In the world of online e-commerce, every optimization counts.  And so if you’re a business owner who is selling goods online, you should be thinking carefully about the best payment methodology for your business to maximize your margins and deliver a clean customer experience every time.

One of the key decisions that need to be made for any online business is whether to go with a payment aggregator or a payment processor.  Each option has different pros and cons and this article will help you to understand the differences and make the right decision for your company’s online payments.

Let’s dig in.

What is a Payment Aggregator vs a Payment Processor

A payment aggregator refers to a 3rd party service provider that aggregates a range of different payment methods and delivers it in one interface for a client to plug into their online store.  These could include accepting various payment options such as credit card payments (Visa / Mastercard), debit cards, and any other payment method that you’d like to offer.  They do all the hard work behind the scenes to pull the various pieces into one solution and so you can give your clients options without needing to figure out all the back-end infrastructure.  Essentially, they have one master merchant account and you will receive a sub ID under that master account.  They become your de facto payment service provider (PSP) by enabling sub-merchants.

A payment processor, on the other hand, is when you control the merchant account yourself and you set up a gateway on your website to accept payments into your bank account.  This gateway links your checkout page to the merchant account in question – allowing you to fully control the entire payment process.  You have more control, but you are also more responsible for fraud, chargebacks, and the like.  You could think of it as a point-of-sale (POS) device for online transactions.

Some of the key differences between the two manifest in the following distinctions:

• Payment aggregators tend to be more expensive than processors because of the extra service charges you’re paying to the third-party intermediary who is handling the back-end merchant accounts as a merchant service.  This pricing will vary between different payment processing providers and so it’s worth doing your research to compare the various providers (Stripe, PayPal, etc.) with one another.
• It’s much easier to be approved for an aggregator because you are leveraging their merchant account rather than getting your own.  A typical payment processor, however, will have a higher bar to clear in this regard, and often they will want to see some sort of processing history before you can be approved.  It might look like the aggregator is better in this instance, because in most cases, they will instantly approve your account but you should know that they won’t hesitate to close it down at the first sign of any issues, leaving high-risk merchants in the lurch after they are approved and then shut down after a few weeks.  A payment processor is going to be more loyal.
• The direct payment processor route is potentially better for branding your business because you can control the aesthetic features instead of routing your clients through another company’s interface.  That being said, getting a direct payment processor requires an application and a longer process overall.  At the end of the day, you need to determine what is best for you because there are advantages to using direct processors for certain business types.
• It’s quicker to get started with a payment aggregator than it is with a payment processor because there is much less paperwork and often you can be approved instantly.  Integrating a direct processor into your app or website takes time and various compliance requirements that can’t be done instantly.

Those are just some of the key differences between the two and as you can see, they both have their strengths and weaknesses.  The key is to identify what matters most to you as a business and how you can leverage that for your own ideal payment system.

Now, let’s look at how the size of your business might affect your choice.

Startups vs Businesses At Scale

One of the most important factors that is going to influence your choice here is where your business lies in its life cycle.  The implications for a start-up are going to be very different than for a larger company because you have different constraints and considerations to take into account.

For a startup company or a small business that is just trying to get off the ground, it is going to be difficult to get your own merchant account and all the surrounding back-end infrastructure because you don’t have a processing history to point towards.  This is especially true if you run a high-risk business.

As a result, we typically recommend that start-ups use a payment aggregator in the beginning because it allows them to build a processing history on the back of another merchant account.  In addition, it’s much faster to get up and running because there is less paperwork involved.  With an aggregator, you can test your business model faster and start iterating – rather than going through the full app process to integrate a direct payment processor.

Once you start to scale the business and your revenue is growing ($50k per month and more), it makes more sense to use a dedicated payment processor because of your increased transaction volume.  At this point, you should have product-market fit and a processing history in order to be approved for credit card processing that flows into your own merchant account.  Going direct like this makes a lot of sense because it will improve your cash flow and remove the intermediary that stands in the middle of the transaction.  Instead, you will be connected directly to the issuing bank.  You don’t have to wait days for bank transfers anymore.  You will have full control over the entire transaction processing experience, and you can optimize things however you see fit.

There are exceptions to this rule of course, but for the most part – that is the best way to think about this payment solution dilemma.

Now let’s look at the long-term service relationships for each of these online payment gateway options.

The Long-Term Implications of Your Payment Facilitator

When you decide to work with a payment aggregator or a payment processor, you are essentially choosing a business partner.  This is not just a third party that you outsource a non-core part of your business to.  This is the bread and butter of your company.  This is not an area where you should ever accept less than the very best of service.  The way that you process payments really matters, regardless of what you sell.

As such, you should be looking for a long-term partner to walk this journey with you and help you deal with any roadblocks and obstacles that come along the way.

Payment aggregators, in general, are very good at getting you to sign up – because they will go above and beyond to acquire you as a customer during the onboarding process.  But when it comes to loyalty over the long haul, things aren’t quite the same.  If there is ever an incident with your account or perceived risk to their eCommerce merchant account because of your activity, they are more than happy to shut you down completely to protect their account.  This is a big problem with aggregators like PayPal and Stripe who will shut down your account without explanation because of CB issues.  They don’t really have any incentive to grow a relationship with you – which means that you’re not going to get a lot of value-adding components above what you pay for.

A payment processor is another story altogether.  These take longer to set up because they require more administration and a more in-depth application process in terms of getting your merchant account, but when you’re set up – they have an incentive to give you a great experience.  Over time they will get to know your business and treat you as a long-term business partner because their rewards and tied up with yours.  So, they are much less likely to pull the plug if there is a concern of any kind – they would rather work with you to rectify the situation, especially when it comes to PCI compliance issues.  This bears fruit as a much more beneficial working relationship that can actually become a significant asset for your business over the long term.

Therefore, it’s worth taking some time to think through how important the payment partner is in relation to your business and if it is a crucial piece of what you do – then you might want to go with the option that is going to grow and scale with you because that is what will set you up for long-term success.

Conclusion

In summary, the differences between payment aggregators and payment processors are significant and the right decision for you depends on a number of factors.  Take your time to understand both sides of the coin and make the right decision for the long-term stability of your business.

The way that you process payments is not something you can afford to skimp on because it is the backbone of your cash flow cycle.  If you make the right decision at an early stage, it sets you up well for a long and prosperous partnership that is going to stick with you through thick and thin.  If you make the wrong decision, then your business will not be robust to the obstacles that the market throws at you when you least expect it.