Payment Processing: Is Aggregation a Traffic Accident Waiting to Happen?

Was selecting your payment processor(s) planned and strategic, or a rushed afterthought? And what if you got it wrong? Part

This article was written by Stuart Ballan, Head of Sales, Middle East, at Counting House. He has over 25 years B2B experience, spanning gaming, payments, eCommerce, financial products, and more. For the last 7 years, Stuart has been immersed in the payment processing industry. He’s had many diverse articles published, and is a published book author.Stuart_Ballan

You’ve invested heavily and you’re ready to launch BestBinaryBrand.com or BestForexBrand.com. Top technology platform, beautiful offices, industry-experienced managers, multi-lingual sales acquisition and retention staff with best-in-class track records, and an affiliate network to be proud of. The office kitchen could easily be mistaken for an espresso machine showroom, your employees have open access to perpetually restocked fridges, bowls of polished fresh fruit are rarely further than arm’s length, and you’ve added a gym, including a punch-bag, boasting the names of your competitors, conveniently printed at shoulder height. Google, “eat your heart out”!

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Oh, and, err, what did you put in place for payment processing? After all, without dependable, diverse, and sustainable payment processing, all of the above are about as useful as a new Rolls Royce, without a fuel tank.

Part 1 of this series of articles, discusses credit and debit cards; the oxygen of all online industries.

How long before launch did you start thinking about payment processing? 4 months or 4 weeks? And what was important to you? Perhaps how quickly you can get the business out of the starting blocks, reducing the time you’ll be catapulted to riches? The cheapest payment processing rates? Or because your friends Johnny and Yoni did it “this way”, so it must be OK? Are there reasons why some payment processors will settle to you in several days, yet others in several weeks? Decided it’s because the latter just want to hold on to the money to make a bit of interest? If only it would be that simple. Fasten your seatbelts, let’s lift the rug a little, and see what’s underneath.

Part 1 of this series of articles, discusses credit and debit cards; the oxygen of all online industries.

Which payment service provider (PSP) did you choose, and why? If you were swept away by the euphoria of “processing in 48 hours”, you might not have asked enough questions. If you still think “aggregating” has something to do with geology, there might be a nasty surprise around the corner. Or perhaps you’ve already had the misfortune to have turned that corner? Of course, if you’re new to the industry, you probably didn’t know the questions to ask. Thus, this article.

Direct Merchant IDs

In the credit card world, some PSPs open direct channels for you with acquiring banks, called “Direct MIDs” (Merchant IDs) in the industry. It’s your dedicated “pipe” for processing credit cards.

Some PSPs open direct channels for you with acquiring banks, called “Direct MIDs”. It’s your dedicated “pipe” for processing credit cards.

In this model, all the cards are on the table. The acquiring bank processing your transactions is aware of your company, has reviewed your website, knows it’s binary options or forex, has assessed the risk, has approved you to use its credit card processing service, and in doing so, issued you a MID. Your MID. Only deposits from your traders, managed by your Compliance, and your Support team, will pass through your valuable MID.

How many banks have you worked with that work at the speed of light? Banks are procedure-based. Things take time. So, when, at 11am on a Monday, your PSP is promising you “live by Wednesday”, and you haven’t even filled out their application forms yet, take a deep breath and think how the acquiring bank could possibly receive a request to assess your website, review it, and approve it, in a couple of days. Unless you believe in magic, it’s probably a good time to ask your PSP if their solution is an aggregated one. “Aggregated”? Read on ..

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Aggregation

At the other extreme, some PSPs will open MIDs with their acquiring bank(s), and let tens of merchants (brokers) process through each individual MID at the same time. Worse still, they might have “forgotten” to mention it.

Some PSPs will let tens of merchants (brokers) process through each individual MID at the same time.

Imagine you’re driving down a 10-lane highway. In the same way that drivers you don’t know unexpectedly change lanes, causing accidents, injury and fatalities, activities of the 10 different merchants (brokers) sharing a MID can detrimentally affect each other. Would you want to risk instantaneously losing your credit card facility because one of the other brokers sharing your MID, who you don’t know exists, did something that created enough wind for the invisible house of cards to fall down? Furthermore, in this aggregating environment, it’s also possible, if not likely, that the acquiring bank doesn’t know the MID is being covertly used as a 10 (or 20, or 30 …)-lane highway, and if it would find out, you could expect an immediate roadblock, bringing all current traffic using it to an abrupt halt. And as for new traffic (transactions) entering this highway, sorry, there’s now a big “no entry” sign at the entrance.

It’s possible that the acquiring bank doesn’t know the MID is being covertly used as a 10-lane highway, and if it would find out, you could expect an immediate roadblock.

And if the bank didn’t know the MID was being used for aggregation, it’s unlikely it knows the MID is being used for binary options or forex transaction processing. If the bank gets a whiff that their MID, approved for, say, eCommerce, is being used for other industries, how do you think it will react? Yes, sharp knife, road block, funds frozen, as above.

With non-settled funds being held by the bank for an undetermined amount of time, probably awaiting an investigation, it is quite possible the PSPs offering aggregating services offer much longer settlement time than those offering Direct MIDs. Without being asked, and without knowing it, merchants effectively indirectly fund the extra liquidity needed to enable the aggregating PSP to operate.

As I wrote above, for a Direct MID, the bank has reviewed and approved your website, which by definition, always adds time to the process. So if you’re being promised “immediate” credit card processing, the writing is perhaps on the wall regarding if you’re to be processed direct, or via aggregation.

At the dark grey extreme of “50 shades of industries”, Direct MIDs are about as plentiful as money growing on trees, and aggregation might be the only available solution.

I’m not saying that aggregating is always wrong, and that Direct MIDs are always the only proper way forwards. At the dark grey extreme of “50 shades of industries”, Direct MIDs are about as plentiful as money growing on trees, and aggregation might be the only available solution. Those operating in such industries are likely to understand this, otherwise they wouldn’t be/survive there, and the payment processors serving these controversial industries will stand out like a sore thumb, starting with their very high processing rates (supply and demand), to their probable lack of any (meaningful) regulation.

What is wrong, though, is for PSPs to sign up adrenalin fuelled merchants, turned on by getting online in days, without such merchants being told that the solution is based on aggregation, thereby negating the merchant’s ability to make an informed decision.

If you do select a credit card processing solution based on aggregation, you had better know you’ve done so, because at least if your business gets involved in the proverbial 10-lane pile up on the highway, you’ve probably planned a little for it, and are hopefully wearing a seat belt.

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