Over the past number of years the merchant aggregator model has become more and more popular to the point where it might even be considered commonplace. These enterprises that essentially bring together a fragmented marketplace, funnel and process multiple merchant transactions through a single account.
Well-known merchant aggregator brands such as Paypal, Checkout by Amazon and Square have grown to become huge organisations offering their customers convenience and flexibility. Enabling small businesses and in particular start-ups to easily set up an account to process payment cards, aggregators often offer free hardware and software that includes a fully functional POS platform.
The rise of merchant aggregators and why they have become a popular business model we’ve covered in detail in a previous blog post that can be found here.
From an acquirer’s perspective, merchant aggregators are attractive in that they bring to market non-traditional and new customers. As a result many acquirers have developed products and services that are designed to accommodate the business model that aggregators use.
In terms of their positioning in the market place, essentially they are intermediaries between acquirers and smaller businesses. However they can present particular challenges from a compliance and risk perspective to acquirers and the industry as a whole.
The reason for this is that acquirers often do not have visibility as to who the aggregator’s customers are and what their security and compliance posture is, as a result businesses that are looking to commit fraud often times hide within an aggregator’s portfolio.
From the perspective of the card schemes, the responsibility of compliance and card data security falls directly on to the acquirer. As a result the acquirer needs to be confident that the aggregator has an underwriting process and steps or procedures in place to ensure that their customers are not a security risk. Otherwise the acquirer should resort to directly taking steps to ensure that they are protected.
In the case where an aggregator is dealing with settlement funds, the acquirer should put procedures in place to ensure that those funds are not being used by the aggregator as working capital. Additionally it’s important that when settlement funds are received on behalf of customers that aggregators follow money transmitter licensing requirements in the region that their customers are based in.
It’s clear that aggregators are here to stay and that from a product and service perspective acquirers have the potential to gain significantly. However it is essential that acquirers pay close attention to their aggregator’s customers, by analysing things such as a business’s monthly goal for card volume as it can clarify if a business is in fact a front for fraud or that the business is in collusion with the aggregator.
Additionally acquirers should be vigilant that businesses are actually selling what they claim to be selling. Ensuring that the aggregators have risk-management tools in place as to vet potential customers so that the risk to all parties is kept to a minimum.
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