Accepting customer payments is a critical part of any business’s financial operations. It not only supports the company’s immediate cash flow needs, but it also has far-reaching impacts on the overall customer experience and compliance, and risk management.
Without a secure, seamless, and scalable payment infrastructure, companies can limit their ability to scale and grow their reach. Fortunately, payment aggregators can help to streamline this process.
In this guide, we’ll take a closer look at what a payment aggregator does, why businesses might consider working with them, and how they compare to other payment-related services.
What is a payment aggregator?
A payment aggregator, also called a payment service provider, is a third-party company that facilitates online payments on behalf of businesses. Acting as an intermediary between merchants and payment processors, it enables businesses—particularly small or emerging ones—to accept multiple forms of payment without the need to set up a dedicated merchant account.
How payment aggregators work
As mentioned above, payment aggregators facilitate the acceptance, processing, and settlement of payments for multiple companies.
This makes it easier for businesses to support multiple payment methods and start accepting payments from their customers more quickly, as they forego the lengthy onboarding process to set up merchant accounts with separate payment systems.
Here’s how the transaction process for a business looks when they’re using a payment aggregator:
- Initial onboarding: The business completes the initial onboarding with the aggregator before completing any transactions. This might mean completing an application, undergoing due diligence checks, and agreeing to the aggregator’s terms and conditions.
- Integration: From there, the business integrates the aggregator’s payment solution into its existing payment or checkout flow.
- Point of sale: When a customer is ready to make a purchase, nothing will appear different to them. For example, they can share their card information as normal, either by entering their details into the checkout page online or by swiping or tapping their card in person. Depending on the aggregator’s system, the customer may have a number of possible payment methods available to them.
- Payment processing: The customer’s payment data is sent to the aggregator, which processes the transaction in a matter of seconds, then alerts the business whether the payment was approved or declined. Upon approval, the transaction is considered complete.
- Payment facilitation: Meanwhile, the payment aggregator coordinates the payment directly with the bank or card network. The business does not have to handle any of these aspects.
- Payment settlement: The aggregator accounts for all approved transactions for a business each day.
- Fees and deposits: The aggregator deducts its fees and deposits the net amount to the business’s bank account according to its agreed-upon schedule (daily, weekly, etc.).
Which businesses can benefit from payment aggregators?
As mentioned above, working with a payment aggregator is generally attractive to new or small businesses that don’t want to go through the process of setting up a merchant account. The setup process and ongoing account management are handled by the service provider, thereby reducing the workload for internal teams.
This can be particularly useful for companies with limited headcount, where employees do not have the capacity to take on such an important responsibility. It’s also a beneficial arrangement if the current team has limited familiarity or experience with payment processing, and instead can ensure an expert handles this process.
With this in mind, there are a few industries where payment aggregators are more widely used, such as:
- E-commerce stores: Online sellers can work with a payment aggregator to support payment processing with a global customer base, without the complicated setup processes and compliance considerations across jurisdictions.
- Digital service providers: Similarly, businesses like SaaS companies or digital service providers can use a payment aggregator to simplify recurring billing, as well as payments from international customers.
- Nonprofits: Nonprofits that collect donations on a seasonal basis may find that working with a payment aggregator offers more flexibility in terms of pricing, while also eliminating the need to establish direct relationships with credit card companies or banks.
- Event organizers: Platforms that sell tickets and need to process payments for a wide range of events may use a payment aggregator to make for a seamless purchase experience, supporting a range of payment methods without needing to set up numerous merchant accounts.
Benefits of using a payment aggregator
There are a number of reasons why a business might work with an aggregator to accept payments, including:
Reduced administrative work
Often, one of the biggest draws of working with a payment aggregator is that it simplifies payment acceptance for businesses. As mentioned above, it allows them to support multiple payment methods without the extra administrative burden of setting up and managing merchant accounts for each.
In this way, businesses just have to manage a relationship with one entity, the aggregator. Internal teams can focus their efforts on this one relationship and can monitor payment data across different methods from just one dashboard.
