Lesson 5: Aggregration

You’ve heard of PayPal, Google Checkout and Square but do you know what makes them different from a traditional account?  In this lesson, you will learn about aggregation and why it may not be the best solution for your business.

Who Are They?

PayPal, Square, Google Checkout and Amazon Payments are all payment companies that you have probably seen or heard about.  What do all of these companies have in common that most people don’t know?  These companies all are what is called an aggregator.  In simple terms an aggregator allows merchants to accept credit cards and bank transfers without having to setup a separate merchant account with a bank or card association.paypal

Aggregators typically advertise flat rate pricing (2.9% + $0.30/trans) and no monthly fee.  This structure represents a pay as you go type of service.  Accounts are almost always free and typically require very little information to get an account set up and accepting payments.

How It Works

In a typical merchant account scenario the merchant completes an application process which includes sensitive information about themselves.  Ultimately, this results in a credit check on the owner(s) to verify credit worthiness.  Essentially, the merchant account provider is extending a line of credit to the merchant.

Aggregation avoids this process entirely; no credit checks, no long application to complete.  Simply provide your name and email address and within minutes you are accepting credit cards.  The difference is that the merchant is now in a risk bucket with several thousand other merchants.  Since the aggregator doesn’t know much about you (nor do they want to) they are in full control of your funds.  The aggregator has a single master merchant account with its underwriting bank and shares that account across all of its customers.  In a typical merchant account relationship, the merchant has a one on one relationship with the underwriting bank.

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The Downsides

Having a shared merchant account through an aggregator means that you are not in control of your money and generally means that you will have to wait 3-7 days for deposits to hit your bank account.  As a small business owner, cash flow is generally of extreme importance and these delays can cause some serious interference in running your business optimally. The aggregators use this as a float to ensure there is enough cash on hand and to minimize the risk exposure they have at any single point.

As your business grows, so will your processing volume.  This represents another problem with the aggregation model.  Remember, you are on a “no credit required” account, and as a result have a very low credit line extended to you.  As your sales go up, the aggregator’s automatic risk system puts a hold on the funds causing even further delays to your cash flow.

From a cardholder’s (your customer’s) perspective, aggregation can be a huge problem as well.  Since you are sharing a merchant account with thousands of other merchants the description of the actual charge on the credit card statement is often obfuscated as a result (PayPal $34.44 vs. Merchant Name $34.44).  This becomes confusing to the cardholder and they may call their credit card company and claim that they didn’t make the charge.  This results in a serious chargeback issue.  Some aggregators have started utilizing soft descriptors which help curb this problem, but it still is an issue.

Since an aggregator’s success is based on number of users, they need to attract a large amount of users to the platform.  With a large amount of users, customer service is not available and customers are left on their own for support.  This can cause very large problems when the entire system is automated.  Take chargebacks, for example, if a customer disputes a charge who do talk to about resolving the issue?  This method works well with large social platforms like Twitter and Facebook (where the most you can lose is a friend request or misplace a tweet).  However, when it comes to YOUR money, a real life person to talk to and work with on problems is a much safer approach if you are serious about your business.


Aggregation is the simplest and most straightforward method of accepting payments for your business.  However, it does have its downsides and is not recommended as a primary method of acceptance.  Years ago, if you had an ecommerce site you needed to accept PayPal to attract customers.  As ecommerce and electronic payments have become commonplace with consumers this is simply not the case anymore.  There is no data suggesting that accepting a certain type of payment method beyond the traditional card brands (Visa, MasterCard, Discover and American Express) will increase your sales.

If you are just starting your business, having a garage sale or occasionally have a need to accept credit cards and want to get started quickly, with no minimums or monthly fees, aggregation is an acceptable solution.  However, keep in mind as your sales grow (typically over $5000/mo), the flat rate pricing method through aggregation will not make sense and you will recognize substantial savings by switching your account to a standard merchant account (as long as you utilize the Fee Slicers pricing methodology).