Stripe, PayPal, and Square are all examples of payment aggregators. Some online merchants think are signing up for a simple solution when they join these platforms. But they couldn’t be more wrong. Payment aggregators can be a ticking time bomb for your business!
Many merchants sign up for these services without realizing the risks associated with account termination. Worse, they use merchant aggregators like PayPal, Stripe, and other services for too long. They process orders for months instead of getting their own dedicated merchant account and suffer the consequences when it comes crashing down around them.
So, what is a payment aggregator in the first place?
What is a Payment Aggregator?
A payment aggregator is a payment service provider (PSP) that processes merchants’ payments directly under its own master merchant account. This arrangement allows merchants to accept credit and debit card payments for their e-commerce stores without the need for a dedicated merchant account. Leading payment aggregators include Stripe, PayPal, and Square.
Payment aggregators facilitate this arrangement by processing payments under their own Merchant Identification Number (MID). They then add small businesses (known as sub-merchants) to their master account to process payments on their behalf.
This arrangement is popular with small and medium-sized businesses in particular because it side-steps the process of applying for a dedicated business merchant account. They can also start processing payments within a matter of hours, once they’ve passed the often-automated underwriting process.
This simple and fast setup time is a huge draw for online businesses. But they are by no means the perfect solution.
For example, here are just a few of the features you miss out on when choosing to use a payment aggregation solution:
- All your shopping cart data is given away. Therefore, you don’t know when and where a customer is abandoning your checkout.
- You cannot host your own order page. This means you have less control over what customers see at checkout. You may have to redirect them to another site to collect a payment, leading to cart abandonment, a lack of consumer confidence in your site, and ultimately lost sales!
- These providers usually work on a “full-service basis,” meaning they control your whole payment cycle. From the payment gateway technology to how acquirers are chosen to process online and mobile payments, their choices could negatively impact conversions and leave you with no control over your own payments strategy.
- If your chargebacks or refunds are a little high, you risk losing your account. A payment aggregator has to manage their chargebacks and risk among all merchants to protect their master account. You could lose the ability to accept online payments with less than 24 hours’ notice, even if you are within acceptable chargeback limits.
- Your account may get frozen or suspended with funds held with little or no notice. It can take weeks or months before you get your money, and your business may be at a standstill while you wait.
Payment Aggregators Have Some Advantages
Several problems accompany using payment aggregators as your choice of payment processor. And yet, many merchants choose this solution regardless. This is for a few different reasons.
First off, the application process is fast and simple. While merchant account applications can take a week, the underwriting process for a payment aggregator is often partly or entirely automated using fintech-developed algorithms.
Next, approval is also much faster. In some cases, merchants can be up and running with credit card payment processing in less than 24 hours. Since they are “full-service” PSPs, they can also help with in-person POS devices to take in-person payment transactions should you have a physical business presence.
Finally, the monthly fee structure is simple and easy to understand. Merchants who sign up are aware of the processing fees relating to credit and debit card payments from the outset.
With credit card payments making up 34% of all e-commerce payments, any merchant’s need for accepting Visa and Mastercard is obvious. Businesses can’t scale with payment methods such as ACH, eCheck, or crypto alone. Hence the demand for a done-for-you payment service in the form of payment aggregators.
But unfortunately, despite their apparent ease and simplicity, that’s where the advantages end.
More Disadvantages to Payment Aggregators Than First Meets the Eye
While their pricing structures are simple to understand, it doesn’t mean they are good value. In fact, they are very high compared to a traditional merchant account. Payment aggregators such as Stripe do have at least somewhat reasonable fees. However, other aggregators charge far more.
This is due to accepting more companies in high-risk categories like adult, dating, and nutraceutical. Sometimes they charge upwards of 10-12%, plus extra fees and reserves. Remember, they add businesses as “sub-merchants” on their master merchant account. Thus, any entity that poses a threat to their relationships with acquiring banks will be subjected to higher fees and expulsion at the first sign of trouble.
They can charge overpriced fees to compensate because they know you’re desperate. But those fixed fees can start to eat into profit margins when your processing volumes increase. What’s worse is that there is usually plenty of options for merchants that provide much better value, even in risky industries.
But the downsides don’t end there.
Payment Aggregators Present a Risk To Your Business
As explained, with sub-merchants lumped together on one master merchant account, the tolerance for suspicious consumer behavior or irregular digital payments is much lower. High-risk merchants in particular are frequently subjected to holds, freezes, and sudden terminations as a result.
