Payment aggregators explained: do you need one?

Making business online or launching an Internet-based store for ecommerce purposes requires dedicated financial solutions for accepting and processing payments made by the customers. Payment gateways, payment service providers and acquiring banks are just some of the categories to select from when starting an ecommerce company. Meantime, many merchants prefer partnering with payment aggregators, as they offer a range of benefits in the context of fee structure and service provision scheme. Do you need a service of a payment aggregator?

What is it?

Payment aggregator is a provider of payment services that allows merchants to accept credit or debit cards for payments without the need to set-up a merchant account. These service providers are called ‘aggregators’ because several merchants are grouped together to form an aggregate account, controlled by the payment system on their behalf, while in contrast merchant accounts are owned and controlled directly by merchants.

Key benefits

  • Speed of application and approval. Unlike creating your own merchant account where you assume all risks associated with the chargebacks and fraud, as well as processing, which means that you should undergo a quite cumbersome application process, providing many documents and information to verify and license your payment processing activity, including PCI DSS compliance, payment aggregators bear all risks instead of merchants with the application process taking several minutes. Accepting card payments may start virtually immediately after a merchant applies for the service of a payment aggregator.
  • Understandable fee structure. With payment aggregators merchants processing small volumes of payments have some benefits in terms of fees, as all aggregators offer fixed commission plans. Besides, merchants accepting small payments would better use payment aggregators instead of bearing all expenses associated with card payment acceptance and security risks mitigation.

Key drawbacks

  • Interruption on the part of payment aggregators. Insomuch as payment aggregators assume all risks, providing fast access to payment acceptance for merchants with quick card processing times, they may take their own decisions when they think that some activity on your website could be deemed as suspicious. In this case payment aggregators may suspend or put on hold your account from 24 hours to 30 days. In case of merchant accounts, businesses experience less interruption on the part of payment service providers.
  • Decrease in cost-efficiency with the volume growth. If the volumes of your payments start growing, the costs become higher, as instant processing of larger amounts involves higher risks, and, hence higher fees charged by the payment services. In this case merchant accounts also come to help, as fees established by payment aggregators cannot be changed, while fees related to merchant accounts may be customized. Besides, payment aggregators establish their own volume limits, which means that merchants are required to comply with restrictions, whereas with merchant accounts they have more options for processing. Payment aggregators tend to delay payouts to merchants holding the funds from 24 to 48 hours in the least before they send them to the bank account of a merchant. The deposit periods may be longer.

Key players in the market

Most outstanding payment aggregators include such companies as PayPal, Square and Stripe.

PayPal charges no fees for establishing an account but account holders accepting payments on credit or debit cards through ecommerce platforms like eBay should pay a 2.9% fee plus $0.30 of the amount received for a purchase.

Square fees are categorized based on the method used for making payment to a merchant: swipe transactions or manually entered transactions. Swipe transactions include such categories as Swipe magstripe cards, Swipe or inserted chip cards, Contactless payments, Prepaid gift cards and Point-of-Sale API Swiped or Inserted Payments. Square charges a 2.75% fee for swipe transactions. Manually entered transactions are: Card on File Transactions, Manually Keyed-In Card Payments, Point-of-Sale API Keyed-In Payments and Virtual Terminal Payments. These types of transactions are processed for a 3.5% fee plus 15 cents of the total transaction amount.

Stripe also features fixed rates and like its competitors it charges no fee for set-up. Stripe’s fee structure is based on the methods used for making payments: credit/debit cards and payment systems. Stripe charges a 3.4% fee plus $0.50 of the total amount paid using a credit or debit card, and 2.2% + $0.35 for the payments made using Alipay or WeChat Pay.