A merchant’s ability to accept credit card transactions is not created equally. Therefore, there is no one-size-fits-all account for every business.
This is why is imperative that businesses understand aggregate vs direct merchant accounts.
What is an aggregate merchant account?
The best way to describe an aggregate merchant account is to consider it a shared account in which acquirers place multiple high-risk merchants on the same account. To hedge some of the risk associated with their businesses, merchants apply for an aggregate account.
Managed by a third party, an aggregate account is ideal for those that won’t qualify for a direct merchant account due to high chargeback rates or volume transaction problems. Merchant aggregators control the risk, changing how much risk they will permit at any period of time. The underwriting isn’t as strict and the process moves much quicker.
All of the merchants on the shared account also use the same billing descriptor. In many cases, these accounts are reserved for very high-risk industries with high chargeback rates, experience high volumes of transactions, and sell higher ticket items. Unfortunately, aggregate accounts are the only choice available to high-risk merchants.
What is a direct merchant account?
Acquirers issue direct merchant accounts to businesses that process high volumes of transactions and experience low chargeback ratios. Merchants with these accounts receive custom descriptors and their accounts are not capped, allowing merchants to process unlimited volumes of transactions.
Direct merchant accounts, which are referred to as Merchant Identification Numbers are set up by payment service providers. These type of accounts are more difficult to get approved for and can come with costly set-up fees. But, when a merchant does get approved, it gets a personalized descriptor.
The downside to having an aggregate account
The biggest disadvantage of an aggregate account is that merchants have less control over the amount of time it takes to complete the transaction process. Unfortunately, they have no choice but to seek this type of account because they won’t qualify elsewhere. After merchants get established, they often can upgrade from an aggregate account to a direct merchant account.
Types of merchants that should seek aggregate accounts
The following types of merchants should seek aggregate accounts:
- New businesses with no credit card processing history
- Merchants with high rates of chargebacks, refunds, or returns
- High-risk merchants
- Merchants that are consistently averaging more than 1% in chargebacks monthly
- TMF or MATCH merchants
- Merchants that are not incorporated within their own jurisdictions
Merchants that fall into any of the above categories will have uphill battles to obtain direct merchant accounts so their best bets are applying for aggregate accounts.
Though aggregate accounts aren’t ideal, they do give merchants the flexibility and convenience of accepting credit card payments.
Until merchants become more established, build up processing histories, and prove that they can keep chargeback rates lows, aggregate accounts are their only options. Once they can prove this, they can apply for direct merchant accounts and gain more control and reporting of their accounts. Also, those that obtain direct accounts can operate knowing the risk of getting their accounts frozen or closed is much lower.