Merchant account vs. payment facilitator or aggregator
Mobile readers need to have a payment service powering them in order to perform transactions. There are two options: a standard merchant account, or a payment facilitator/aggregator service.
A brick and mortar merchant with an existing payments solution and merchant account who is interested in adding mobile acceptance capability should definitely work with their current provider. A third-party mobile solution doesn’t make sense financially or operationally for a merchant with an existing system and payment provider. Luckily, adding mobile functionality to their existing solution should be fairly painless and low-cost.
It does make sense for small operators and homebased businesses to consider the benefits a payment facilitator account can offer. Payment facilitators, or PayFacs as they’re known in the payments industry, are appealing to some smaller businesses because of the simplicity they can deliver. A PayFac can sign individual merchants up under a master account, which saves the individual merchants the hassles of establishing their own account. It’s generally a quick enrollment with no need to undergo lengthy underwriting and approval process.
Simplicity also refers to the fee structure of PayFacs since they generally don’t offer interchange-plus pricing. Because interchange is complex, pay-as-you-go pricing (flat fee pricing) might feel more straightforward to some merchants. There are generally fewer fees and rate fluctuations on the monthly statement for things like account maintenance, security fees, and such that can feel frustrating to some merchants.
However, depending on your sales volume, it can end up costing more in the long run. Although the fees are “flat,” they also tend to be higher than with a traditional merchant account. A merchant with lots of small dollar transaction amounts will soon realize the high cost of flat fee pricing. But a merchant with lower volume can benefit from flat fee pricing since they won’t be upcharged for rewards cards or minimum sales fees. Some PayFac providers also have transaction amount limits and weekly volume processing limits that can hinder business operations at times. Still, for some business models, PayFac services will have more appeal than traditional merchant accounts. Do some research to determine which pricing structure better suits your business.