Worse, the danger of grouping merchants works both ways. As a sub-merchants, you can be held accountable for high chargeback ratios generated from completely different merchants sharing the same MID as you!
That’s why using this type of service is one of the fastest ways to land your business on the dreaded MATCH list. Some acquiring banks and other payment providers even consider sharing a merchant account as a violation of their terms of service. If you’re not working with a reputable aggregator, you may find yourself in trouble with Visa and other card associations.
You, as the sub-merchant, are also dependent on the payment aggregator to pay you. They are in complete control of bank transfers from their merchant account to your bank account. In some cases, they have famously failed to do so. In some cases, huge lawsuits have been launched in an effort to recoup the monies owed to merchants.
Additionally, an increasing amount of payment facilitators are springing up. Much like payment aggregators, a payment facilitator allows any business with a master MID account to add companies as a sub-merchant.
However, they suffer the same problem of using automated underwriting tools to approve these types of accounts. Therefore, the chances of rogue merchants getting approved are much higher. The problem is those approved merchants will be sharing your account, potentially wreaking havoc on your processing history and your business.
As you can see, using payment aggregators can quickly become a recipe for disaster! So what’s the payment processing solution for small and medium-sized companies?
A Dedicated Merchant Account is Your Best Bet for Processing Online Credit Card Payments
Investing the time and resources into securing your own dedicated merchant account is the best solution for your company.
First, you have sole ownership and responsibility for your own account. You are responsible for your own chargebacks, fraud, and any other potential causes for reputational damage. The actions of other merchants do not affect the fate of your company.
Second, payment processing fees are much cheaper overall. In most instances, they are tailored to your company. You can scale as your company grows. Rather than being stuck with low monthly transaction volume caps.
Third, you control your checkout page, and the data from your checkout page is yours! You can add google analytics to learn where your customers are getting stuck or abandoning your cart. This is invaluable information that you’re losing by using a payment aggregator solution such as Stripe or PayPal.
Independent Merchant Accounts Give You More Control Over Your Data
Speaking of data, merchant account providers gather all kinds of data to build patterns of behavior via their platforms and give you real-time access to this kind of reporting.
The right service provider can alert you to any suspicious or unusual activity on your account — a welcome relief to those tired of having their account frozen without warning. Furthermore, merchant accounts operate with little to no interruption. Funds usually arrive within a couple of days, rather than taking a couple of weeks.
Merchant accounts open up new payment opportunities like direct deposit networks. Also, if an account is located in the EU, merchants have the ability to trade in multiple currencies, including GBP.
However, these benefits come with a deliberately high barrier to entry. Depending on the market, whole industries have been blacklisted (e.g., escort services). If you’re operating within industries with poor reputations, you’ll need to stand out as an exemplary merchant.
For instance, if you sell poorly packaged nootropics paired with a website filled with typos, you are unlikely to gain acceptance. Support and/or technical services with Asia-based call centers are also frequently declined. You have to operate a legitimate business and go out of your way to prove that fact. The reward for doing so comes in the form of access to far better payment processing terms.
Payment Aggregators Can Only Take You So Far
High-risk merchants struggle to gain access to credit card processing. Thus, a payment aggregator seems like a great option. But, as we’ve already explained, these types of services deploy dangerous practices.
Aggregators can keep funds and reserves without reason for excessive periods. They often shut down accounts without warning and leave you open to violations that land you in hot water with acquiring banks.
A merchant account approval may not happen in 24 hours. But, the benefits far outweigh any negative consequences.
Your own individual merchant account provides:
- Competitive rates;
- Lower fees;
- Customized checkout page;
- Access to your checkout page data;
- Tailored merchant support;
- Faster transaction processing;
- Regular payments to help with operations;
- Access to transactional data that can help in identifying errors and cause of declined transactions;
- Access to real-time reports; and
- Access to high-tech anti-fraud tools (including 3DS2).
Securing a Merchant Account is a Must For Any High-Risk Merchant
Is using a payment aggregator squeezing the life out of your business? Not sure how to take advantage of the vast positive aspects of having your own merchant account?
Our team has 10 years of experience securing merchant accounts for businesses in high-risk verticals. We work with all industries and categories, including dating websites, nootropics capsules, supplement creams, or high-ticket offers for business coaching events.
We always promise to find you a better payment solution and keep it.