What is an Aggregated Merchant Account?

Finding the right payment processor that allows your business to accept card payments is one of the most important decisions you’ll make. But with so many options on the market, it can definitely be overwhelming to filter the pretenders from the legit processors.

Beyond the different processors, you’ll quickly learn that there are also several different types of merchant accounts—with aggregated merchant accounts being one of them. 

Whether you’re thinking of using a payment aggregator or you’re currently using one, this in-depth guide will explain everything you need to know about aggregate merchant accounts and how they work. We’ll also compare them to other types of merchant accounts and cover the pros and cons so you’re fully equipped to make the right decision for your own business.

Spoiler Alert: Aggregated merchant accounts aren’t great for most businesses, and we rarely recommend them. 

What is a Payment Aggregator?

A payment aggregator, also known as an aggregated merchant account, is a third-party merchant services provider that allows businesses to accept credit cards, debit cards, and other payment methods. 

In addition to card payments, most modern payment aggregators can typically facilitate bank transfers, contactless payments, and mobile wallets—both in-person and online for businesses. 

Aggregate merchant accounts are different from traditional merchant accounts in the sense that the group or “aggregate” multiple businesses into a single merchant account. This eliminates most of the underwriting process and often simplifies the ability for businesses to accept payments. 

How Does an Aggregated Merchant Account Work?

An aggregate merchant account works by combining several companies into one merchant account. 

In doing so, merchants can start accepting payments almost instantly and often for a flat rate. But this simplicity comes at a cost. Rates are often higher and there are stricter terms when it comes to accessing funds. 

This also means that the business using the payment aggregator doesn’t have their own merchant ID number. Instead, they might have a customer ID or some type of merchant number that’s used to identify the business directly with the aggregator. 

For example, PayPal is a payment aggregator and they provide a PayPal Secure Merchant ID to business accounts—but this is not the same as a merchant identification number that a company would get directly from a bank or traditional payment processor. 

In a nutshell, here’s what the process looks like when a business accepts payments using an aggregator:

1. The customer pays for goods or services (either in-person or online).
2. Money is sent to the payment aggregator.
3. Then the aggregator sends the money to the business bank account minus the transaction fees.

It’s relatively simple, and businesses don’t have to deal with extra steps that are often required to set up and maintain their own dedicated merchant account. Although this simplicity comes at a premium price point. 

Aggregate Merchant Account vs. Direct Merchant Account

Dedicated or direct providers establish merchant accounts for businesses that want to accept card payments. 

Unlike an aggregate merchant account, direct providers have a lengthy application process and customize rates for merchants before providing them with their own merchant ID number and a true merchant account (which is essentially a special bank account where funds are held before moving to the business’s bank account). 

Payment Aggregator vs. Payment Facilitator (PayFac)

Although they’re similar and are often used interchangeably, the terms “payment aggregator” and “payment facilitator” are not quite the same thing. 

As previously mentioned, a payment aggregator is a service that lets businesses process payments without setting up a merchant account. 

A payment facilitator, also known as a PayFac, is a type of payment aggregator that typically provides additional services compared to a basic aggregated merchant account. Payment facilitators maintain a “master” merchant account and then let “submerchants” process transactions on this one account. PayFacs are also registered ISOs that are sponsored by an acquiring bank to process transactions. 

Benefits of Aggregated Merchant Accounts

I’m definitely not a fan of aggregated merchant accounts. They just don’t make sense for most businesses, especially large businesses, that shouldn’t be spending tens of thousands of dollars extra every year to process payments. 

That said, even I can’t ignore the advantages of using an aggregator. Here are the four main pros to consider:

Simple Application Process

Most aggregated accounts have a straightforward application that can be completed in 15 minutes or less. You won’t have to provide tons of extra information and paperwork that would normally be acquired for underwriters to assess your company’s risk before deciding whether or not to work with you. 

Accept Payments Immediately

Depending on the provider and your application, you can often accept payments instantly or be approved within 24 hours. This is great for businesses looking for the fastest possible way to accept card payments, and it’s much easier to get approved (especially for newer businesses or high-risk merchants). 

