Ask HN: Need to handle Cash-back processing, what's the best way?

I've 2 kinds of users on my service - Merchants and Consumers (which are actually Merchants' customers). Merchants want to give cash-back to consumers. I handle all technology and analytical part i.e. which Consumer should get how much cashback from which Merchant.

I charge Merchant monthly fee for this solution, and do not take any % cut from the cash-back amount he pays to Consumers.

To handle cash-back processing, Merchants pay me the amount they owe to Consumers - may be on a weekly basis, and then I distribute it to Consumers on a weekly basis.

Now, what are the different costs associated with this approach? Say merchant pays me $100 as a cash-back money, which I want to distribute to Consumers as it is i.e. all $100. How much overhead/processing fee I would need to pay to handle all this payment processing?

Now what's the best way to handle the actual payment processing? Paypal or Check via snail-mail or any other way? Please advice on how can I reduce this expense and increase my margin.

Thanks!