# Aggregation Payment Processing: Overview and Key Considerations
Aggregation payment processing refers to a model where multiple merchants or transactions are processed under a single merchant account, typically used by payment facilitators (PayFacs), marketplaces, and platforms that serve many small merchants.
## How Aggregation Payment Processing Works
1. Master Merchant Account: A payment facilitator obtains a master merchant account from an acquiring bank
2. Sub-merchant Onboarding: Individual sellers/businesses are onboarded as sub-merchants under this master account
3. Transaction Aggregation: All transactions from sub-merchants flow through the single master account
4. Funds Distribution: The PayFac receives settlement funds and distributes them to sub-merchants
## Common Use Cases
– E-commerce marketplaces (Etsy, Shopify Payments)
– Ride-sharing platforms (Uber, Lyft)
– Food delivery services (DoorDash, Grubhub)
– SaaS platforms with embedded payments
– Crowdfunding platforms
## Benefits of Aggregation Processing
1. Simplified Onboarding: Faster merchant signup with less documentation
2. Reduced Costs: Lower processing fees due to volume discounts
3. Centralized Management: Single point of control for multiple merchants
4. Faster Implementation: No need for each merchant to obtain their own MID
## Risks and Challenges
1. Underwriting Risk: PayFac assumes liability for all sub-merchant transactions
2. Compliance Burden: Must monitor all sub-merchants for fraud and policy violations
3. Reserve Requirements: May need to maintain higher reserves due to aggregated risk
4. Chargeback Management: Higher overall chargeback ratios can jeopardize the master account
## Key Providers in Aggregation Payment Processing
– Stripe Connect
– PayPal Commerce Platform
– Square Marketplace
– Adyen for Platforms
– WePay (a JPMorgan Chase company)
## Regulatory Considerations
Payment aggregators must comply with:
– PCI DSS requirements
– KYC/AML regulations for all sub-merchants
– Card network rules (Visa/MC/Amex/Discover) for PayFacs
– Local financial regulations in each operating jurisdiction
Would you like me to elaborate on any specific aspect of aggregation payment processing?