Last editedNov 20223 min read
Merchant accounts let your business accept card payments, holding the funds before they’re cleared into your business bank account. What if you could cut out the middleman? A payment aggregator does just that, serving as a go-between for businesses, card companies and banks. So, what is a payment aggregator and is it right for your business? Here’s how it works.
What is a payment aggregator?
A payment aggregator is a third party responsible for managing and processing the online transactions from your customers. Also known as a payment service provider, a payment aggregator enables you to accept a variety of different payment options such as credit card, debit card, e-wallet and bank transfer, without creating extra work for you.
To accept credit card payments, you normally register for a merchant identification number (MID) with a bank. Instead, a payment aggregator signs you up using its own MID, processing card transactions using a single master account. You are then considered a sub-merchant and can start processing online payments straight away, without registering your own merchant account. For small businesses and start-ups, it’s often a cheaper, easier way to process payments.
A third-party payment aggregator not only facilitates credit and debit card payments, but also bank transfers and alternative payment methods. One example of a popular aggregation service is PayPal, which deals with the intricacies of financial transactions on its customers’ behalf.
Payment gateway vs payment aggregator
A payment gateway is a software application that enables online transactions on your website. It facilitates card, digital wallet and bank transfer payments online.
By contrast, a third-party payment aggregator is a separate service provider that allows ecommerce vendors to process payments. They sign you up as a sub-merchant to operate under their own merchant account.
Benefits of payment aggregation
While payment aggregation isn’t right for everyone, there are some distinct advantages to consider.
To begin with, payment aggregator services are easy to set up for instant payment processing. Opening a merchant account can involve credit checks, PCI compliance checks, a personal guarantee and other stages. It all adds up to a lengthy application process. Using a payment aggregator cuts down on the red tape so you can simply start selling.
More efficient payment processing
Payment processing is also faster with an aggregator service. For small businesses that rely on steady cash flow, it’s better to know that your payments are processed and settled into your account within a few days.
Straightforward fee structures
While some payment processors have complicated fee structures, payment aggregators are usually straightforward without a fixed contract to tie you in. This gives the flexibility to switch to a different payment solution if desired.
Risks of payment aggregation
At the same time, there are a few disadvantages of using a third-party payment aggregator.
Less favourable with higher transaction volumes
This type of scheme tends to work best for small businesses with lower transaction volumes. Once you start processing larger volumes of sales, your per-transaction rate might outweigh any benefits. At this stage, it might be worthwhile to open your own merchant account instead.
Funds could be held for fraud checks
In terms of risk, there’s the possibility that your funds could be put on hold while the payment aggregator performs fraud-related checks. This is because the aggregator assumes risk for card payments and needs to ensure that all transactions are fully compliant with fraud regulations. It’s important to read the fine print carefully when choosing the best payment aggregator. While most release your funds within 1–3 business days, some hold your money for far longer.
How to choose the best payment aggregator
If you’ve decided that the benefits outweigh these risks, there are a few features to compare when looking for the best payment aggregator. Top of the list should be fees. Some won’t charge you any fees at all for creating your account, only charging your business for each transaction. Others charge a different fee for different types of transactions.
Also look at how user-friendly the platform is, whether it offers API integration and whether you have access to data analytics from your transactions. This ensures you get the most for your money.
We can help
Merchants need a secure method to receive payment from customers, and GoCardless ensures secure payment processing by pulling due payments directly from customers’ bank accounts. For both recurring and one-off payments using direct debit, GoCardless puts merchants in greater control of incoming payments.
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.