Payment aggregators have emerged as a key player in ecommerce, simplifying the payment process and reshaping the way businesses accept payments. Businesses across industries should understand the roles and functionalities of third-party payment providers—including payment aggregators—in order to curate simple, convenient payment experiences for their customers.

Below, we’ll discuss the role of payment aggregators, how businesses can become one, the benefits such an investment can generate, and potential challenges to consider.

What’s in this article?

• What is a payment aggregator?
  
• How do payment aggregators work?
  
• What types of businesses use payment aggregators?
  
• How to become a payment aggregator
  
• Benefits of becoming a payment aggregator
  
• Challenges involved with becoming a payment aggregator
  

What is a payment aggregator?

A payment aggregator is a type of payment service provider that acts as an intermediary between businesses and customers during the payment process. It consolidates and processes online transactions on behalf of multiple businesses, through a single integration.

Payment aggregators simplify the payment process for businesses by providing a unified platform to accept various payment methods, such as credit and debit cards, digital wallets, and bank transfers. They typically offer a range of payment options to cater to the preferences of different customers. By utilizing a payment aggregator, businesses can avoid the need to establish individual payment relationships with multiple financial institutions.

How do payment aggregators work?

Payment aggregators work by acting as intermediaries between businesses and customers, facilitating the process of accepting and processing payments. Here’s a simplified explanation of how payment aggregators typically work:

1. Merchant integration: Businesses that wish to accept payments through a payment aggregator integrate their online platforms or ecommerce websites with the aggregator’s payment system. This integration involves incorporating the necessary payment APIs (application programming interfaces) provided by the aggregator into the business’s website or application.

2. Customer initiates payment: When a customer wants to make a purchase on the business’s website, they select their preferred payment method—such as credit card, debit card, or digital wallet—from the options provided by the payment aggregator.

3. Data encryption and secure transmission: The customer’s payment details, such as credit card information or digital wallet credentials, are encrypted to ensure secure transmission. This helps protect sensitive data from unauthorized access.

4. Payment authorization: The payment aggregator forwards the encrypted payment data to the respective card networks, such as Visa or Mastercard, or directly to the acquiring bank that processes the transaction. The payment networks or acquiring banks verify the customer’s payment details and perform fraud checks to ensure the transaction is legitimate.

5. Payment processing: Once the payment is authorized, the payment aggregator processes the transaction by deducting the purchase amount from the customer’s payment source (for example, their credit card or digital wallet). The aggregator’s system also calculates any applicable fees or commissions based on the agreed terms with the business.

6. Settlement: After the payment is processed, the payment aggregator holds the funds temporarily in its own account. This allows for aggregation of funds from multiple transactions and simplifies the settlement process for the business.

7. Payout: The payment aggregator transfers the accumulated funds (minus any fees or commissions) to the business’s primary business bank account on a regular basis. The timing of the payout may vary depending on the payment aggregator’s policies, which could range from daily to weekly settlements.

8. Reporting and analytics: Payment aggregators often provide businesses with comprehensive reporting and analytics tools. These tools enable businesses to track transaction volumes, monitor sales performance, and gain insights into customer behavior and payment trends.

Payment aggregators expedite the payment process for businesses by handling the technical complexities of payment integration, authorization, processing, and settlement. They offer a centralized platform that simplifies payment acceptance, enhances security, and provides valuable insights for businesses while delivering a simple experience for customers.

What types of businesses use payment aggregators?

Payment aggregators are routinely used by a wide range of businesses across various industries, as more businesses evolve to respond to the opportunities of digital payments. While not an exhaustive list, here are some examples of types of businesses that commonly use payment aggregators:

• Ecommerce platforms
  Online marketplaces and ecommerce platforms that host multiple businesses often integrate payment aggregators to offer a unified payment solution for their sellers. Examples include platforms such as Shopify, WooCommerce, and Magento.

