Payment Aggregator 101
Merchant A: Hey! I heard you started selling online. How’s that going?
Merchant B: It’s going well…but I’m struggling with payment acceptance. I need something simple!
Merchant A: Okay…I know what you should consider. Instead of getting your own bank account for payments, you can use a service that handles it all for you.
Merchant B: What’s that?
Merchant A: Well, with that service your customer can pay with their card, UPI, or any other method.
Merchant B: So, I don’t have to set up anything by my own?
Merchant A: Exactly! You just sign up with the service, and they take care of processing the payments. It makes everything much easier.
Merchant B: That sounds great! What about security?
Merchant A: They handle that too. They make sure all the payment information is safe, so you don’t have to worry about it.
Merchant B: Perfect! I’ll definitely check that out. Thanks for the tip!
Perplexed what both merchants are discussing about?
Well….
It’s none other than the “Payment Aggregator aka PA”!
Payment Aggregator?
Payment Aggregator is a service that combines different payment methods — like cards, UPI, net banking, digital wallets, etc — into one platform. This allows merchants to offer multiple payment options to their customers without needing to build complex technology themselves. By partnering with banks and payment providers, a payment aggregator simplifies the payment process, making it easier for customers to pay in their preferred way.
Popular payment aggregators in India include Razorpay, PhonePe, Paytm, PayU, Billdesk, etc.
Types of PAs in India
1. Bank Payment Aggregators
- What Are They: These are payment services operated by banks.
- How They Work: Help merchants process payments directly through the bank’s systems.
- Example: HDFC, ICICI, etc..
2. Third Party Payment Aggregators
- What Are They: These are independent companies that offer payment processing services.
- How They Work: They connect merchants to various payment methods through their platforms.
- Example: PayU, Bill desk, etc..
Got the basics of PA down!
But what makes PA such a valuable asset for merchants?
Key Features of PAs:
- Simplified Onboarding: Provides an easy and quick setup for merchants, reducing the time and complexity typically associated with integrating payment systems.
- Convenience: Consolidates multiple payment methods — cards, UPI, digital wallets, bank transfers, etc — into one platform, allowing customers to pay using their preferred method seamlessly.
- Cost Efficiency: Offers competitive rates and lower fees compared to traditional payment processors, making it more economical for small and medium-sized businesses.
- Enhanced User Experience: Improves the overall shopping experience, reducing cart abandonment rates and increasing customer satisfaction.
- Secured Payment Processing: Prioritizes security by employing advanced encryption and compliance with industry standards, protecting sensitive customer data, and minimizing fraud risks.
Alright…
Let us know how payment aggregation actually works!
- The customer selects the product and proceeds to checkout
- Enters payment details (let us consider that the customer uses a credit card for payment)
2. Payment Aggregator receives the transaction information
- Sends transaction details to the acquiring bank
3. Acquiring bank verifies details
- Sends customer information to the card network
4. The card network forwards information to the issuer bank
5. The issuer bank verifies customer details and funds
- Sends transaction approval or denial to the card network
6. Information flows back through the same route
- Card network to the acquiring bank
- Acquiring bank to the payment aggregator
7. Payment Aggregator informs merchant of transaction status
- Merchant informs customer
8. Payment Aggregator settles funds in the merchant account
Roles and Responsibilities of PA:
- Merchant Onboarding and Verification: The first step involves signing up merchants by gathering necessary information and ensuring compliance with terms and conditions.
- Integration: Once approved, the PA provides integration options, such as APIs and plugins, allowing merchants to easily connect their websites or applications to the aggregator’s platform. This ensures a seamless payment experience for customers, enabling them to pay using various methods like cards, UPI, digital wallets, etc.
- Processing: The aggregator collects payment information from merchants and communicates with acquiring banks or relevant payment service providers (PSPs) to process these transactions.
- Settlement: After payment processing, the PA is responsible for settling funds. They collect payments from partner entities and deposit the funds into the merchant’s account within a predefined timeline (typically T+0, T+1, or T+2 days).
- Additional Services: Beyond these core functions, PAs often provide value-added services such as recurring billing, subscription management, fraud detection and prevention, etc.
Here is one last burst of flavor before the curtain drops!
The Reserve Bank of India (RBI) regulates PAs to ensure a secure and efficient payment ecosystem, and the key regulations include:
- Registration Requirement: All payment aggregators must obtain a license from the RBI to operate in India.
- Capital Requirements: PAs must maintain a minimum net worth, which is currently set at ₹15 crore, to ensure financial stability.
- KYC Norms: PAs must conduct Know Your Customer (KYC) verification for merchants before onboarding them.
- Data Security: PAs must adhere to strict data security standards to protect sensitive payment information.
