What Are Payment Aggregators?
A payment aggregator is defined as a third-party payment service provider (PSP) that processes payments for their users’ sub-accounts through a single major merchant account. This structure enables businesses that utilise an aggregator to swiftly enter the e-commerce industry by drastically lowering the amount of upfront effort required to take various types of payments, such as bank transfers and credit card payments. By creating a single account with a payment aggregator, a merchant can accept practically any form of payment without the hassle of setting up several accounts with each bank, debit card, net-banking, UPI, and payment type. Instead, with their single master account, the payment aggregator functions as an intermediary. Stripe, PayPal, and other typical e-wallet online payment gateways are examples of payment aggregators.
How Does a Payment Aggregator Work?
Every bank, credit card, and any other form of payment has its gateway. To use these gateways, a merchant must negotiate with each payment processor for each payment method they wish to offer. Aggregators sped up the process by forming partnerships and negotiating contracts with payment processors using their merchant identification number (MID).
Aggregators gathered access to various payment gateways throughout time. Because each merchant who signs up with the aggregator does not have their own MID, they are regarded as a sub-merchant under the aggregator’s MID umbrella. When a merchant accepts a payment, the aggregator processes the transaction using their MID, sends it to the specified processor, and then returns the transaction to the original sub-account merchant’s once it is done.
Pros and Cons of a Payment Aggregator
Pros
Payment aggregators have exploded in popularity for a reason. While there are a few hazards to avoid, there are numerous advantages. Payment aggregators are the most cost-effective and easy alternative to a merchant account for small businesses wishing to get started with no upfront costs.
Get Fast Access to Information
It is straightforward and quick to obtain a payment aggregator. Simply create an account with them and sign any necessary preliminary agreements, and you’re good to go. You don’t need to visit a bank or fill out paperwork, and approval is usually given right away.
Safe and Regulated
Payment aggregators must have an RBI licence and a payment aggregator licence, as well as be compliant with the Payment Card Industry Data Security Standard, according to the Payment and Settlement Systems Act (PCI-DSS). These rules and regulations keep businesses safe and ensure that their money is handled by qualified merchants.
Predictable Settlements
Using a payment aggregator reduces fixed expenses and ensures low, predictable processing fees. Many aggregators don’t require long-term contracts, which reduces your commitments and allows you to pay a flat monthly price. You can easily try new aggregators as needed to save money for your organisation, while under a traditional arrangement, the money you pay is frequently a fixed cost.
Charges and Price Range
When processing big transaction volumes and smaller transactions, a payment aggregator excels in the payments ecosystem. While not all businesses have smaller transaction quantities constantly, they can still benefit from the lower costs and easy-to-measure pricing points.
Cons
Payment aggregators are beneficial to many businesses, but they aren’t appropriate in all circumstances. Here are some reasons why you should avoid using payment aggregators.
Accounts Are Held
You can get into issues with chargebacks because of the quick payment processing. This is because aggregators are held to such a high standard of security, and account suspension can occur swiftly.
Funds Can Be Delayed
Payment aggregators can technically float your money for up to 30 days. While most businesses will not do so since they do not want to lose business, even the principal can drive some businesses away from payment aggregators. You will typically get your payments within 1-4 business days; however, it is important to note that these estimates are not guaranteed.
What Are the Risks Associated with Payment Aggregators?
When it comes to online financial transactions, there is always a risk. There are hackers out there, and no system is completely secure. A corporation should be continually aware of this before putting material on the internet. There is no way for an aggregator to guarantee total security.
In these cases, the payment aggregator usually gets the underlying bank’s or payment processor’s chosen processing rate. This implies they take on all risks and are financially responsible for the entire portfolio. As a result, they are liable for any chargebacks or transaction fraud involving a sub-merchant.
That’s fantastic news. Small business owners, in particular, should be aware of this. It’s an extra layer of financial security that allows you to sell to your heart’s content while maintaining complete peace of mind.
Do You Need a Payment Aggregator for Your Business?
You’ll need to work with a payment aggregator if you want to accept credit and debit card payments from your customers online, over the phone, or at the point of sale.
Bottom Line
Using an automation-powered B2B payment system can help your team save time and money by simplifying complex payment procedures, automatically tracking transactions to stay audit compliant, and preventing fraud.