With the world going digital, many merchants are looking for a way to accept payments online. Finding the right merchant account provider along with the correct integration for their businesses is a job half done.
The online world can be a bit confusing for merchants taking a step into the digital payment ecosystem. But in order to take an informed decision on the kind of payment solution best suited for your business, it is important to understand the basic types and terms in the payment world.
When approaching a merchant account provider, a merchant is presented with different options based on the various parameters of their business. One of the most important decisions to be made is, whether to set-up a dedicated merchant account or choose an aggregate merchant account.
Now, a lot of merchants don’t necessarily know the difference between the two and may get confused. It is a common question asked while trying to decide between the two. And understanding this difference will help merchants make the right business choice.
Dedicated Merchant Account v/s Aggregate Merchant Account
- Dedicated Merchant Account
This is a separate account set up exclusively for a single merchant. With a dedicated merchant account, a merchant can determine custom processing rates depending on their business. The rates are specifically based on monthly volume of sales and the products you sell- Less sales, low cost. High sales, high cost.
The merchant is in-charge of the rates and most importantly, in control of your cash.
- Aggregate Merchant Account
As the name suggests, an aggregate merchant account combines and is used by several different merchants and companies. Here your funds are pooled with other merchants into a single merchant account.
While obtaining an aggregate merchant account is quick and easy, a huge drawback being you have less control on how long the money takes to complete the transaction process.
Stripe, PayPal, Square are an example of Aggregate Merchant Account.
Which is best-suited for your business?
- Do I need an Aggregate Merchant Account?
An aggregate merchant account is usually preferred by businesses that are new and have low volume sales. For most online businesses, obtaining a dedicated merchant account is not entirely necessary.
In fact, it is difficult for new businesses with poor or little to no credit history to get approved for a dedicated merchant account. The approval process for a dedicated merchant account is lengthy, often confusing and complicated. There is always a risk that your business will not be approved. In contrast, you can set up an aggregate merchant account quickly, sometimes within a day, with fewer hassles.
- Should I get a Dedicated Merchant Account?
While it is harder to get approved for a dedicated merchant account, it also offers far more benefits than an aggregate merchant account.
Merchants with high sales volume usually require a dedicated merchant account. Apart from negotiating custom processing rates, a merchant is in full control of their account unlike an aggregate account which is shared among several businesses.
The transaction or settlement process with an aggregated merchant account takes time. The processing time may take up to 2 days or sometimes even a week, whereas with a dedicated merchant account, funds are settled quickly and within a day.
While setting up an aggregate merchant account is quick, it is also slightly risky because the same account is used by many merchants. If a single merchant from the pool turns out to be fraud, other merchants have to suffer too.
With a dedicated merchant, the responsibility lies solely with a single merchant whom the account belongs to.
In conclusion, a dedicated merchant account is always the better choice as it involves more options and freedom to manage your own merchant account.
But merchants who are just getting started and do not wish to bother with complex payment mechanisms, an aggregate merchant account is the right choice for you. For such businesses, it is advised to start with an aggregate merchant account and switch to a dedicated merchant account once your business grows.
At the end, the choice is yours. Choose wisely!