- Merchant Size and Intermediary Type Relationship: The choice of intermediary entities for merchants depends on their business size. Small merchants often operate without a Merchant ID (MID) and rely on payment aggregators that use a single MID for multiple sub-merchants, whereas larger merchants may require their own MID or become independent merchants.
- Differences Between Payment Aggregators and Facilitators: Payment aggregators use one MID for all sub-merchants, ideal for smaller merchants, while payment facilitators assign different MIDs to each sub-merchant, catering to larger, growing merchants.
- Role of Payment Service Providers (PSPs): PSPs assist in obtaining merchant accounts and facilitate underwriting and transaction processing but do not fund the merchants, with funding usually handled by the acquirer. They serve as a crucial link between merchants and financial institutions.
Depending on a size of a merchant’s business, the merchant might find it more profitable to operate through various types of intermediary entities. A small-size merchant might not even have a MID. In this case merchant funding will be performed by a payment aggregator – a business, which has a lot of small sub-merchants in its portfolio and uses a single merchant ID for all of them. If the intermediary entity, which funds the sub-merchants, uses different MID for each merchant, it is called a payment facilitator. One of the key differences between payment aggregators and payment facilitators is the size of sub-merchants they are servicing. As merchant’s processing amounts grow, it might face the legally imposed need to have its own MID, or even become an independent merchant.
Payment Service Provider
Another important type of an intermediary entity is a payment service provider or PSP. A PSP does not fund the merchants. Funding of sub-merchants of a PSP is, generally, done by the acquirer. Payment service providers help merchants get their merchant accounts, facilitate merchant underwriting and transaction processing.
Examples of PSPs include independent sales organizations; a POS software provider, servicing fitness centers or restaurants, can be an example of a payment facilitator; an accommodation and lodging service can serve as an example of a payment aggregator.
Read more about payment aggregator vs payment facilitator and payment service providers in the respective article on #Paylosophy.