What is Payment Aggregator?

Ashish M. Shaji

28 Dec, 2020

Payment Aggregator is also known as Merchant Aggregator. Payment Aggregators are service providers through which e-commerce merchants can process their payment transactions. Aggregators allow merchants to accept credit card and bank transfers without having to set up a merchant account with a bank or card association.

More about Payment Aggregators

• The payment aggregator is facilitating the collection of payment from the consumer via credit cards, debit card or bank transfer to the merchant. The merchant is paid by the aggregator in 1-3 working days. These services are the most popular forms of payment behind credit cards.
• The Payment aggregators typically hold consumer credit card detail to allow for faster purchases or hold money in an account to allow for future purchases.
• Firms such as PayPal, Google Checkout, and Amazon Payments differ in their payment aggregator approaches, costs, and services delivered to merchants.
• Merchants must thoroughly analyze the costs and benefits associated with each provider to ensure they obtain the best payment solution.
• Payment aggregators refer to a unique merchant service in which one merchant account is used to represent a number of merchants opposed to the traditional model which disburses a merchant account to each merchant.

Benefits of Payment Aggregators

• Quick application process

Payment aggregators offer a quick entry into the world of small business. Without the need to formally submit a number of documents or applications, your startup business can get started processing credit cards near instantly.

• Efficient and cost-effective for small transactions

The payment aggregator model tends to provide a boost for credit card & wallet payment processing, with minimal start-up fees or fixed costs. In substitute of start-up fees or fixed rates, variable merchant fee is added on to each successful transaction.

• Instant approval

Payment gateway in India can be done within 3-7 working days. It’s easy to integrate on the website. Time is money and the faster you start processing, the faster profit starts rolling in.

• On-the-spot access

It’s easy to apply and even easier to set up. After signing up, you can immediately start processing e-commerce payments or just pop the mobile swipe on your cell phone and you’re ready to take payments on the go. Disadvantages of Payment Aggregators

Disadvantages of Payment Aggregators

•  Frequent account holds

Payment aggregators allowing instant credit card processing, aggregators are at higher risk of a later chargeback. In order to counter the risk, they exercise extreme caution when irregular activity is found and the merchant or cardholder is suspected. This means that they won’t be shy about freezing accounts without notice.

• High fees

To allow a high number of merchants to process instantly and easily, aggregators increase their own risk. In turn, the higher risk correlates with higher fees.

• Lower limits

Aggregators have their own fees; they are charged based on gross processing volume, which means that your processing limits are lower than they would be with a merchant account.

• Delay of funds

Aggregators have control over when they disperse your money. They usually hold the funds for 24-48 hours before depositing, but holds could potentially be longer.

Key Considerations

Key considerations when implementing or buying this functionality include:

• Make sure you understand what your costs are for the services, as some of these options can be significantly higher than direct credit card payments.
• There are typically 2 driving forces to implementing one of these services;
• One needs a way to process payments because one can’t do it today. In this case, you need to focus on what the service supports, regions, payments types and customer base.
• One is trying to increase your sales by implementing a preferred payment method option. In this case, the “brand” of the payment aggregator is very critical. It is not enough that a service provider simply works in a country of interest. It needs to have the mindshare in the region to be effective.
• Make sure one fully investigate any fraud guarantees and the dispute process.

How can Payment Aggregator be practically implemented?

Payment aggregator can be implemented in one of the two ways.

• In case of so-called straight aggregator, the aggregator (payment service provider) gets underwritten by credit card payment processor and processes transactions of all of its sub-merchants using the same Merchant ID (MID).
• In case of sub-merchant aggregator (sub-merchant funding) the aggregator processes transactions of the smaller businesses under different MIDs, remits the funds to sub-merchants and withholds the fees but still bears financial responsibility for all the accounts.

Due to the increased possibility of fraud with the straight aggregator model, the sub-merchant aggregator is a preferred way to organize processing.

How does it work?

• Payment aggregators have gone to great lengths to distinguish themselves and differentiate from other alternative payment providers.
• Google, Payubiz, Paytm, PayPal, Google Checkout and Amazon Payments have all gone different routes to in payment aggregator business satisfy merchants and consumers around the world. For example, Paytm, Payubiz, Paypal effectively “holds your money” so at any time you can purchase an item, while Google Checkout holds your credit card information to make purchasing online easier and more efficient. Amazon charges higher fees than both these payment services but effectively acts as a marketplace with a tremendous customer base. Merchants can then save cost on marketing and website development by utilizing Amazon.
• There are just a few of the dominant payment aggregators but several others have proven themselves successful in other regions around the world.
• As this industry further develops there will be new entrants that will deliver value to the merchant and consumer.

Who can benefit from Payment Aggregator?

One of the categories of merchant services^[1] industry players, frequently using payment aggregator, includes software and service companies, customers of which need to accept payments from their respective customers. Payment aggregator model allows software providers to function as payment service providers using either payment processor integration.

What are the Risks Associated with Payment Aggregation?

In these types of arrangements the payment aggregator usually gets the preferred processing rate from the underlying payment processor or bank. In return, it, generally, assumes the risk (a financial liability) for its entire portfolio. Consequently, aggregator becomes responsible for any transaction fraud or chargeback associated with its sub-merchants.

Conclusion

An aggregator is preferred for a smaller business. While it is the goal of any business to grow better, it’s not necessarily every merchant’s goal to grow bigger, so aggregators are optimal for businesses that are content on staying micro.  However, for those businesses that want to expand, processing needs will outgrow an aggregator.

Read our article:New Umbrella Entity (NUE) for Retail Payment Systems: RBI