An aggregator conjures up imagery of some sort of superhero — one that fights fraudsters and helps the good businesses of the world accept credit card payments.
Alas — a superhero it is not, but it still does the other things. A merchant aggregator, payment aggregator, or simply aggregator is a service provider that allows merchants to accept payments without having to set up a merchant account. Well-known aggregators are Square, Stripe, and PayPal.
Aggregators are named so because your business is grouped together with other merchants in an aggregation and tracked individually. An aggregator accepts payments on behalf of merchants. Essentially with an aggregator, you and the other merchants use their merchant account to take payments; whereas, with a merchant account, you are the sole owner. However, aggregators much like with anything, have pros and cons.
Pros
Quick application process. The process to sign up for a merchant account is lengthy because banks are not in the business of handing out accounts to everyone. Unlike merchant accounts, aggregators have a shorter application process and require minimal information because they don’t have to individually assess each company. You can see the massive appeal of aggregators for small or new businesses because sign up is simple.
Instant approval. Another appeal of aggregators is that the approval process is instant. Aggregators have such high popularity with many smaller merchants since it is easy to implement. 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 swiper on your cell phone and you’re ready to take payments on the go.
Easy to understand fees. Understanding payment processing fees can be a difficult task. Another draw of aggregators is that they have simple, fixed fees.
Cheaper…to an extent. While the set rates are slightly higher than most merchant account fees, the pricing is still less expensive for merchants processing at lower volumes. Once you start processing more, using an aggregator may actually be too costly — but we’ll get into that in the cons. In addition, there are often no monthly fees or contracts.
Cons
Frequent account holds. By removing entry barriers and allowing instant credit card processing, aggregators bare higher risk. Aggregators take on the risk for fraud of all the merchants under their umbrella. So to counteract the risk, they exercise extreme caution when irregular activity is suspected. This means that they won’t be shy about freezing accounts without notice.
Think of it like this: merchant accounts are preventive and aggregators are reactive. During the merchant account application, they obtain information such as your normal processing amounts so they know what to expect. With aggregators, since they removed the lengthy application process, they put your account on hold to do their due diligence when something seems out of the norm.
So it’s up to the merchant to decide between a more extensive set-up with few interruptions or effortless set-up with the potential of frequent holds.
Sometimes the holds are only minor inconveniences (24-48 hours); in other cases, longer holds occur (30 days); and in extreme cases, the account is shut down.
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. Aggregator fees are fixed so when you start processing more, merchant accounts are worth considering because the fees are tailored to your business.
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.
A 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.
Conclusion
There’s no universal conclusion when it comes to whether an aggregator or a merchant account is better. Typically, 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 content on staying micro.
However, for those businesses that want to expand, processing needs will outgrow an aggregator. At which point, a merchant account would be better suited. It comes down to what is best for your individual business.