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providing an account to a merchant. You still have to
get it done."
Potential aggregators should also be aware of a
movement underway at the state level to regulate
aggregators as money transmitters. In January 2013,
Square was slapped with a cease-and-desist order by
the state of Illinois for not complying with its person-
to-person money transfer rules. Aggregators may one
day have to pay annual money transmitter fees to do
business in each state, according to Alarakhia.
Embedding into the transaction lifecycle
Alarakhia noted that, in order to be profitable,
aggregators must have more transaction volume than
traditional MSPs, since the amount of payments per
merchant is, by definition, lower in the aggregation
model. But payment software developer PayCube Inc.,
which builds proprietary technology infrastructure
such as gateways and mobile wallets, believes ISOs
can make more money in the long run by becoming
aggregators.
PayCube Principal and co-founder Mustafa Shehabi said
the typical ISO is a reseller of the payment processor's
services. "They are completely devoted to just making
the sale happen and collecting the residuals as part of
the transactions happening between the merchant and
the processor," he stated.
In Shehabi's view, the traditional ISO is just the
facilitator of transactions, "not a player in the middle
of the life of transactions." But an ISO that becomes an
aggregator takes a central role in that lifecycle.
"The merchant's transactions come to you as an
aggregator," Shehabi said. "And you actually send that
transaction to the processor for authorization. And
therefore, when the processor issues the settlement
funds, it sends the funds to the aggregator, not the
merchant. … And then the aggregator does its own
settlement to divvy out what belongs to merchants."
It follows that by becoming an active participant in
the transaction flow, aggregators make bigger profits.
"Obviously the more you do, the more you get paid,"
Shehabi said. "It's a financial step up."
Controlling your destiny
Beyond the financial benefits of aggregation, the model
may provide the most valuable commodity of all − self
sufficiency. ISOs that resell the services of third-party
vendors are beholden to those vendors; it is not the
strongest position to be in, especially during uncertain
and volatile financial times.
"They are not able to control their destiny," said
Chandan Mukherjee, also a Principal and co-founder
of PayCube. "But you need to control your own destiny
39
providing an account to a merchant. You still have to
get it done."
Potential aggregators should also be aware of a
movement underway at the state level to regulate
aggregators as money transmitters. In January 2013,
Square was slapped with a cease-and-desist order by
the state of Illinois for not complying with its person-
to-person money transfer rules. Aggregators may one
day have to pay annual money transmitter fees to do
business in each state, according to Alarakhia.
Embedding into the transaction lifecycle
Alarakhia noted that, in order to be profitable,
aggregators must have more transaction volume than
traditional MSPs, since the amount of payments per
merchant is, by definition, lower in the aggregation
model. But payment software developer PayCube Inc.,
which builds proprietary technology infrastructure
such as gateways and mobile wallets, believes ISOs
can make more money in the long run by becoming
aggregators.
PayCube Principal and co-founder Mustafa Shehabi said
the typical ISO is a reseller of the payment processor's
services. "They are completely devoted to just making
the sale happen and collecting the residuals as part of
the transactions happening between the merchant and
the processor," he stated.
In Shehabi's view, the traditional ISO is just the
facilitator of transactions, "not a player in the middle
of the life of transactions." But an ISO that becomes an
aggregator takes a central role in that lifecycle.
"The merchant's transactions come to you as an
aggregator," Shehabi said. "And you actually send that
transaction to the processor for authorization. And
therefore, when the processor issues the settlement
funds, it sends the funds to the aggregator, not the
merchant. … And then the aggregator does its own
settlement to divvy out what belongs to merchants."
It follows that by becoming an active participant in
the transaction flow, aggregators make bigger profits.
"Obviously the more you do, the more you get paid,"
Shehabi said. "It's a financial step up."
Controlling your destiny
Beyond the financial benefits of aggregation, the model
may provide the most valuable commodity of all − self
sufficiency. ISOs that resell the services of third-party
vendors are beholden to those vendors; it is not the
strongest position to be in, especially during uncertain
and volatile financial times.
"They are not able to control their destiny," said
Chandan Mukherjee, also a Principal and co-founder
of PayCube. "But you need to control your own destiny
39
