The rise of electronic payments has revolutionized the way we buy and sell goods and services. From online shopping to mobile payments, businesses and consumers are embracing the convenience and speed of electronic payments.
However, with so many options available, it can be difficult for businesses to navigate the electronic payment landscape and choose the best solution for their needs.
Two popular options for businesses accepting electronic payments are payment facilitators and payment aggregators.
Payment facilitators streamline the process of setting up a merchant account and provide a range of value-added services, such as fraud prevention and security, customer support, and reporting and analytics.
Payment aggregators, on the other hand, offer competitive pricing and flexible payment options and can approve merchants within minutes of signing up.
But which option is right for your business?
In this article, we’ll take a closer look at payment facilitators and payment aggregators, explaining how they work, their pros and cons, and how to choose between them.
Whether you’re a small business just starting out or a large enterprise looking to scale, this guide will help you make an informed decision that meets the specific needs of your business.
Before we dive into the full details, here’s a quick overview:
Table of Contents
- Key Takeaways
- What’s Involved in the Electronic Payment Transaction Process?
- What is a Payment Facilitator?
- What is a Payment Aggregator
- Payment Facilitator Vs. Payment Aggregator: What Is the Difference?
- Payment Facilitator vs. Payment Aggregator: Pros and Cons
- Payment Facilitator Vs. Aggregator: How to Choose?
- Payment Facilitator Vs. Payment Aggregator: Frequently Asked Questions
- The Bottom Line
- Electronic payment transactions involve several entities, including the card issuer, acquirer, cardholder, and merchant, each with its role to play in the process.
- Payment facilitators and aggregators are two popular options for businesses accepting electronic payments.
- Payment facilitators streamline the process of setting up a merchant account, perform their underwriting process, and offer value-added services, but they can be more expensive and less scalable.
- Payment aggregators offer quick approval, flexible pricing, and value-added services, but may need more rigorous underwriting processes, hold funds for some time, and provide a less optimal customer experience.
- Choosing between a payment facilitator and a payment aggregator requires careful consideration of several factors, including business size and scale, underwriting process, fees and pricing models, value-added services, and cash flow.
- Ultimately, the right choice depends on the specific needs of the individual business, and businesses should weigh the pros and cons of each option before making a decision.
- Regardless of choice, electronic payments are here to stay, and businesses that are able to stay ahead of the curve and adapt to changes will be the ones that thrive in the long run.
What’s Involved in the Electronic Payment Transaction Process?
When a cardholder makes a payment using their credit or debit card, the payment transaction process involves four main entities: the card issuer, the acquirer, the cardholder, and the merchant.
Here’s a breakdown of each entity’s role in the transaction process:
The card issuer is the financial institution or company that issues a credit or debit card to a cardholder. The card issuer is responsible for setting the terms and conditions of the card, including interest rates, fees, and credit limits.
The acquirer is the financial institution or company that processes electronic payment transactions on behalf of the merchant. When a cardholder makes a payment using their credit or debit card, the acquirer works with the card issuer to authorize the transaction and transfer the funds to the merchant.
The cardholder is the individual who holds the credit or debit card and makes the electronic payment transaction. The cardholder uses the card to purchase from merchants and is responsible for repaying any debts incurred.
The merchant is the business or individual that accepts electronic payments from cardholders. When a cardholder makes a payment using their credit or debit card, the merchant works with the acquirer to authorize and receive payment.
Each entity plays a specific role in the payment transaction process, from authorizing the payment to settling the payment funds with the merchant’s bank account.
Understanding the different entities involved in the payment transaction process is essential for any business that accepts electronic payments.
What is a Payment Facilitator?
Payment facilitators, or PayFacs, help businesses accept electronic payments by simplifying the onboarding process and streamlining the payment experience.
They act as intermediaries between merchants and payment processors, making it easier for businesses to accept payments without establishing merchant accounts.
For small businesses and startups, payment facilitators can be a game-changer. Working with a PayFac allows them to quickly and easily accept credit and debit card payments and other electronic payments without complex and time-consuming merchant account setups.
But payment facilitators do much more than simplify the payment process. They offer various value-added services, including fraud prevention and security, customer support, and reporting and analytics.
Businesses get more than just a payment processing solution when they utilize a PayFac. They get a partner that helps them improve their overall business operations.
How Payment Facilitators Work
Payment facilitators help businesses accept electronic payments by streamlining the onboarding process and simplifying the payment experience.
Here’s how payment facilitators work:
The first step is for a merchant to sign up with a payment facilitator. The payment facilitator will typically request basic information about the merchant and require them to agree to the payment facilitator’s terms and conditions. This process can be completed online in a matter of minutes.
Underwriting and Risk Assessment:
Once the merchant has completed the onboarding process, the payment facilitator performs its underwriting process to assess the merchant’s risk level. This process includes reviewing the merchant’s credit history, business history, and other factors that could impact their ability to accept payments.
