Razorpay Payment Gateway: a complete overview of what you need to know about payment aggregators in 2022

Payment or merchant aggregators are third-party service providers that help businesses receive customer payments by integrating into their websites or applications. In other words, a payment aggregator (PA) is a company that connects merchants with acquirers.The PA provides you with sub-merchant accounts and accepts consumer payments on your behalf. Eventually, it will transfer funds to you in stages. This process is known as the settlement period. They offer a variety of payment options such as Unified Payment Interface (UPI), net banking, credit cards, debit cards, wallets, instalments, deferred payments, etc.

How does a Payment Aggregator (PA) work?

Payment aggregators involve multiple steps in payment processing.

Customers make payments

Whenever a customer makes a payment through net banking, UPI, debit card or any other payment method, PA encrypts these payment details. PA then performs fraud analysis and later transfers the funds to the acquiring bank's bank.

PA's acquirer receives transaction information

The acquirer of the payment aggregator receives the transaction data. After validating the payment details, the acquirer passes the customer information to the appropriate card company.

Card companies conduct fraud checks

Upon receipt of the transaction information from the acquirer, the card company verifies that the card was issued by it and conducts a fraud investigation. After that, it passes the information to the card issuer through the payment processor.

Card issuer accepts/rejects the transaction

The customer's bank is known as the card issuer or card issuer. This bank verifies the customer's information and determines whether there are sufficient funds in the account.

After that, it sends a transaction approval or rejection message to the card network. From here, the transaction approval message returns along the same path - card issuer → card network → acquirer/acquiring bank → payment aggregator. The payment gateway informs the merchant about the status of the transaction regarding its merchant payment and then the merchant informs the consumer.

payment settlement

Once the transaction is approved, the acquiring bank requests cash from the issuing bank. As mentioned earlier, this is the acquiring bank connected to the payment aggregator. The payment aggregator settles the funds in the merchant's account. Settlement may be routine and take T+2 to 4 days. On the other hand, settlement can be instantaneous, taking as little as 15 minutes!

Payment aggregator companies in India

There are two types of payment aggregators in India. One is private (third party) payment aggregators and the other is payment aggregators provided by banks. Until a few years in the early 21st century, payment aggregator services were available only through banks. On the other hand, most merchants were looking for technologically advanced payment options. This gap was filled by third-party payment aggregators who disrupted the industry with their innovative solutions.

However, a separate RBI authorisation is required for non-bank payment aggregators. This is because "managing funds" is considered a typical part of a bank's PA work.

PayU's aggregator service makes the payment process easier for e-commerce marketplaces and small businesses. If you are developing a business that connects buyers and sellers, you can use your PayU account to get your sellers paid. An aggregator solution can complete multiple settlements on an approved transaction.

Difference between Payment Aggregator and Payment Gateway

Payment aggregators provide customers with multiple payment options without the need for separate integrated systems. Payment Gateways (PGs) provide the technical infrastructure to help people make online payments.

This is the key difference between a payment aggregator and a payment gateway. Payment aggregators are responsible for funding, while gateways are only responsible for technology.

Let's dive into the difference between PA and PG.

authorisation

As mentioned above, NBFC payment aggregators require a separate authorisation from RBI, which can be obtained from the Payment and Settlement Systems Department.

Payment gateways are technology providers to PAs. They are not required to obtain authorisation from RBI as long as they follow RBI's guidelines on managing risk and code of conduct for outsourced financial services.

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Payment aggregators must be managed in accordance with RBI's suitability criteria.

Anti-Money Laundering Measures

All payment aggregators follow RBI's Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating Terrorist Financing (CFT) standards.

In addition, the payment gateway performs a risk assessment. From a contractual or commercial compliance perspective, this can detect any weaknesses or risks to the confidentiality or integrity of assets.

Seller/Merchant Access

PA has adopted a merchant access policy. They conduct background checks on merchants to verify that they are not engaged in fraudulent practices or selling counterfeit goods.

Payment aggregators also ensure compliance with the Payment Application Data Security Standard (PA-DSS) and the Payment Card Industry Data Security Standard (PCI-DSS).

Payment gateways follow the same guidelines during the merchant access process. They conduct extensive security assessments.

Frequently Asked Questions

What is the difference between a payment aggregator and a payment gateway? Payment aggregators handle funds and payments, while payment gateways provide the technical infrastructure. This is the key difference between a payment aggregator and a payment gateway. Payment aggregators are responsible for funding while gateways are only responsible for technology. What are the capital requirements for payment aggregators? Existing PAs have to reach a net worth of Rs 1.5 crore by 31 March 2021 and Rs 2.5 crore by the end of the third financial year, i.e. by 31 March 2023. Thereafter, a net worth of Rs 2.5 billion has to be maintained. Can a payments company act as both PA and PG? Merchants or vendors are usually gateways. Not all companies can operate as payment aggregators as it requires a lot of resources and commitment. However, some payment companies act as both PA and PG, which is known as a hybrid model. What are some examples of payment aggregators? A payment aggregator is a collection of multiple payment gateways. A service provider will integrate multiple e-payment methods such as different payment gateways and bring them all into one platform.Payment aggregator services such as Billdesk and Instamojo are two well-known examples. Is the Unified Payment Interface (UPI) a payment aggregator? Payment aggregators can use traditional payment methods such as debit cards, credit cards, wallets, UPI, etc. to collect payments. Payment aggregators act as a middleman, bridging the gap between the payer (customer) and the recipient (merchant).