What’s the Difference Between a Payment Gateway and a Payment Aggregator?

(There’s a lot of issues involved with preparing for online business, from creating a product, to advertising to collecting payments.  This article from Sam Adkins shares some of the factors to consider when looking at two different payment methods and explains how they differ.  If you were ever curious about merchant accounts, either because you were considering them for a business or were interested in how a business you worked with did business, read on to learn more!)

It is very important for businesses and consumers is to understand the lingo of online commerce. E-commerce continues to be in the uptrend, and as a testament to its influence, a giant newcomer is buying ad time on TV. Any business owner who is hoping to keep their market share must understand how to give the most convenient purchasing experience to their customers.

One of the most important distinctions that both consumers and business owners must learn is the difference between a payment gateway and a payment aggregator. Although both of these services perform similar services, they have many differences that dictate which one would be better for a certain business or customer.

Defining a Payment Gateway

A payment gateway is an application service provider that online businesses use to legitimize payments. Online businesses as well as brick and mortar businesses use payment gateways all the time to process payments from customers.

Defining a Payment Aggregator

A payment aggregator is also an application service provider that businesses use in order to process payments, but the main difference between a payment gateway and a payment aggregator is that you do not have to set up a merchant account with a bank in order to use a payment aggregator.

The Main Difference Between a Payment Gateway and a Payment Aggregator

The main difference between a payment gateway and a payment aggregator is the setup of a separate merchant account in order to authorize payments. A business or customer has to set up a separate merchant account in order to use a payment gateway. They do not have to do this in order to use a payment aggregator. Here’s an example of a merchant account provider, with a video walkthrough.

The Advantages of Not Needing a Merchant Account

Using a payment aggregator is much easier on the customer and the business because there is no separate third party to synchronize efforts with. Transactions move much more quickly when they are administered through a payment aggregator rather than a payment gateway.

Businesses can also gain access to much larger customer bases by using the more convenient payment aggregator rather than a payment gateway. Customers are attracted to the ease of use, and as such, to the business that makes this process the most convenient for them.

Payment aggregators can also provide direct access to banking accounts so that customers can transfer funds to and from the aggregator relatively quickly, although there still may be a little delay because of the lack of total synchronization between the aggregator and the banks.

The Disadvantages of Not Using a Merchant Account

Although a payment aggregator is definitely the more convenient of the two options, the payment gateway is definitely safer. The main disadvantage of using a payment aggregator rather than a payment gateway is that the merchant account provides an extra level of protection for the consumer as the transaction is being conducted.

A merchant account from a third party bank with increased security resources gives the consumer the ability to encode transactions so that they can not be hijacked during the rather long process. Payment aggregators, although more convenient, are much more difficult to produce as evidence in a case of e-fraud or e-theft.