One of the biggest risks to your business when using a payment aggregator, such as PayPal or Stripe, may be the inherent nature and structure of the payment system itself. If you are considering choosing an aggregated payment system and have not fully informed yourself on the potential pitfalls, below is a list of some of the dangers of going with an aggregator.
They aren’t banks or traditional service providers. Unlike traditional banks or credit card processing systems, these types of merchant services providers are not legally considered to be banks, nor are they required to comply with relevant banking regulations or even be PCI compliant.
They create liability and risk. Because they are not recognized as banks, this creates serious risk and liability for the the merchant because the aggregators are not obligated to observe the same rules and regulations regarding fraud and other illegal activity prevention. This reality can affect the amount of control that you end up being able to exert over your funds.
Aggregators control the money. A merchant services provider typically is not required to disburse your funds until the transaction can be proven to meet compliance requirements, especially where fraud is concerned. Without PCI compliance in place, this process can take much longer than it normally would, meaning the aggregator controls your money for longer periods of time.
Greater potential for frozen funds. Because of their susceptibility to fraud and other illegal activity, aggregators run the risk of having their funds frozen by the federal government while an inquiry is conducted into their legitimacy. This could end up causing devastating cash flow problems that affect your access to credit.
False alarms. Another potential pitfall of using an aggregator is that if your business, for one reason or another, begins to receive a higher than normal number of chargebacks, it could be interpreted as a sign of fraud and your funds could once again end up frozen and inaccessible.
Aggregators are, simply put, more risky. The potential for fraudulent activity and the fact that they operate outside of standard banking rules and regulations means that using them puts you and your business at risk. If you are considering choosing an aggregator, but are unaware of some of the potential downsides, consider the above five dangers and make the best choice possible for your business.