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Payment aggregation is a processing arrangement when a large business (called the aggregator) is processing transactions on behalf of many smaller businesses belonging to its portfolio.
Payment aggregation can be implemented in one of the two ways.
In case of so-called straight aggregation, the aggregator (payment service provider) gets underwritten by credit card payment processor and processes transactions of all of its sub-merchants using the same merchant ID (MID).
In case of sub-merchant aggregation (sub-merchant funding) the aggregator processes transactions of the smaller businesses under different MIDs, remits the funds to sub-merchants and withholds the fees but still bears financial responsibility for all the accounts.
Due to increased possibility of fraud with the straight aggregation model, sub-merchant aggregation is a preferred way to organize processing.
In respective articles you can find some more detailed information on payment aggregation model and sub-merchant funding.
If you are a software or service company, and your customers need to accept payments from their respective clients, you can, definitely benefit from becoming an aggregator. Essentially, payment aggregation model allows software providers to function as payment service providers using either payment processor integration or some white label payment gateway offering, which they use under their own brands.
In these types of arrangements the payment aggregator usually gets the preferred processing rate from the underlying payment processor or bank. In return, it, generally, assumes the risk (financial liability) for its entire portfolio. Consequently, aggregator becomes responsible for any transaction fraud or chargeback associated with its sub-merchants.
More information is available in the respective article on PSPs, facilitators and payment aggregators on this blog.
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