Introduction:

Online transactions have become standard practice, necessitating that businesses have reliable and secure payment solutions to cater to their customers' needs. Effective payment solutions allow businesses to streamline operations, automate payment processing, and manage financial transactions efficiently, ultimately contributing to their success in the competitive online marketplace. Among the various entities involved in a payment system, Payment Gateways and Payment Aggregators are particularly important for merchants to comprehend.

Grasping the differences between a payment aggregator and a payment gateway is essential for businesses. This article will explore these differences by highlighting the features and benefits of each, helping you determine the most efficient payment option for your business and customers.

What is a Payment Gateway?

Payment gateways act as an intermediary between merchants and financial institutions, such as acquiring banks, networks, etc. A payment gateway is a technology that ensures the secure transfer of payment data from the merchant to the issuing bank via acquiring banks and networks.

To put it simply, a payment gateway is a service provider that enables merchants to accept payments from their customers on their website or application through an acquiring bank. Payment gateways are usually associated with card transactions. Even within UPI, an acquiring bank employs technological solutions that function similarly to Payment Gateways.

In order to understand how a payment gateway works, let's first understand all the entities connected to it.

  • Acquiring bank:

An acquiring bank is a financial institution that processes customer payments made through debit cards, credit cards, and UPI on behalf of a merchant. It transmits payment information, such as the payment amount and payment instrument details (e.g., debit/credit card information), to the issuing bank via networks and collects payments from the issuing bank.

  • Issuing bank:

As the name implies, an issuing bank issues credit/debit cards or a virtual payment address in the case of UPI payments on behalf of networks. The issuing bank authorizes and releases funds on behalf of the customer to the acquiring bank.

  • Networks:

Networks act as intermediaries between the acquiring and issuing banks, acting as intermediaries between them. Networks establish a connection between the merchant's acquiring bank and the customer's issuing bank to verify the payment details and the available funds/credit in the customer's account for the purpose of processing the payment.

When a customer makes a payment on a merchant’s website, the acquiring bank sends the payment information to the payment gateway, which then processes the transaction. It's important to note that the payment gateway does not transfer funds; it only transfers payment information. The authority to move funds rests solely with the acquiring and issuing banks.

Prominent Payment Gateways in India include Cybersource, Mastercard Payment Gateway Services (MPGS), ISG, and Financial Software & Systems (FSS).

What is a Payment Aggregator?

A payment aggregator is a payment solution or a platform provider that aggregates various payment modes such cards, UPI, net-banking, wallets and alternate credit products by partnering with various processing entities such as acquiring banks, direct banks (in case of net banking) and issuers of wallets and alt credit products on to a single platform. A merchant can integrate with a payment aggregator and enable various payment options for its customers to make the payment.

In simple terms, a payment aggregator provides a stack of multiple payment methods to the merchants so that their customers can pay using their preferred mode of payment. Also, a payment aggregator does fund settlement, i.e. it moves the money from banks and other issuing entities to the merchants.

Roles & Responsibilities of a Payment Aggregator

Payment aggregators consolidate various payment modes by partnering with acquiring banks, enabling businesses to accept payments. Here are the key features and responsibilities of a payment aggregator:

  1. Merchant Onboarding : Payment aggregators onboard merchants to provide payment options like cards, UPI, wallets, etc., for their customers.
  2. Transaction Processing : They collect payment information from the merchant and send it to acquiring banks or relevant PSPs or banks to process the transactions.
  3. Settlements : Payment aggregators handle settlements for merchants by collecting payments from partner entities (banks, issuers, PSPs) and depositing them into the merchant's account within a specified timeline (T+0, T+1, T+2 days).
  4. Refunds & Chargebacks : They process refunds for merchants and coordinate with the acquiring bank and merchant to resolve chargebacks or disputes.
  5. Support : Payment aggregators provide support to merchants for integration and operational issues.
  6. Compliance : They ensure adherence to security standards and compliances as directed by RBI, card networks, and their banking partners, thereby providing a secure payment platform for merchants and their customers.
  7. Dashboard : Payment aggregators offer a dashboard for merchants to track payment-related activities, and some also provide data analytics through their dashboards.