• Small and medium-sized enterprises (SMEs)
  Payment aggregators are popular among small and medium-sized businesses that may not have the resources or technical expertise to establish direct relationships with banks or payment processors. They provide an accessible and straightforward payment solution for SMEs across industries such as retail, hospitality, services, and more.

• Freelancers and service providers
  Independent professionals, freelancers, and service providers, such as consultants, designers, writers, or tutors, often use payment aggregators to accept payments from their clients. Aggregators enable them to receive payments securely and conveniently, whether they operate online or in-person.

• Subscription-based services
  Businesses offering subscription-based services, such as streaming platforms, software-as-a-service (SaaS) providers, or membership-based organizations, can use payment aggregators to handle recurring billing and automate subscription management.

• Mobile applications
  Mobile app developers frequently integrate payment aggregators to enable in-app purchases and monetization. This applies to various app categories, including entertainment, productivity, gaming, and e-learning.

• Nonprofit organizations
  Nonprofit organizations and charities often use payment aggregators to facilitate online donations. Aggregators offer multiple payment options and streamline the donation process, making it easier for individuals to contribute to causes they support.

• Event ticketing and registration
  Platforms or businesses that handle event ticketing, conference registrations, or booking services can benefit from payment aggregators to process payments for their attendees or customers.

• Digital content providers
  Businesses involved in selling digital content, such as ebooks, music, videos, or software downloads, frequently rely on payment aggregators to manage secure and efficient transactions.

While payment aggregators serve a broad range of businesses, the specific needs and requirements may vary depending on the industry, transaction volume, business size, and geographic location. For many businesses, the services provided by some payment aggregators might be insufficient, leading them to opt for a more comprehensive payment facilitator (payfac) such as Stripe.

How to become a payment aggregator

Becoming a payment aggregator involves several steps. Here’s a general outline of the process:

1. Research and planning: Conduct thorough research on the payment industry, understanding market trends and assessing the viability of becoming a payment aggregator. Identify the specific niche or target market you wish to serve and determine the unique value proposition you can offer.

2. Regulatory compliance: Understand the regulatory landscape and compliance requirements for payment aggregators in your target jurisdiction(s). Familiarize yourself with financial regulations, anti-money laundering (AML) laws, data security standards (such as PCI DSS), and any other relevant regulations that govern payment services.

3. Business structure and legal considerations: Determine the appropriate legal structure for your payment aggregator business. Consult with legal professionals to understand the necessary steps to establish a legal entity, register your business, and acquire any required licenses or permits.

4. Partner with financial institutions: Payment aggregators typically require partnerships with acquiring banks or payment processors to handle the actual processing of payments. Identify reputable financial institutions that align with your business model and initiate discussions to establish relationships with them. This may involve demonstrating your business plan, financial stability, and compliance capabilities.

5. Technology infrastructure: Develop or acquire the necessary technology infrastructure to support your payment aggregator operations. This includes building a robust payment gateway, integrating with various payment methods and networks, and implementing security measures to safeguard customer data.

6. Compliance and risk management: Establish stringent compliance and risk management practices to ensure regulatory adherence and mitigate fraud risks. Implement measures such as KYC (Know Your Customer) processes, transaction monitoring systems, and fraud detection mechanisms.

7. Merchant onboarding: Develop a streamlined onboarding process for businesses that wish to use your payment aggregator services. This may involve creating merchant accounts, verifying their business details, and integrating their systems with your payments infrastructure.

8. Customer support and service: Set up customer support channels to assist both businesses and customers in resolving payment-related issues or inquiries. Offer responsive and reliable support to build trust and maintain strong relationships with your clients.

9. Marketing and business development: Develop a comprehensive marketing strategy to promote your payment aggregator services. Identify target customers, create marketing campaigns, and engage in business development activities to attract businesses and build your client base.

10. Continuous improvement: Monitor industry trends, customer feedback, and technological advancements to continuously improve your payment aggregator services. Stay updated with regulatory changes and adapt your operations accordingly.