Hands-Off Management

Once you’re signed up and officially onboarded, there’s virtually nothing else for you to do. If you’re using a PayFac, they’ll usually provide all of your payment acceptance needs plus software, hardware, compliance, and updates. You just need to deal with your customers and wait for money to hit your account. 

Straightforward Fees

Processing fees are really easy to understand if you’re using an aggregated merchant account to accept payments. They’re typically charged per transaction at a flat rate and may vary slightly based on the transaction environment. For example, if you look at PayPal’s merchant fees you’ll see that all domestic PayPal Checkout transactions are charged 3.49% + $0.49 per transaction. So if you want predictability, you’ll know exactly what your costs are each time you accept a card payment. 

Problems and Drawbacks With Using an Aggregate Merchant Account

For me, the pros of using an aggregated merchant account just aren’t enough to outweigh the cons. At the end of the day, businesses should be striving to make as much money as possible and aggregate merchant accounts really eat into your profit margins. 

Let’s look at the biggest problems with using a payment aggregator or PayFac so you can decide for yourself. 

Higher Payment Processing Fees

This alone just can’t be overlooked by me or overstated enough to anyone who is considering an aggregate merchant account. You can expect to pay at least 1% more, at a minimum, to process payments this way compared to getting a traditional merchant account from a processor that offers interchange plus pricing. 

Here’s an example so you can see what I mean.

When I look at Visa’s interchange rates for retailers (the transaction cost set at the card network level), I see that these start as low as 1.65% + $0.10 per transaction. 

Your merchant account provider may charge you 0.10% + $0.10 per transaction. This is a rate we helped negotiate for a client using Worldpay, which I just covered in my Worldpay review. 

So including the processor markup, it would bring your cost to 1.75% + $0.20 per transaction. 

PayPal (an aggregator) is charging you 3.49% + $0.49 to process the exact same transaction. It’s literally double the cost—which adds up to thousands of dollars per month, or potentially tens of thousands per month, depending on your volume. 

Funds on Hold

Most aggregate account providers keep a percentage of your funds on hold to protect themselves against fraud, returns, and chargebacks. So to do business with these guys, you’ll need to be comfortable keeping a decent chunk of money in a reserve account that’s based on a percentage of your sales.

Is that money yours? Technically yes. But while it’s sitting on hold in a reserve account, you won’t have access to it—meaning it can’t be used to pay your bills, order inventory, run payroll, or pay any other business expense. 

Rolling reserves may also need to be set up for traditional merchant accounts, but that’s only if you’re a high-risk merchant or have a history of fraud or lots of chargebacks. Otherwise, the providers are confident enough in their underwriting process and don’t have a reason to hold your funds unless you give them one. 

Delayed Deposits

This is completely separate from the potential funds on hold. For the remaining 90% or so of the money you’re able to withdraw, minus fees, it could take several days for that money to actually hit your account. 

For example, if you’re using a PayFac like Stripe, it can often take anywhere from two to five business days for money to hit your account. 

This is something you really need to prepare for, especially for any expenses that you can’t put on credit (like payroll).

Lower Transaction Limits

This won’t affect every business or every transaction, but many aggregate account providers limit the amount of money you can accept in a single transaction or in a 24-hour period. 

If they do let you process a high-ticket transaction, then there’s a decent chance they’ll increase the amount of funds you need to keep in your reserve account or they’ll put a limit on how much of those funds you can access immediately. 

It’s all about risk mitigation for aggregate account providers. Large ticket transactions are risky, and they want to cover themselves in case the transaction was fraudulent or the customer issues a dispute. 

Final Thoughts

I don’t recommend aggregate merchant accounts.

They can be useful if you’re a really small startup or running a side hustle that expects to generate $20,000 or $30,000 in revenue. But for anyone else, it’s worth it to just a traditional merchant account. 

It takes a bit longer to apply, get approved, and get onboarded. But you can expect to pay roughly half of what you’d pay if you were using an aggregator or PayFac. Those savings are well worth the minor inconvenience of going through an underwriting process and having to wait a couple of extra days before you can accept card payments.