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The method isn’t exactly new. PayPal Inc. has been signing merchant clients on its own account almost from the day it launched in 1998, for example. But the explosive potential for mobile acceptance has underscored the method’s advantages for boarding multiple merchants quickly and efficiently. Many, if not most, of these merchants are more like consumers, users that have only an occasional need to accept cards to sell items door-to-door or at craft fairs. Others are regular sellers but generate either very low volumes or high risk, or both.

These factors make underwriting for a conventional merchant account a tricky proposition, experts say, especially for so-called micro-merchants that can’t be counted on for large or predictable flows of transactions. “The process of getting these merchants into the system [with their own merchant account] is a lot of work,” says Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group LLC. “A lot of that is still very manual.”

Both PayPal and Square rely on a so-called payments-aggregation approach that lets tiny merchants piggy-back on the processor’s merchant account. To help independent sales organizations and other processors use the same model, Double Diamond Group and Rich Consulting Inc., Van Nuys, Calif., last week announced they are teaming up to offer consulting services, including advice on how to set up merchants and control transaction risk. Apparently there is plenty of appetite for aggregation among ISOs and other acquirers. “I’ve never seen anything like it,” says Ablowitz, who promoted the new consulting service at this week’s Electronic Transactions Association conference in Las Vegas. The reaction, he says, has been “wow, this is huge.”

Helping whet that appetite are recently enacted rules changes at Visa Inc. and MasterCard Inc., say Ablowitz and Deana Rich, president of Rich Consulting, a specialist in risk management for acquirers. Previously, Visa allowed payments aggregation only for merchants that sold on the Web. Now, the network allows the model for physical points of sale, as well, an approach also adopted by MasterCard. Merchants that exceed $100,000 in annual card sales for either brand, however, must establish a conventional merchant account. “There are lots of merchants where it would take you a while to get to $100,000,” notes Ablowitz.

Digital Transactions, April 19, 2012