A payment aggregator is a third-party company that allows businesses to accept electronic payments without setting up their own merchant account.

Instead, the aggregator operates under a master merchant account and processes transactions on behalf of multiple businesses, which operate as submerchants under that account.

Traditionally, businesses that wanted to accept credit card payments had to complete a lengthy, complex process of setting up a merchant account with a bank or a payment processor. This involved various requirements, such as credit checks, underwriting, and compliance procedures. Payment aggregators streamline this process and make it more accessible for small and medium-sized businesses.

A payment aggregator is often referred to as a payment facilitator (payfac) or payment service provider (PSP). Even though the term payment aggregator is sometimes used interchangeably with payfac, they are different businesses.

A payfac is a type of aggregator that generally offers a more comprehensive suite of services, assigns submerchants a unique merchant ID (MID) for more specific transaction tracking, and shoulders more compliance and underwriting responsibilities. Payment aggregators, on the other hand, generally use a single MID for all merchants. This makes setup easier but limits customisation capabilities.

Businesses need to understand what aggregators offer and what they don't before committing to working with one. Below, we'll explain what businesses need to know about payment aggregators' role in payment processing, the benefits of working with one, and how they enable businesses to simplify their processes and meet customer demands.

What's in this article?

• How do payment aggregators work?
  
• What types of businesses use payment aggregators?
  
• Benefits of using a payment aggregator
  
• Drawbacks of using a payment aggregator
  
• Payment aggregator vs. payment gateway
  
• Payment aggregator vs. payment processor
  
• How Stripe Payments can help
  

How do payment aggregators work?

The primary goal of payment aggregators is to make the payment acceptance procedure easier, particularly for small and medium-sized businesses. Rather than requiring each business to undergo its own lengthy underwriting process to open a merchant account directly with an acquiring bank, aggregators hold a single “master merchant” account and onboard individual businesses as submerchants beneath it. By simplifying the onboarding process, integrating with multiple payment methods, and providing efficient transaction handling and funds settlement, these aggregators offer a one-stop payment acceptance solution. Here’s a brief overview of how payment aggregators work:

• Onboarding and verification: A business signs up with a payment aggregator by providing relevant information and agreeing to the terms and conditions. Once the payment aggregator creates the new account, it verifies the business's identity and conducts risk assessments to ensure compliance with regulations and identify potential fraud risks.

• Fast integration: Once the business is approved, the payment aggregator offers integration options such as application programming interfaces (APIs) or plugins that enable businesses to connect their websites or applications to the aggregator's platform. This integration creates a smooth payment acceptance process and allows customers to pay using various methods, including credit cards, debit cards, digital wallets, and alternative payment options.

• Efficient transaction handling: When a customer initiates a payment, the payment aggregator securely collects the payment details and routes them to the appropriate payment processor or acquiring bank. The processor then authorises and processes the transaction, transferring the funds from the customer's account to the merchant account.

• Funds settlement: Payment aggregators also manage the settlement process, ensuring that funds from processed transactions are promptly transferred from the acquiring bank to the business bank account. While settlement periods may vary, businesses typically receive their funds within a few business days.

• Additional features: Some payment aggregators also offer reporting tools and analytics that offer insight into transaction history and sales performance. They might also provide supplementary services like recurring billing, subscription management, fraud detection and prevention, and customer support. Not all aggregators offer these—they're commonly found among payfacs.

What types of businesses use payment aggregators?

Businesses across many industries use payment aggregators, especially those needing fast, simple payment setup without a traditional merchant account. Common examples include:

• E-commerce businesses: Accept cards, digital wallets, and other online payment methods

• Small and medium-sized enterprises (SMEs): Quick onboarding for shops, services, and startups at lower cost

• Mobile app developers: Power in-app purchases for gaming, food delivery, ticketing, and similar apps

• Subscription services: Automate recurring billing for software-as-a-service (SaaS), streaming, memberships, and fitness studios

• Marketplaces and sharing-economy platforms: Collect payments from buyers and disburse funds to sellers or service providers

• Non-profits: Accept online donations with built-in donor tracking and reporting

• Event and ticketing platforms: Process ticket sales for concerts, conferences, and other events

Most businesses can work with payment aggregators, though high-risk or heavily regulated industries may need specialised payment solutions or a direct processor relationship instead.

Benefits of using a payment aggregator

Using a payment aggregator provides several benefits to businesses:

• Quick, low-cost setup: Businesses can sign up and start accepting payments without the lengthy process of a traditional merchant account, often with lower up-front costs and no need to invest in separate payment hardware or software. This also means a faster time to market: payment capabilities can be integrated into a website or app quickly, with less effort required to go live.

• Convenient payment process: Aggregators provide a unified platform that integrates with multiple payment methods, making it convenient for customers to pay using their preferred option.

• Enhanced user experience: Aggregators offer a simple, user-friendly payment experience, ensuring smooth transactions and improving customer satisfaction.

• Security and compliance: Payment aggregators handle sensitive payment information and implement strong security measures to protect customer data, reducing the burden of compliance on businesses.

• Additional features and services: Aggregators sometimes provide value-added services such as recurring billing, subscription management, fraud detection, and reporting tools. Many also offer dedicated customer support to help businesses resolve payment-processing issues or queries.