Improved customer experience
The checkout process for customers can also be much more convenient when a business partners with a payment aggregator.
This way, customers have the option to use their preferred payment method, helping to eliminate friction at the checkout and offering a more seamless experience overall. For instance, aggregators might offer support for debit and credit cards, digital wallets, and others.
Enhanced security features and compliance
Another key benefit of payment aggregators is that they handle sensitive security and compliance matters on a business’s behalf.
In other words, the company does not have to concern itself with fraud detection and prevention or upholding PCI DSS compliance. Working with a reputable aggregator means all security-related matters are handled externally, further reducing the burden on the internal team.
Cons of payment aggregators
While there are plenty of benefits of payment aggregator services, there are also some possible drawbacks to keep in mind:
Potentially higher fees
The enhanced efficiency and convenience of using a payment aggregator may come with the tradeoff of higher transaction fees.
This isn’t always the case across the board, and payment aggregators can sometimes save a business money upfront because they don’t have to purchase payment hardware. However, businesses should conduct thorough research and fully understand an aggregator’s fee structure before agreeing to partner with them.
Fund delays
Additionally, working with a payment aggregator may result in a delay between when the transaction is completed and when the business actually receives the funds. Depending on the agreement, this may be a few business days up to a few weeks.
On top of that, the aggregator may impose a hold on funds if it detects any suspicious activity or chargebacks, which can hamper the business’s cash flow in the meantime.
Payment aggregator vs. traditional merchant accounts
Payment aggregators differ from traditional merchant accounts in several ways. For starters, setting up a traditional merchant account requires businesses to establish direct relationships with banks, payment processors, and other financial institutions, which may involve underwriting and extensive risk assessments for each.
In contrast, a payment aggregator allows multiple businesses to use a single shared merchant account, thereby reducing the burden on any one business to set up and manage these relationships.
While payment aggregators offer a simplified onboarding and management process, traditional merchant accounts may give businesses more flexibility and control over processing and settlement terms, especially at scale.
Payment aggregator vs. payment gateway
Likewise, payment aggregators are not the same as payment gateways, though some may refer to them interchangeably.
Namely, a payment gateway is a service that creates a secure connection between the business’s website and the payment processing network.
In other words, a payment gateway is used to securely transmit payment data from the merchant to the payment processor. It doesn’t actually hold or process any funds itself, unlike a payment aggregator.
If a company decides not to use an aggregator, they’ll need to still establish merchant accounts with banks and processors, in addition to setting up a payment gateway.
Payment aggregator vs. payment processor
Finally, a payment aggregator and a payment processor are not one and the same. Payment aggregators and processors perform two separate functions within the payment ecosystem.
Whether a company chooses to use an aggregator or set up its own merchant accounts, a payment processor is still involved in transactions.
To clarify, a payment processor facilitates the communication between merchants, banks, and credit card networks. The processor coordinates the settlement of funds from one account to another, whether that’s to a merchant directly or to an aggregator.
Streamline vendor payments
Payment aggregators make it easier for businesses to accept payments from customers. BILL makes it easier for businesses to make large payments to vendors.
BILL helps streamline payables workflows, handling processing and remittance for large invoices so internal teams don’t have to. And, unlike ACH and checks, BILL offers spending rewards when paying with a virtual card.
Businesses get one dashboard to manage the status of payments to vendors in real-time, with the ability to set spending limits for each vendor to avoid being overcharged.
Get started with BILL Payments Services today.
Frequently asked questions
What is a payment aggregator?
A payment aggregator offers a service where businesses can use their master merchant account without needing to establish their own separate merchant accounts with different banks, card networks, and other financial institutions.
Is a payment aggregator the same as a payment gateway?
No, payment aggregators are not the same as payment gateways. A payment aggregator accepts and processes customer payments on a business’s behalf. On the other hand, a payment gateway simply provides the secure infrastructure for payment data to be sent from a business’s website to the payment processor.
