Similarities and differences between India's Payment Aggregator Licence and UPI's Third Party Payment Licence www.deekpay.com

Payment aggregators in India

Payment aggregators in India, are payment service providers that enable e-commerce merchants to process payment transactions without the need to set up individual merchant accounts with banks. These aggregators allow businesses to accept various forms of digital payments, such as credit cards and bank transfers, through a single channel.

foundationReserve Bank of IndiaThe Guidelines for Payment Aggregators facilitate e-commerce platforms and merchants to accept payments from customers using different payment instruments. This eliminates the need for merchants to create separate payment integration systems. Payment aggregators act as intermediaries, connecting merchants with acquiring banks. They collect payments from customers, pool funds, and then transfer them to merchants after a certain period of time, usually after deducting a processing fee.

The main advantage of using a payment aggregator is the simplicity and convenience it offers. Businesses, especially small and medium-sized businesses, can accept multiple payment options without the administrative burden of setting up multiple merchant accounts with different banks or credit card companies. This not only simplifies the payment process, but also enhances the overall customer experience by providing more payment options.

Recommended Reading:Cross-border payment aggregator in India

UPI Third Party Payment TPAP

Unified Payment Interface of IndianamelyUPIIt is made up ofNational Payments Corporation of IndiaA real-time payment system developed. It enables users to link multiple bank accounts to a single mobile application for seamless payments, fund transfers, and financial transactions.Popular for its simplicity, security, and interoperability, UPI allows users to make instant payments from their mobile phones, bypassing traditional bank transfers or cash transactions.

Recommended Reading:What is UPI?

UPI useVirtual Payment Address (VPA) operates as a unique identifier similar to an email address, which allows users to send and receive funds securely without revealing sensitive bank details. Users can create links to their bank accounts VPAUPI uses advanced security features, including two-factor authentication and biometric verification, to ensure the integrity and security of transactions.

Recommended Reading:UPI Virtual Payment Address VPA

Legally speaking, UPI has transformed the digital payments landscape in India, enabling millions of users to conduct electronic transactions more conveniently and securely. Its integration with various banking platforms has made it the payment method of choice for individuals, businesses and government entities, further fuelling the country's shift to a cashless economy.

Importance of TPAP for Third Party Payments in UPI India

Third party application providers (TPAP) Provide enhanced functionality and services through their applications or platforms, which are essential for the realisation ofUPI TradingVery important.TPAP acts as an intermediary between the user and the bank to simplify the UPI experience.

A key role of TPAP is to simplify the UPI registration process. While UPI adoption is widespread, initial setup can be complex for some users.TPAP addresses this by providing a seamless introductory experience, guiding users through the registration process, and providing assistance as needed.

TPAP further enhances the UPI transaction experience by providing value-added services such as bill payments, mobile phone top-ups, airline ticket bookings and peer-to-peer lending, making it an integrated solution for a wide range of financial needs within the UPI ecosystem. This integration eliminates the need for users to switch between multiple applications or platforms.

In addition, TPAP offers an intuitive interface that simplifies the process of sending and receiving funds through UPI. They offer features such as transaction history, contact management and transaction categorisation, enabling users to easily track and manage their financial activities.

Recommended Reading:UPI Third Party Payment TPAP

The main difference between the two

The Payment Aggregator (PA) Licence and the UPI Third Party Application Provider (TPAP) Licence are two different regulatory frameworks managed by the Reserve Bank of India and the National Payments Corporation of India respectively. While both licences areDigital payments in Indiaintegral part of the ecosystem, but they serve different purposes and have different regulatory requirements.

Below is a detailed description of the main differences:

Purpose and function

Payment Aggregator (PA) Licence: Payment aggregators help e-commerce merchants to accept payments from their customers through various payment instruments (e.g. credit cards, debit cards, and online banking).PAs act as an intermediary between the merchant and the acquirer (bank), pooling customer payments and transferring them to the merchant after the settlement period.

PA is primarily focused on enabling businesses to accept online payments without the need for each merchant to have a separate payment integration with their bank.

UPI TPAP Licence: UPI TPAP is an application or platform that integrates with the Unified Payment Interface of India (UPI) system to provide enhanced functionality and services for UPI transactions.TPAP is responsible for providing the customer with a user-friendly interface to access UPI services, such as sending and receiving payments, bill payments and other financial services.

