Credit Card Aggregation Solutions | Credit Card Aggregation Gateway
A Credit Card Payment Aggregator or Facilitator [Payfac] can be thought of as being a Master Merchant, processing credit and debit card transactions for sub-merchants within your payment ecosystem. Becoming a PSP [Payment Service Provider] lends itself well to some businesses that fall into the software provider classification.Well known aggregators include PayPal, Stripe and Square. How do they differ from a merchant account provider? Paypal/ Stripe/Square underwrite and provision the merchant accounts themselves and fund their sub-merchant’s payments. MORE importantly, PP, Stripe and Square take on the risks involved in payment processing: fraud loss, chargebacks and non payment. A traditional merchant account provider obtains information from the business owner that mitigates payment risks. So a Credit Card Aggregation Gateway solution can offer a SAAS provider the ability to bring a payment solution in-house and control the on-boarding process.
For most considering aggregating credit card payments the major advantage that PSP’s have is their ability to set up a new customer almost on the fly as opposed to the merchant account provider that may take days to approve an account. There is then additional time ensuring the payment gateway or application using the payment processing has all the appropriate merchant account credentials provisioned. The PayFac model eliminates these issues as well. Here are some pros and cons of the Payment Aggregation:
The disadvantages to the Payment Facilitator or Credit Card Aggregator model
- Risk of financial loss
- Customer support burdens
- Integration demands
- Approval process to become a PSP can be burdensome
- Compliance with KYC/PCI and potential tax reporting–there can be substantial annual costs involved
The advantages to the Payment Facilitator model
- Speed of boarding process: Being a Payment Facilitator allows you the ability to setup sub-merchants extremely fast, removing a choke point to new client acquisition.
Customers love that it is so easy to get the account going with no paperwork or documentation burdens. This dramatically improves the client boarding process. Buy a Square reader at Walgreens, go online and create your account and within 30 minutes you can be swiping payments. That’s a very attractive acquisition tool.
- Merchant Control: Sub-merchants are under contract with you, the Master Merchant.
- Flat fee structure: Easy to understand flat fees for your merchant customers. No needs to understand interchange tables.
- Earnings: Master merchants are able to earn money from network and transactional fees, and potentially float.
- Credit Card Aggregation Integration can typically be accomplished quickly and you then can leverage this integration. Likely more time will be spent on the “paperwork” side than dev work.
Revenue is derived simply from the difference in buy rate from the processing networks and the sell rate charged to the end customer. For illustration, if a Payment Facilitator knows their true overall cost amounts to 2.4% of processed volume and they sell at 2.9% their margin is .5% of dollars processed. If they process $10,000,000 per day that works out to $50,000 in revenue per day. Very attractive business model and you might say sign me up. Not so fast.
There is still the risk exposure that must be examined. Any business that chooses the PSP model will likely face loss from fraud, going out of business, non-fee payment, etc. In addition, small dollar average ticket merchants that do very few transactions per month are typically not profitable. A merchant that does three $40 transactions per month might generate $4 in revenue. If acquisition, boarding and support cost an average of $40 per merchant, the ROI is almost a year to break even. There is also the issue of higher fees you are charging end users. The more sophisticated a business is the less likely they will be to go with an Credit Card Aggregator model.
In addition as the PSP you will be front line for payment related support and when money is on the line you know people want service ASAP. There must be thought given to the support burden when pursuing the PSP model. The more you “know” your client base and the potential for dollar loss the more informed your decision could be.
So it for you? Definitely a decision your business needs to give a lot of thought to. If fast/easy client boarding is a must the PSP model is very tough to beat. There is of course the risk mitigation that MUST be addressed. There are certainly cases where payment processors have gone down because they did not properly mitigate exposure. Customer service burdens are also a part of your decisioning. Typically you will also have an integration timetable to ensure the account provisioning, application process and KYC [know your customer] obligations are programmatically correct.
A true credit card aggregator or PayFac comes with significant integration, compliance and ongoing costs. There are many cases where this cost and ongoing obligations are not worth the hassle.
In these cases becoming a Hybrid PayFac is a much more attractive option as you have the the major benefits of being a true PayFac without the ensuing obligations and costs
There is an alternative to becoming a PSP while still being able to offer fast account set up. You may find a TPP with slick API’s for merchant account onboarding that offers a hybrid blend between traditional reselling merchant accounts for a TPP and acting as a Payment Facilitator. Advantages are no risk, no support and much lower implementation costs. You still gain revenue benefits without admin burdens. It is unlikely you would be able to provision accounts as quickly as if acting as the PSP, but a middle ground may be the best fit for you.
In summary payment aggregation isn’t for everyone but that s not what is important. The question is “Is it right for you”?
You can get more detailed information from our Whitepaper: Payment Aggregation: Is it right for my business?