Many business owners looking for a payment processing solution, find that aggregators such as Paypal or Square seem to be the obvious choice to begin credit card processing because of the illusion of a quick and easy sign-up and set-up process. Unfortunately, after they get through the initial honeymoon, those same business owners may find aggregators are not the best choice in the long run. Traditional processing companies offer businesses much more flexibility, reliability and in many cases, better customer service than their aggregator competitors. So what are the differences between traditional processors and these so called “aggregators”?
Mainstream payment companies such as Paypal and Square are what we call aggregators; a form of payment processing that has grown substantially with the introduction of ecommerce. Aggregators are essentially wholesale brokers of credit card processing services, packaging and reselling the services with the merchants processing under the aggregator’s name through an actual processing company. That means, for example, a typical company using Square technically has a “sub” account with Square and does not have a relationship with the processing company directly – Square is a middleman. For each middleman, there is another mouth to feed, which is exactly why Square charges a standard 2.75%. This flat rate is non-negotiable and doesn’t reflect the different rates that processing companies themselves charge.
The way that aggregators are set-up can be helpful for businesses just getting off the ground or those who accept payments sparingly. With a flat rate for all businesses, it makes signing up for payment processing quick and provides a simple contract. Once you begin to process a larger quantity and/or volume of payments, the aggregators have a harder time measuring up.
Traditional Credit Card Processors (Merchant Service Providers)
In comparison, a merchant service provider has a more individualized approach to credit card processing. Each transaction will have a different processing rate, depending on the type of card and level of risk involved. Traditional processors are better able to customize liability and rate packages for each business type and industry.
Although this means a bit more legwork when signing up for an account, it can lead to a much more affordable and more flexible option in the long run. With rates and more personalized customer service in mind, a traditional processor will create a business package that fits your individual needs. For example, if your business mostly interacts with customers using debit cards, you will be able to take advantage of a rate that is lower than the aggregator’s flat rate service.
Aggregators may seem like a convenient option. But these very conveniences may eventually cut into your bottom line. If you have a high volume of sales or sell higher-priced items, the aggregators may not be the best option for your business’ credit card processing needs.
About The Author
Jordan Hoover is a Dallas native returned home. He graduated Summa Cum Laude with a B.A. from Loyola Marymount University. He of course loves writing, reading, playing music, and learning new things everyday. Connect with him over LinkedIn, at www.linkedin.com/in/jordanhoover
Top photo courtesy of Paul Inkles @ Flickr CC