diverse as taxi drivers and baby sitters. But official recognition of the PSP business model that serves non-e-commerce merchants and explicit sanction of its existence as an approved configuration for submitting card payments to the networks only came last year when Visa finally released its guidance on Payment Service Providers.
Now it seems, since the aggregator model has this explicit sanction where it didn’t have one before, more traditional merchant service providers are looking at implementing merchant-of-record services more broadly than ever before. The reasons for this include potential cost savings on transaction processing and account maintenance, and relief of some of the associated operational burden.
Acquirers have much to consider when exploring a shift in market strategy to incorporate a business line based on the merchant aggregator model. I’ll be publishing an expanded version of this piece in the form of a Viewpoint for Mercator’s Credit Advisory Service in the near term. In the meantime, I’d like to hear from you so we can discuss these considerations! Especially if you’re working with an acquirer that might be using or studying the merchant-of-record model for aggregation of its portfolio in part or in whole. What’s on your list of pros and cons for this type of market approach?