Why Merchant Aggregators are moving to the forefront of the merchant payment industry
June 12, 2013
Merchant aggregators have existed for much of the last decade, yet only recently have they became the center of mainstream media focus. What has changed? In this article, we discuss the distinct advantages that merchant aggregators have over traditional merchant processors.
Traditionally, merchant aggregators such as Paypal have been viewed as the unnecessary middle man that adds little value but makes services available for micro-merchants. But a new breed of merchant aggregators has redefined the value that they can provide for their customers. Innovations and rule changes have enabled aggregators to offer new services that traditional merchant processors do not. Recently, Digital Transactions magazine published this article, detailing the move that merchant aggregators have made from being in a ‘gray area’ to being at the forefront of payment innovation.
One of the greatest advancements in technology in the last decade was the proliferation of digital communication in our everyday lives. We have become dependent on our mobile devices for the convenience they bring. Square – the four year old merchant aggregator that is processing over $15 billion in annual transaction volume – recognized the opportunity to transform our mobile devices into payment terminals, and in doing so, enabled payment processing for the masses. Similar merchant aggregators such as PayPal and Groupon have since introduced their own mobile payment platforms for micro-merchants.
Merchant aggregators hold several advantages over traditional merchant processors. Primarily, the overhead cost of switching to a merchant aggregator is low. The credit card processing attachment is often distributed for free or at a very low price and sign up is free.
Additionally, the customer onboarding process is much quicker for merchant aggregators because they don’t have to go through the same strenuous information collection process as traditional financial institutions. Faster, digital-first customer onboarding means aggregators have easier time getting people to sign up and try their service, and higher signup completion rates than similar services with paper based applications.
In addition to better customer onboarding, merchant aggregators also have a cost advantage over traditional acquirers and ISOs at high volume, due to the fixed acquirer network fee (FANF) introduced by Visa in 2012. The fee is complicated, and has many implications. The simple explanation for the cost advantage is that acquirers and ISOs are billed by the number of clients they service, with no cap, but aggregators are billed by gross processing volume, capped at $40,000 per month. This cost advantage enables aggregators to service a large number of low volume businesses at a competitive cost.
The future success of merchant aggregators lies with service integration. Many analysts and industry publications predict that future POS systems will become a seamless part of the sales or service process. Merchant aggregators are currently in a better position to transition into this vision.
In December 2012, the British luxury brand Burberry announced it will test using Square in its Flagship store in San Francisco. The goal is to create an immersive shopping experience for the customer. Whether or not Square will be the right fit for Burberry is unclear, but what is clear is that businesses today – large and small – are willing to pay higher fees for the type of services that merchant aggregators bring.
Does this mean traditional financial merchant processors face extinction? Not at all. Merchant aggregators are often uncompetitive when it comes to rates, but they are winning customers over by offering more convenience. Merchant processors need to innovate and adapt by improving customer onboarding, introducing mobile payment capabilities, and developing integrated software for their customers to use. By creating a digital-first, onboarding experience, and addressing service needs at good value, merchant processors can offer their customers what matters. Learn more about leveraging digital-first onboarding today, and be one step closer to offering the exceptional experience that will win more customers.