The payment facilitator uses this information to determine whether to approve the merchant and what pricing and fees to charge.
Payment Processing and Settlement:
Once a merchant approves, they can accept payments through the payment facilitator platform. When a customer makes a payment, the payment is processed through the payment facilitator’s platform.
The payment facilitator collects the payment from the customer, deducts its fees, and then passes the remainder to the merchant. The payment facilitator is also responsible for settling the payment with the merchant’s bank account, typically within 1-2 business days.
Pricing and Fees:
Payment facilitators typically charge merchants a flat rate for each transaction processed and a percentage-based fee on the total transaction amount. The pricing and fees vary depending on the payment facilitator, the merchant’s business type, and transaction volume.
What is a Payment Aggregator
Payment aggregators are companies that enable businesses to accept electronic payments without the need to establish their own merchant accounts.
They act as intermediaries between merchants and payment processors, consolidating multiple merchant accounts under a single master account.
This approach simplifies the payment process for businesses, allowing them to accept payments quickly and easily. Payment aggregators are particularly useful for small businesses and startups needing more resources or expertise to establish merchant accounts.
With payment aggregation, many transactions from multiple merchants are grouped and processed as a single transaction.
When a payment is made to a merchant, the payment aggregator collects it, deducts its fees, and then passes the remainder to the merchant’s account.
How Payment Aggregators Work
Payment aggregators enable businesses to accept electronic payments without establishing their merchant accounts.
Let’s delve into how payment aggregators work:
The first step is for a merchant to sign up with a payment aggregator. The payment aggregator will typically request basic information about the merchant, such as business name, address, and contact information.
The aggregator will require the merchant to agree to their terms and conditions. This process can be completed online in a matter of minutes.
Master Account Setup
Once the merchant has completed the onboarding process, the payment aggregator will set up a master account for the merchant. This account is used to consolidate multiple merchant accounts under a single account.
The merchant will also be assigned a unique identifier to use when submitting transactions to the payment aggregator’s platform.
When a customer makes a payment to a merchant, the payment is processed through the payment aggregator’s platform. The payment aggregator collects the payment, deducts its fees, and then passes the remainder to the merchant’s account.
The payment aggregator also routes the payment information to the appropriate merchant account based on the unique identifier assigned to the transaction.
The payment aggregator will typically hold the funds collected from the customer for a period of time to mitigate the risk of chargebacks.
After this period, the aggregator will settle the funds with the merchant’s bank account within 1-2 business days. Settlement times may vary depending on the payment aggregator and the merchant’s bank.
Payment Facilitator Vs. Payment Aggregator: What Is the Difference?
While both models aim to streamline payment processing for businesses, they differ significantly in their operational approach, features, and target clientele.
|Facilitates the payment process for individual merchants by setting up a submerchant account under their master account.
|Consolidates multiple merchant accounts under a single master account.
|Performs its underwriting process to assess the risk level of individual merchants.
|Typically has a less rigorous underwriting process than traditional merchant account providers.
|Merchants can typically start accepting payments within a few days of signing up.
|Merchants can usually start accepting payments within minutes of signing up.
|Holds the merchant’s funds in a separate account and settles with the merchant’s bank account regularly.
|Holds the funds collected from multiple merchants in a single account and settles with each merchant’s bank account separately.
|Often works with small to medium-sized businesses and startups.
|Often works with businesses of all sizes, including large enterprises.
|They can be more expensive than payment aggregators, with higher fees and more restrictive pricing models.
|They can be less expensive than payment facilitators, with more competitive pricing and flexible payment options.
Payment Facilitator vs. Payment Aggregator: Pros and Cons
When it comes to accepting electronic payments, businesses have the option to choose between payment facilitators and payment aggregators. Each option has its pros and cons.
Here’s a breakdown of the advantages and disadvantages of each:
Pros of Payment Facilitator
- Streamlined Payments: Payment facilitators simplify the payment process by providing an all-in-one solution for payment processing, including payment gateway, merchant account setup, and fraud prevention measures.
- Enhanced Security: Payment facilitators offer robust fraud prevention and risk management tools that help protect merchants and their customers from unauthorized transactions and chargebacks.
- Improved Customer Experience: Payment facilitators offer customers a seamless and convenient payment experience by providing multiple payment options and secure payment processing.
- Access to Analytics: They provide merchants with detailed insights and analytics on payment data, allowing them to optimize their payment processes and identify areas for improvement.
Cons of Payment Facilitators
- Higher fees: Payment facilitators may be more expensive than traditional merchant account providers, with higher fees and more restrictive pricing models.
- Delayed settlements: Payment facilitators hold the merchant’s funds in a separate account and settle with the merchant’s bank account regularly, which may result in delayed settlements for the merchant.
- Less flexibility in merchant account setup: Payment facilitators set up individual submerchant accounts under their master accounts, which may result in less flexibility in merchant account setup and customization.