By partnering with acquiring banks, payment aggregators enable multiple payment options on a merchant’s payment page. The acquiring bank then uses a payment gateway to process the payment information.

Payment Gateway vs Payment Aggregator:

A payment gateway is a component of a payment aggregator. A payment gateway securely transfers customer payment data from a website or app to the payment processor. On the other hand, a payment aggregator streamlines the payment process by consolidating multiple merchant accounts into a single account, making it easier for businesses to accept payments without needing individual setups. While both facilitate online transactions, there are distinct differences between them.

 

Payment Aggregator

Payment Gateway

Authorisation Protocols
  • A non-bank payment aggregator necessitates authorization from the Reserve Bank of India pursuant to the Payment and Settlement Systems Act.
  • A bank payment aggregator does not require this as banks already manage funds in their daily operations.
  • Bank payment gateways are required to adhere to the 'Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Banks' notification issued by the RBI and any subsequent notifications.
  • Non-bank payment gateways should follow the guidelines issued by the RBI for technology providers for banks.

Capitalisation Guidelines
  • Non-bank payment aggregators must have a net worth of ₹15 crore by March 15, 2021, and a net worth of ₹25 crore by March 31, 2023. They must maintain a net worth above ₹25 crore thereafter.
  • The RBI does not impose capitalization guidelines on payment gateways.

Governance Structure
  • It is imperative that payment aggregators are professionally managed and their promoters meet the appropriate criteria established by the RBI.
  • The RBI does not impose any distinct governance guidelines on payment gateways.

Preventing Money Laundering
  • Payment aggregators are required to comply with the guidelines issued by the RBIs Department of Regulation in their 'Master Direction - Know Your Customer (KYC) Directions' and any alterations made to the same.
  • Payment gateways are required to adhere to the guidelines established by the RBI's Department of Regulation in their 'Master Direction - Know Your Customer (KYC) Directions' and any alterations made to the same.

Merchant Onboarding Process
  • They must establish a board-approved policy for merchant onboarding.
  • It is imperative that they ensure that the merchants refrain from storing customer card information.
  • Additionally, they are responsible for ensuring PCI-DSS and PA-DSS compliance.
  • The RBI does not have specific merchant onboarding guidelines.

Services Provided
  • Provides additional services, such as reporting and analytics.
  • This service solely provides transaction processing services.

Integration
  • The requirement is that you integrate with only one service provider.
  • This requires you to integrate with each payment method or bank separately.

 

What to choose between Payment Gateway and Payment Aggregator?

Choosing between a payment gateway and a payment aggregator depends on the specific needs and resources of your business. A payment gateway is ideal for larger businesses with high transaction volumes and the technical capability to handle complex integrations and compliance requirements. It is ideal for larger businesses with high transaction volumes and the technical capability to handle complex integrations and compliance requirements. It provides greater control and potentially lower transaction fees for high-volume transactions. A Payment Aggregator is well-suited for small to medium-sized businesses seeking a quick and easy setup with a variety of payment options. Payment aggregators simplify the onboarding process and handle compliance and risk management, although they often charge a higher transaction fee. Ultimately, the determination is contingent upon the size of your enterprise, the volume of transactions, your technical proficiency, and your preference for ease of use versus control and customization.

Conclusion:

In conclusion, it depends on your business's scale and needs to choose between a Payment Gateway and a Payment Aggregator. Larger companies who prefer control and customization often opt for Payment Gateways, which offer lower costs for high volumes. Smaller businesses or those who prioritize ease of setup and diverse payment options typically prefer Payment Aggregators, despite slightly higher transaction fees. Understanding these differences and aligning them with your business goals ensures that you choose the optimal payment solution to enhance efficiency, customer satisfaction, and overall success in the digital marketplace.