Becoming a payment aggregator is a complicated, time-consuming initiative for businesses to undertake. The process may vary based on factors such as your location, target market, and specific business model. Consulting with industry experts and legal professionals is highly recommended to ensure compliance and success in this field.

Benefits of becoming a payment aggregator

In the right circumstances, becoming a payment aggregator can offer many benefits for your business. Here are the primary advantages that entice businesses to pursue this direction:

• Revenue generation
  As a payment aggregator, you can generate revenue through transaction fees or commissions charged to businesses for processing payments. By facilitating transactions for multiple businesses, you have the potential to earn a significant amount of revenue as their payment volumes increase.

• Increased customer base
  Being a payment aggregator allows you to attract and onboard a wide range of businesses from various industries. This expands your customer base and increases the potential for business growth.

• Simplified payment integration
  Payment aggregators provide a unified platform that simplifies the payment integration process for businesses. By offering a single integration point, you reduce the technical complexity and time required for businesses to start accepting payments.

• Multiple payment methods
  Aggregators typically support various payment methods, such as credit cards, debit cards, digital wallets, and bank transfers. By offering multiple payment options, you cater to the diverse preferences of customers and increase the likelihood of completed transactions.

• Bolstered customer experience
  Payment aggregators remove friction and inefficiencies from the payment process, resulting in a better customer experience. Customers can make purchases without the need to re-enter their payment details for each transaction, which leads to faster checkouts and higher customer satisfaction.

• Security and compliance
  Payment aggregators invest in robust security measures to protect sensitive customer data and financial transactions. By partnering with reputable acquiring banks and adhering to industry security standards, you instill confidence in both businesses and customers regarding the security of their transactions.

• Analytics and reporting
  Payment aggregators often provide businesses with comprehensive analytics and reporting tools. These insights allow businesses to track transaction volumes, monitor sales performance, and gain valuable data on customer behavior and payment trends. Such information can be used to refine business strategies and make data-driven decisions.

• Scalability and flexibility
  As a payment aggregator, you can scale your operations as your business grows. By building on your existing infrastructure, technology, and partnerships, you can handle increasing transaction volumes and expand your services to new markets or industries.

• Regulatory compliance support
  Payment aggregators often assist businesses in meeting regulatory compliance requirements. By providing guidance on issues such as data security, AML regulations, and payment card industry standards, you alleviate compliance burdens for businesses and ensure an effortless, reliable payment process.

• Competitive advantage
  The payment aggregator market is competitive—but by offering a powerful and efficient payment solution, you can differentiate yourself from competitors. A strong brand reputation, advanced technology infrastructure, and excellent customer support can contribute to establishing a competitive advantage in the industry.

Challenges involved with becoming a payment aggregator

Becoming a payment aggregator can yield numerous benefits, but it also entails challenges that require careful consideration. Regulatory compliance is a primary challenge, as payment aggregators must navigate a complex web of financial and data security regulations. Adhering to standards such as PCI DSS and AML laws necessitates meticulous attention to detail and continuous monitoring to ensure compliance.

Another significant challenge is risk management. Payment aggregators must be vigilant in mitigating fraud risks and minimizing chargebacks to protect the interests of both businesses and customers. Implementing comprehensive risk management practices, such as advanced fraud detection systems and transaction monitoring, is important for maintaining security and preserving trust in the payment ecosystem.

Maintaining a high level of service is necessary for a payment aggregator’s success. This involves investing in advanced technology and security measures to ensure smooth, secure payment processing. Additionally, offering ongoing support to businesses and customers is important. Responsive customer service, timely issue resolution, and effective communication contribute to building strong relationships and fostering trust.

To thrive as a payment aggregator, thorough industry knowledge is indispensable. Understanding the evolving landscape, market trends, and emerging technologies enables effective decision-making and keeps the business ahead of the curve. By embracing these challenges, investing in technology, and prioritizing security and support, payment aggregators can fully capitalize on the advantages they offer and provide valuable services to businesses and customers alike.