Aggregate vs Direct Merchant Accounts Finally Explained

Jul 17, 2019

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.

In Conclusion

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.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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