What To Know When Working With Payment Facilitators and Aggregators
Most people today don’t realize that they come into contact with payment facilitators and aggregators on a daily basis when they are shopping online. Oddly enough, many who open their own stores and start their own retail businesses don’t understand what facilitators and aggregators are, despite interacting with them countless times in their own financial transactions.
It can be a real problem, since there’s a lot of options out there for payment processors, and knowing how they all work is critical to choosing one that works best for your business. So to help you better understand the value of processors like payment facilitators and aggregators, here is a short, yet comprehensive guide to what you need to know about working with these unique white label payment gateways.
Three Types of Processors
Before we get into too much detail, it is important to understand that, though names vary depending on which region of the world you live in, there are three major types of payment processors, which typically use the following labels: payment service providers (PSP), payment facilitators, and payment aggregators.
What is a Payment Service Provider?
A payment service provider is a traditional payment processor. They typically only handle the technology that makes processing possible. That means they contract with ISOs or merchant acquirers to find merchant clients to use their service. They also don’t provide those merchants with things like merchant IDs or merchant accounts, leaving it to the ISOs and the acquiring banks to set that up.
Generally, PSPs also do not partake in the merchant funding process. Just like setting up a merchant ID, this is left to the acquiring bank, as is (typically) the risk associated with it. The average PSP does just one thing: it processes payments for its merchants.
What is a Payment Facilitator?
A payment facilitator is similar to a payment service provider but differs from a PSP because (among other things) it funds a merchant directly.
Standard payment facilitators treat each business like a sub-business of the facilitator and issues each of their sub-businesses with a different sub-merchant ID. They set up a merchant account for their sub-merchants, and underwrite their risk using their own risk values rather than evaluating the inherent risk in the sub-merchant’s business. What’s more, they usually offer a flat rate for payment processing, simplifying the cost structure for the merchants.
What is a Payment Aggregator?
A payment aggregator differs from a payment facilitator because the same Merchant ID is used for every sub-merchant/business. While both fund merchant accounts directly, and accept the risk of the sub-merchant, only the facilitator issues a unique sub-merchant ID for each client. Aggregators, in contrast, serve very small businesses, using their own merchant ID for each of their clients.
Which Should You Choose?
PSPs are part of the traditional payment processor model, and still find clients today among very large businesses (though many have set up their own, private PSP for their own uses). Payment facilitators are best for medium to large businesses, as their simplified cost structure makes accounting easier, and unique sub-merchant IDs leave each merchant room to grow. Aggregators are aimed at small businesses and individuals who will, in some cases, keep the number of their transactions beneath a certain threshold.
In other words, if you’re a good sized business, or if you expect growth in the future, you will probably want to use a payment facilitator, as a payment aggregator will make you switch anyway once you reach a certain number of processes.