At some point, every online business has to weigh the pros and cons of processing its payments through a merchant aggregator versus opening a dedicated account with a traditional merchant services provider. The most successful merchants examine both options carefully in relation to the needs of their business, and then reevaluate them from time to time as the business evolves.
This article will give you some things to consider from both sides of the coin, as well as a few talking points when the time comes to select which aggregator or account provider is best for your enterprise. Because every business is different, there is no right or wrong answer – but taking action before you have a complete understanding of the landscape will almost always produce less than optimal results.
What is a Merchant Aggregator?
Merchant account aggregators make it possible for small and medium-sized ecommerce-driven businesses to process payments on a platform owned and operated by the aggregator and shared by other merchants. The aggregator assumes all the responsibilities involved in setting up and managing the account, and thus retains complete control of each merchant’s account using its services. Individual merchants can view and monitor their own accounts but have no access to the other accounts being serviced by the aggregator.
The biggest and most well known merchant aggregators in the marketplace today include PayPal, Square, Google Checkout, Stripe and Amazon Payments. There are, however, a number of smaller, regionally based aggregators located all over the world. Merchant aggregators charge fees for their service that make sense for many startup ventures that simply do not want to be bothered with the heavy lifting of opening their own traditional merchant account.
What is a Merchant Account Provider?
Merchant account providers also make it possible for fledgling ecommerce businesses to process their payments, but they do so by helping them open their own dedicated, traditional merchant accounts. These are essentially bank accounts in the form of legal agreements between the business owner and an acquirer, with the account provider (also called a payment processor) acting as a liaison between the two parties.
The acquirer assumes the risk of processing the business owner’s credit card payments, and the account provider/payment processor sets up the merchant’s account, negotiates the setup and processing fees on behalf of the merchant, and either provides the actual processing technology or negotiates those fees as well. Once the account has been established and the fees negotiated, the merchant has exclusive ownership and complete control of the new account. Examples of companies in this space include Elavon, MerchACT, Moneris and Payfirma.
The Top Benefits of Merchant Aggregators
Most of the merchants who opt for an account aggregator, at least in part, do so to simplify and quicken their initial payments account set-up. Much like any business bank account, opening a traditional merchant account can be a thorough process that many entrepreneurs or new business owners would rather do without. In essence, what these merchants are relinquishing in terms of account ownership and control, they earn back by electing for this potentially hassle-free, managed solution.
In addition to offering a quick-and-easy set-up by comparison, working with an account aggregator also provides a lower barrier of entry. Dedicated merchant accounts, on the other hand, require businesses to undergo an application process that includes careful screening to flag particularly high-risk ventures that may not get approved. Conversely, aggregators assume most of the risk for payment fraud themselves, so while they can impose their own standards on their merchants – and even freeze or terminate offending accounts – relatively little scrutiny is given to businesses willing to pay the aggregators’ fees.
Lastly, these fees are typically fixed when dealing with an aggregator, which, more often than not, benefits smaller enterprises dealing in lower volume of payments.
The Top Benefits of Merchant Account Providers
On the topic of fees, the personalized service that merchant account providers are able to offer is an important benefit where rate structures are concerned, as they can be tailored to fit the demands of each individual business and better accommodate growth as a merchant’s payments volume increases over time. This flexibility, one of the rewards for enduring the lengthier, more stringent approval and set-up process, allows traditional account providers to offer more competitive pricing as merchants expand their online enterprises and processing needs.
The ownership and control of their accounts given to merchants who partner with traditional account providers typically results in faster payment-processing times, fewer if any service interruptions, and eliminates the possibility of unforeseen account freezes or terminations. In the event that suspicious, potentially fraudulent activity does occur, the merchant will receive sufficient notification from the account provider so that both parties can jointly investigate the matter.
This, of course, brings the conversation back to merchants who have more frequent exposure to high-risk transactions because of the business they conduct – gaming, gambling, dating and adult sites being some of the examples. While it is true that these businesses initially will have an easier time getting their payments processed through an aggregator, the likelihood is high that the aggregator will terminate the account if fraudulent transactions become a recurring issue.
So it is important to note that there are, in fact, some traditional account providers willing to work with high-risk merchants, thus offering more optimal benefits for the long term. This is just one more reason why a merchant’s thorough due diligence is such an important part of this critical step in establishing and scaling a successful ecommerce presence.
Jared Ronski is co-founder of MerchACT and works with merchants globally to ensure they are paired with the right merchant account for their specific business needs. He has worked closely with higher risk business models and has provided companies of all sizes with payment processing solutions. He can be reached via email at firstname.lastname@example.org .