Aggregators like PayPal and Square are excellent payment solutions for businesses processing a lower volume or those that want to start accepting payments quickly. However, using an aggregator model could have some detrimental drawbacks for growing businesses, such as lower processing limits and higher transaction fees.
An aggregator is attractive to smaller businesses because of their simple pricing and easy set-up, but typically once you start processing more than $40k annually in credit card sales, your business will outgrow this payment model. At this point, a dedicated merchant account would benefit you significantly. If you don’t know the difference between an aggregator and a merchant account provider, check out this great primer.
As you grow, you’ll need a processor that can scale with you, provide the support you need to expand your business, and offer competitive rates for your increased processing volumes. By switching from an aggregator model to your own dedicated merchant account, you’ll enjoy these benefits:
The non-transactional fees that come with merchant account providers may not make sense for smaller businesses who aren’t utilizing the additional payments tools offered like multiple payment methods and detailed analytics. As you process more, merchants account providers have the ability to offer volume discounts on rates – the more you process, the less you pay in fees.
Better cash flow
Aggregators have stricter fraud prevention tactics because they take on more risk and as a result, may hold funds or freeze accounts without notice if there is suspicious activity. With your own merchant account, you’ll experience fewer interruptions to funding because critical business information, like average transaction volume, is collected during the application process so your processor knows exactly what to expect. Aggregators also disperse your funds at their discretion; they may potentially hold your funds for 24-48 hours before depositing, whereas with a merchant account provider, you see funds in your account within 1-2 business days.
Higher processing limits
As you grow, merchant account providers are better equipped to facilitate larger transactions because they have higher processing limits than aggregators.
Dedicated customer service
With an aggregator, you’re simply not going to experience the same level of customer service as you would with a merchant account provider. Problems don’t always occur during business hours, and when they do, you’re going to need service right away. Most merchant account providers provide 24/7 customer support with a dedicated support representative.
Time to switch?
We’ve compiled indicators to help determine whether your business is ready to switch from an aggregator model to your own dedicated merchant account.
Your business is growing/you want to expand
Aggregator transaction rates are usually higher and fixed. When you’re just starting out, the slightly higher transaction rates may be a fair trade-off for little to no additional fees. With companies like Square, you only pay for what you process; there are no extra monthly fees. However, since the rates are typically non-negotiable, this model may no longer make sense when you grow and expand because the more you process, the more you pay. Once you see higher sales volumes (more than $40k/year) and larger transaction sizes, switching to a dedicated merchant account will save you money because payment processors tailor their rates to offer competitive pricing based on volume.
You’re experiencing too many funding delays
As mentioned above, processing with aggregators can result in frequent funding delays. PayPal, in particular, is known to hold funds in your PayPal account for 5-7 business days before moving it into your bank account. With your own dedicated merchant account, your funds are typically deposited into your account within 1-2 business.
You want to accept multiple payment methods
Consumers today are omnichannel shoppers, purchasing products across different channels. This means that modern merchants need to cater to their customers and accept payments via any method their customers want to pay. Rather than piecing together several services from multiple vendors, a well-rounded merchant account provider will enable you to accept payments multiple ways with a single account.
You want more security
Any business – big or small – has to be PCI-compliant. With merchant account providers, you don’t have to worry about PCI compliance; you can rest easy knowing that every transaction you process is safe and secure.
You want control over your branding
With some aggregators, their name appears alongside yours on customers’ statements, which could lead to unnecessary chargebacks if the customer is not made aware, creates inconsistent branding, and doesn’t serve your business well. Most merchant account providers enable you to customize your social receipts and broadcast your brand.