TPAP does not handle the actual settlement of funds, but provides the interface for initiating and processing UPI transactions.

regulatory body

Payment Aggregator (PA) Licence: PA licences are regulated by the Reserve Bank of India (RBI).RBI Specific guidelines have been laid down for entities wishing to operate as payment aggregators, including adherence to Know-Your-Customer (KYC) norms, data security, grievance redressal mechanisms and minimum capital requirements.

Recommended Reading:Reserve Bank of India RBI

UPI TPAP Licence: The UPI TPAP framework is regulated by the National Payments Corporation of India (NPCI), which oversees the UPI ecosystem. While the NPCI sets guidelines for TPAP, these entities must also comply with broader RBI regulations regarding data protection and transaction security.

Funds handling

Payment Aggregator (PA) Licence: PAs process and settle funds. They receive payments from customers on behalf of the merchant, pool those funds, and transfer them to the merchant after deducting fees and complying with the settlement cycle. This responsibility makes PAs accountable for the safe and secure handling of their customers' funds and therefore must comply with strict regulatory requirements.

UPI TPAP Licence: TPAPs do not directly process or settle funds. They only provide an interface for processing UPI transactions. The actual settlement of funds is managed by the banks connected to the UPI network. Since TPAPs do not handle funds, their regulatory requirements are more focused on user experience, data security and ensuring seamless transaction processing.

capital requirement

Payment Aggregator (PA) Licence: RBI has prescribed specific capital requirements for payment aggregators. For example, an entity applying for a PA licence must have a net worth of at least INR 150 million at the time of application and increase it to INR 250 million within three years of operation. This requirement ensures that PAs have the financial stability to manage the risks associated with processing and settling funds.

UPI TPAP Licence: Since UPITPAP does not handle funds directly, there are no specific capital requirements. However, TPAP must ensure that it has the resources needed to comply with NPCI technical and operational guidelines, including maintaining a robust IT infrastructure, data security measures, and customer support systems.

Risk and Compliance

Payment Aggregator (PA) Licence: Due to their role in the processing and settlement of funds, PAs are exposed to higher operational and financial risks. As a result, they must adhere to stringent compliance requirements, including auditing, reporting obligations, and adherence to anti-money laundering (AML) and counter-terrorism financing (CFT) guidelines.

PAs must also have robust risk management systems to mitigate fraud, chargebacks and other financial risks.

UPI TPAP Licence: TPAP is primarily concerned with ensuring the security and integrity of UPI transactions processed through their platform. While they are not responsible for funds processing, they are required to comply with the NPCI security standards, including data encryption, secure API integration, and user authentication mechanisms.

TPAP must also comply with privacy regulations to ensure that customer data is protected and not misused.

Recommended Reading:National Payments Corporation of India NPCI

Income model

Payment Aggregator (PA) Licence: PAs typically earn revenue by charging merchants a fee for processing transactions. This fee is usually a percentage of the value of the transaction and may vary depending on the payment method used.

In addition, PAs may offer value-added services, such as fraud detection, analytics and customer management, which can generate additional revenue streams.

UPI TPAP Licence: TPAP does not typically charge users for UPI transactions, as UPI is intended to be a low-cost payment system. Instead, TPAP can generate revenue by partnering with banks, providing premium services, or integrating other financial services (e.g., loans, insurance) within its platform.

Some TPAPs can also make money by offering targeted advertising or loyalty programmes to their users.

Customer Interaction

Payment Aggregator (PA) Licence: PAs primarily interact with merchants and focus on providing them with payment solutions. Customer interactions are typically limited to the payment interface provided by the merchant's website or application.

The PA is responsible for ensuring that the payment experience is smooth and secure, with minimal disruption to the customer.

UPI TPAP Licence: TPAP interacts directly with the end-user to provide a range of services within their application. This interaction is much broader and includes features such as transaction history, balance checking, bill payment, etc.

TPAP is responsible for ensuring a user-friendly experience with a focus on ease of use, fast transaction processing and responsive customer support.

concluding remarks

In summary, while both payment aggregators and UPI TPAPs play important roles in the digital payments ecosystem, they serve different purposes and are subject to different regulatory frameworks. Payment aggregators focus on enabling merchants to accept online payments by processing and settling funds, requiring them to comply with strict financial regulations. In contrast, UPI TPAP enhances the UPI transaction experience by providing customers with a user-friendly interface without directly handling funds, resulting in different compliance and operational requirements.

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