Master merchant: Definition, types, and examples

What is a master merchant?

A master merchant, often referred to as a payment facilitator or merchant aggregator, is a third-party agent that acts as the link between acquirers and online merchants. The master merchant holds the master contract with an acquirer and can offer subcontracts to online merchants and content providers, allowing them to offer credit card and other payments through their online stores and experiences.

The master merchant is the primary account holder for a payment processing system, overseeing and managing multiple subordinate accounts, often referred to as sub-merchants. This setup is commonly used in marketplaces, software platforms, or businesses that facilitate payments for a network of sellers, service providers, or smaller businesses. The master merchant establishes a relationship with a payment processor or acquiring bank and is responsible for ensuring compliance with payment regulations, handling transaction processing, and managing risks associated with payments on behalf of the sub-merchants.

For example, for a roofing contractor company, the software would act as the master merchant, setting up the infrastructure for contractors (sub-merchants) to receive payments from customers. The master merchant simplifies the onboarding process for sub-merchants by handling the complexities of payment integration, security requirements, and compliance. This model allows sub-merchants to focus on their core activities while benefiting from streamlined access to payment services.

What’s the relevance of a master merchant in software-led payments and financial services?

The master merchant is increasingly relevant in the world of software-led payments and financial services, where seamless transactions are integrated directly into applications, platforms, and services. Enabling the complexities of payment processing, compliance and risk management on behalf of sub-merchants, a master merchant makes software payments systems accessible to the smallest of small and medium-sized businesses, who often lack the resources to handle these tasks independently.

In software-led payments, with transactions occurring within a platform ecosystem, the master merchant is the financial backbone. For example, within software platforms, the master merchant (the software company) ensures that transactions flow smoothly from customer to business without requiring users to leave the platform. This creates integrated, streamlined experiences that are essential to businesses and sellers competing in modern digital-first environments.

Beyond payments, the master merchant plays an increasingly important role in embedded finance, which covers services like lending, insurance, and banking features integrated into non-financial platforms. For example, a master merchant can facilitate buy-now, pay later (BNPL) options within their software platform to make payments accessible based on their customer’s needs.

3 things you should know about a master merchant

1. Simplifying payments for sub-merchants

Master merchants act as the central payment facilitator, handling all regulatory and technical aspects of payment processing for sub-merchants. This allows sub-merchants to connect and onboard to the payments ecosystem efficiently and quickly, avoiding the complexity and hurdles associated with needing to establish their own merchant accounts.

2. Assuming responsibility for compliance and risk

Master merchants assume responsibility for compliance with card network and payment regulations. fraud prevention, and risk management. The master merchant also ensures that sub-merchants adhere to key legal requirements, such as Know Your Customer (KYC), and manage chargeback and dispute processes. This level of oversight from the master merchant reduces burden on sub-merchants while centralizing risk management with the master merchant.

3. Capturing revenue through software-led payments

A master merchant can earn revenue by facilitating payments, usually through transaction fees or revenue sharing with sub-merchants. By integrating payment capabilities directly into their platform or software, the master merchant creates seamless user experiences for both sub-merchants and customers, helping to drive customer engagement and unlocking additional revenue streams.

Examples of a master merchant

Across a variety of industries and payment presentment environments, the master merchant drives payment facilitation for a group of sub-merchants. A master merchant can serve both card-not-present and in-person (card-present) sub-merchants, providing solutions that suit the needs of diverse business models. Enabling small businesses to accept payments through a SaaS platform or integrating payments into physical point-of-sale experiences, the master merchant can create seamless experiences for both merchants and their customers.

Card-not-present integrated payments
- eCommerce Marketplaces
- SaaS platforms for scheduling fitness and wellness classes and appointments
Card-present integrated payments
- POS systems, including those serving specialized industries, such as restaurants/food service and healthcare systems
- Card terminals/kiosks in co-working or space-sharing platforms and environments

Master Merchant FAQ

What are the benefits of being a master merchant?

Being a master merchant offers several benefits, including:

Revenue generation: through transactions fees or revenue sharing, master merchants can create additional revenue streams.
Streamlined payment control: centralizing payment processing enhances efficiency and allows the master merchant to control compliance, fraud prevention and risk management.
Enhanced customer experience: by integrating payments into their platforms, master merchants offer a seamless, user-friendly payment experience that can improve customer retention.

How do sub-merchants benefit from working under a master merchant?

Sub-merchants get significant advantages, including:

Simplified onboarding: sub-merchants can quickly begin accepting payments without the need to establish their own merchant accounts.
Reduced complexity: the master merchant takes care of compliance, fraud, and chargeback management, among other things, lessening administrative burden on sub-merchants.
Access to technology: sub-merchants benefit from an integrated payment solutions, such as point-of-sale systems or online payment gateways, provided by the master merchant.

What industries commonly use the master merchant model?

The master merchant model is common in industries that involve marketplaces or platforms with multiple sellers or service providers. Some examples include:

Software-as-a-Service: think tools for appointment scheduling or invoicing for gyms, fitness and wellness studios, or other vertically focused software providers
Point-of-sale providers: solutions for restaurants (example: Toast)
Gig economy platforms: such as ride sharing or freelance platforms that connect service providers with their customers
eCommerce marketplaces: think platforms like Etsy or Amazon