• Scalability: Aggregators can accommodate businesses of various sizes and handle increased transaction volumes as the business grows.

Payment aggregators offer a convenient, efficient and cost-effective solution for businesses to accept electronic payments. This enables them to focus on core operations while providing a positive payment experience to their customers.

Drawbacks of using a payment aggregator

While using a payment aggregator offers advantages, it also comes with a few potential drawbacks for businesses:

• Payment holds: Aggregators may hold or freeze funds – especially for new accounts, large transactions, or activity that activates their risk models – which can disrupt cash flow.

• Higher fees at high volume: The flat-rate, pay-as-you-go pricing that makes aggregators attractive early on can become more expensive than a traditional merchant account once transaction volume grows.

• Less control: Because the aggregator owns the merchant relationship, businesses have less say over underwriting decisions, account terms, and dispute resolution than they would with a dedicated merchant account.

Payment aggregator vs payment gateway

Payment aggregators and payment gateways are closely related components within the payment processing setup for many businesses. Here’s an explanation of their unique roles and how they differ.

Purpose

• Payment aggregator: Acts as an intermediary between businesses and financial institutions, simplifying the payment acceptance process.
  
• Payment gateway: Provides a secure communication channel between a business's website or application and the payment processor or acquiring bank.
  

Integration

• Payment aggregator: Offers a unified platform that integrates with multiple payment methods and processors, providing businesses with greater flexibility and choice.
  
• Payment gateway: Typically requires a direct merchant account with a payment processor or bank and integrates various payment methods into the business's website or application.
  

Transaction handling

• Payment aggregator: Handles transaction routing and settlement on behalf of merchants, simplifying the payment process and reducing administrative complexities.
  
• Payment gateway: Verifies and authorises transaction details in real-time, encrypts sensitive payment information, and securely transmits data between the merchant and the payment processor or bank.
  

Additional services

• Payment aggregator: Often provides value-added services such as fraud detection and prevention, reporting, and analytics to enhance the payment experience for businesses.
  
• Payment gateway: Offers customisation options to align with the business's branding and user experience, focusing primarily on secure data transmission and transaction authorisation.
  

Suitability

• Payment aggregator: Particularly suitable for small and medium-sized businesses that seek a simplified onboarding process and cost-effective payment solution.
  
• Payment gateway: Widely used by businesses of all sizes, requiring a direct merchant account and providing more customisation options.
  

Payment aggregators act as intermediaries, simplifying payment acceptance, integrating with multiple processors, and offering additional services. Payment gateways primarily focus on secure transaction handling, encryption, and customisation options. The choice between the two depends on a business’s specific needs, size, and preferences.

Payment aggregator vs payment processor

Payment aggregators and payment processors differ in their functions and the benefits that they offer to businesses:

Function

• Payment aggregator: Acts as an intermediary between businesses and financial institutions, simplifying the process of accepting electronic payments. It provides a unified platform that integrates with multiple payment methods and processors, streamlining the payment acceptance process.
  
• Payment processor: Handles the actual processing of payments, authorising and facilitating the movement of funds between the customer's account and the merchant account.
  

Integration

• Payment aggregator: Offers businesses a single integration point, allowing them to connect to multiple payment processors and methods through a unified interface. This eliminates the need for separate integrations with multiple processors.
  
• Payment processor: Typically requires a direct integration with the business's website or application to process payments. Businesses establish a direct relationship with the payment processor to use their services.
  

Payment acceptance

• Payment aggregator: Allows businesses to accept various payment methods, including credit cards, debit cards, digital wallets, and alternative payment options, all through a single integration. It simplifies the acceptance of multiple payment types for businesses.
  
• Payment processor: Processes payments based on the specific payment methods and services it supports. Businesses sometimes need to integrate with different processors or establish relationships with multiple processors to accept different payment types.
  

Risk management and compliance

• Payment aggregator: Assumes responsibility for managing and mitigating risks associated with payment processing. It conducts risk assessments, implements fraud detection measures, and ensures compliance with relevant regulations on behalf of the businesses it serves.
  
• Payment processor: Offers tools and services related to risk management, fraud prevention, and compliance. However, the ultimate responsibility for risk management and compliance often lies with the business, which must adhere to applicable regulations. This distribution of risk and responsibility can vary considerably based on the specific providers in question.
  

Settlement

• Payment aggregator: Manages the settlement process, transferring funds from the acquiring bank to the business's designated bank account. Settlement periods may vary, but the payment aggregator handles this aspect for the business.
  
• Payment processor: Facilitates the movement of funds between the customer's account and the merchant account during the payment processing. The payment processor initiates the settlement process, ensuring the transfer of funds to the merchant account.
  

Payment aggregators simplify the payment acceptance process by integrating with multiple payment processors and methods. They provide a unified platform, handle risk management and manage settlement. Payment processors focus on processing payments, authorising transactions and transferring funds between accounts.

While payment aggregators, payment gateways, and payment processors differ in function, Stripe comprehensively supports a business's full payment ecosystem on every channel by offering the combined functionality of a payment gateway, processor, and aggregation platform in one solution. Stripe also offers exceptional fraud detection and prevention measures, compliance management, customer support at all hours, and unified reporting. Learn more and get started.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person and around the world.

Stripe Payments can help you:

• Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalise interactions, reward loyalty and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customisable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorisation rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments or get started today.