- Not suitable for high-risk businesses: Payment facilitators may not be suitable for high-risk businesses, as they perform more rigorous underwriting processes and may have more restrictive policies.
Related Article: 18 Terms to Know Before Choosing a PayFac
Pros of Payment Aggregator
- Convenience and simplicity: Payment aggregators offer a one-stop shop for businesses to manage multiple payment methods, such as credit cards, debit cards, and online wallets. This eliminates the need for businesses to set up and manage individual payment gateways for each payment method.
- Flexible pricing: Payment aggregators offer competitive pricing and flexible payment options, allowing businesses to tailor their payment solutions to their specific needs.
- Improved security: Payment aggregators use advanced security measures, such as encryption and fraud detection, to protect sensitive financial and personal information. This can help businesses to reduce the risk of data breaches and fraud.
- Increased customer trust: Payment aggregators often associate with well-known, trusted payment brands like Visa and Mastercard. This helps build customer trust and confidence in the payment process.
- Access to multiple markets: Payment aggregators can support multiple currencies and payment methods, making it easier for businesses to expand into new markets and reach a global customer base.
Cons of Payment Aggregator
- Dependency on a third-party provider: When businesses rely on payment aggregators, they become dependent on the provider’s technology, security, and reliability. If the aggregator experiences downtime or technical issues, it can impact the business’s ability to process payments and result in a loss of revenue.
- Limited control over payment processes: Payment aggregator platforms often have rules and regulations that businesses must adhere to. This can limit their flexibility in customizing payment processes to meet their specific needs.
- Data security concerns: Payment aggregator platforms handle sensitive financial and personal information, making them a prime target for cyber attacks.
- Hidden fees: Payment aggregators often charge various fees, such as transaction fees, subscription fees, and chargeback fees. These fees can add up quickly and eat into a business’s profit margins, particularly for smaller businesses.
- Lack of transparency: Payment aggregator platforms may only sometimes provide clear and detailed information about their fees, processes, and terms of service. This can make it difficult for businesses to understand the true costs and risks of using a payment aggregator.
- Risk of account suspension or termination: Payment aggregators may suspend or terminate a business’s account if they suspect fraudulent or suspicious activity. This can be problematic for businesses that rely heavily on online payments, as it can result in a loss of revenue and damage to their reputation.
Ultimately, choosing between a payment facilitator and a payment aggregator depends on the individual business’s needs and preferences.
Payment Facilitator Vs. Aggregator: How to Choose?
When deciding between a payment facilitator and an aggregator, businesses should consider the following factors:
Business Size and Transaction Volume
Small businesses with low transaction volumes may benefit from the simplicity and flat-rate pricing payment aggregators offer. On the other hand, larger businesses with higher transaction volumes may find value in the scalability and customizable solutions offered by payment facilitators.
Level of Control
Control over your payment processing environment is important; a payment facilitator is a better fit, as it allows for more customization and control than an aggregator.
Type of Products or Services Offered
Businesses operating in high-risk industries, or those offering products or services with a higher likelihood of chargebacks, may find it more challenging to work with payment aggregators due to their risk management policies. In such cases, a payment facilitator may provide a more suitable option, though this calls for the business receiving approval from the underwriter at a PayFac.
Integration and Compatibility
Consider the ease of integration with your existing systems, such as e-commerce platforms, accounting software, or CRM systems. Both payment facilitators and aggregators usually offer APIs and ready-made integrations, but it’s essential to ensure compatibility with your specific business tools.
Evaluate each service provider’s level of customer support, as payment facilitators may offer more personalized support, while payment aggregators may offer more self-service options.
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Payment Facilitator Vs. Payment Aggregator: Frequently Asked Questions
How much does a payment facilitator cost?
Payment facilitators typically charge a percentage of each transaction plus a per-transaction fee. The exact cost depends on the payment facilitator and the transaction volume.
Should you become your payment facilitator?
Becoming your payment facilitator can be a good option for larger businesses with high transaction volumes. Still, it requires significant resources and expertise in compliance, risk management, and payment processing.
Is Stripe a payment gateway or processor?
Stripe is a payment gateway and payment processor. It enables businesses to accept payments online and manage subscriptions and billing.
Is Amazon an aggregator?
While it operates similarly to a payment aggregator, it is not typically considered a pure aggregator. Amazon Pay is a payment service provider that offers payment processing, fraud prevention, and other value-added services.
Is PayPal a payment aggregator?
Yes, PayPal is a payment aggregator. It allows businesses to accept payments without setting up their merchant accounts and offers a range of value-added services to help businesses manage their payments.
The Bottom Line
The decision between a payment facilitator and a payment aggregator is important and requires careful consideration of several factors already stated above.
But, regardless of the choice you make, one thing is clear: electronic payments are here to stay.
The payment landscape constantly evolves, with new payment technologies and services emerging. Businesses that are able to stay ahead of the curve and adapt to these changes will be the ones that thrive in the long run.