Online Payments

Merchant Accounts vs. Payment Aggregators: What’s the Difference?

John Lehman
June 2, 2020

As you do research on online payment solutions, you’ll likely find there are multiple options available. The most common payment solutions associations use are merchant accounts and payment aggregators. In this article, we’ll explain the differences between these two payment models and help you determine which one is the right fit for your association.

Defining the terms

A merchant account is a type of payment processing account that allows your association to accept credit or debit card payments from its members. Your association can complete an application and open its own private merchant account to accomplish this. You can also enlist the services of a third-party payment aggregator in order to accept credit and debit card payments rather than opening your own merchant account. Instead, you would process payments through the payment aggregator’s merchant account which is shared with all of its other customers.

Setting up

If you’re interested in going the route of a private merchant account, your association must be vetted through a “know your customer” underwriting process. The U.S. Government created this mandatory process to reduce the risk of money laundering and other fraudulent activity. The bank will assess a variety of criteria, such as how long your association has existed, it’s credit history, the credit history of the owner, as well as connecting the owner to the association itself. The merchant account provider will also ask questions about your association to help set up the account as quickly and easily as possible. Once finalized, your association will have a personalized tailor-made payment system to accept dues and donations from your members.

By contrast, with a payment aggregator, getting started can be faster, but is oftentimes much riskier, since the payment aggregator does not have to learn about your business or your risk potential. In many cases, the application is filled out and submitted online, the payment aggregator asks a small set of generic questions and your association will likely be able to accept payments almost immediately. Despite the speed of setup, using a payment aggregator means sacrificing the personal touch and private merchant account can provide, such as accounting for peak processing months or international payments.

Processing volume

Another major distinction between merchant accounts and payment aggregators is the volume of payments your association can process at once without interruption.

In the case of a private merchant account, associations can often process payments at a much higher volume compared to a payment aggregator. Part of the application process of opening a merchant account includes a discussion over your association’s anticipated payment volume, as well as the risk level (or lack of) your association poses. If your association tends to process a high volume of payments each month, your merchant account provider can be made aware of this and will not feel alarmed if they see a high volume of payments being processed.

However, payment aggregators don’t often offer the luxury of negotiating individual client’s payment volume. Remember that you are NOT the payment aggregator’s only client. By using a payment aggregator, you are essentially entering into a joint merchant account alongside countless other businesses of various types. Because of this, payment aggregators take extra precautions, as the risk of each client will likely vary wildly. For example, your association may find their payment volume more restricted during peak processing months if you go the route of a payment aggregator.

Fee structure

There are a variety of rate and fee structure differences between merchant accounts and payment aggregators. Recall again that, during the process of setting up a merchant account, there is a lot of discussion taking place between yourself and the merchant provider you’re working with. As such, with merchant accounts, you sometimes have the opportunity to negotiate a customized fee structure for your association. You could even potentially negotiate based on the type of payments your association is accepting, and adjust the rates based on your growth each year.

With payment aggregators, you’ll likely not find as much flexibility. These services often offer a one-size-fits-all pricing model, which can make processing expensive if your associate accepts more and more payments each month. That said, you may appreciate that the price structure of payment aggregators is more predictable for each payment period.

Processing time

Typically with a merchant account, the time it takes between deposit and your association receiving the funds directly to its bank account is 1-2 business days. In some cases, payment aggregators will be just as fast as a merchant account. However, in other circumstances, it can take as long as a week (or even a month) for the payment aggregator to transfer the funds to your merchant aggregator account. Additionally, you’re often required to manually transfer funds to your bank account once they have been deposited to your aggregator account. It is important to note that while the funds are held by payment aggregator, the funds are not FDIC insured like they are when you process a deposit from your own merchant account.

Fraud prevention

Since payment aggregators inherit a great deal of risk with some of their clients who have not been vetted, they often have more drastic means of fraud-prevention compared to merchant accounts. For example, some payment aggregators will increase the wait time for funds to be transferred if they suspect any fraudulent activity, delaying your funds by several months. Other payment aggregators may completely freeze accounts, or even terminate them entirely, without warning. Any funds held in your payment aggregator account, not yet transferred to your bank, will be lost.

Due to their more personalized nature, merchant accounts will often tailor their anti-fraud tactics towards your specific association. As such, it’s far less likely that your account will be terminated without warning in the event of fraud. Instead, your association will likely receive a notification about the fraudulent activity as steps are being taken to prevent it.

Customer service

Since payment aggregators are a one size fits all model and they have to be all things to all customers, you will likely find that they are difficult to reach for support and most likely will not understand the unique needs of an association. Many merchant account providers work with numerous associations and nonprofits and understand why their business model differs from that of a nail salon or a convenience store. When you call, pay attention to whether they answer and whether they assist you in your association’s unique needs.

Learn more about what Affinipay for Associations can do for your association by scheduling a demo today!