Everything you need to know about payment aggregator

When starting an Internet business, you must manage several aspects simultaneously, including product supply, inventory control, logistics, etc. However, if there is one topic that draws a lot of attention, it is the acceptance of online payments.

The majority of businesses seek to find solutions to begin collecting payments online that result in the fewest payment failures and the best possible client experience. If you are starting an online business, you are looking for the best payment solution and have likely come across terms like “Payment Gateway” or “Payment Aggregators.”

This article explains everything you need to know about Payment Aggregator.

Payment Aggregator meaning

A payment aggregator, also known as a payment facilitator or a payment service provider, is a company or platform that enables businesses to accept electronic payments from customers. It acts as an intermediary between the merchant (seller) and the financial institution (such as a bank) that processes the payments.

Payment aggregators simplify the payment process for smaller businesses and individuals needing more resources or technical expertise to establish direct relationships with payment processors or acquire merchant accounts. By partnering with a payment aggregator, these businesses can quickly and easily accept various payment methods, such as credit cards, debit cards, e-wallets, and other digital payment options.

Relationship between Payment aggregator, Payment gateway and payment orchestration

To understand the relationship between a payment aggregator, payment gateway, and payment orchestration, let’s explore each concept individually:

• Payment Aggregator: A payment aggregator, also known as a payment facilitator or payment service provider, acts as an intermediary between merchants (sellers) and financial institutions to facilitate electronic payment processing. The payment aggregator enables businesses to accept various payment methods by providing a unified platform or API integration that simplifies payment acceptance. It typically handles tasks such as onboarding merchants, integrating payment methods, processing transactions, and settling funds in their accounts. Payment aggregators often cater to smaller businesses or individuals needing direct relationships with payment processors or acquiring banks.

• Payment Gateway: A payment gateway is a technology infrastructure that enables the secure transmission of payment data between an online merchant, the customer, and the acquiring bank or payment processor. It serves as the bridge between the merchant’s platform and the financial institution, ensuring that payment information is transmitted securely and facilitating the authorization and processing of transactions. The payment gateway encrypts and sends the customer’s payment data to the acquiring bank for approval. It then relays the authorization status to the merchant, allowing the transaction to proceed or decline. Payment gateways often incorporate security measures like tokenization and fraud detection to protect sensitive payment information.

• Payment Orchestrator: Payment orchestration involves managing and optimizing payment flows by dynamically routing transactions to the most appropriate payment methods and providers. It involves intelligently orchestrating payment requests based on cost, reliability, currency, customer preferences, and other relevant criteria. Payment orchestration platforms or solutions analyze various payment options, such as credit cards, alternative payment methods, or localized payment providers, and determine the best routing strategy for each transaction. The goal is to maximize transaction success rates, enhance conversion rates, and optimize costs by leveraging multiple payment providers and methods. Payment orchestration platforms often integrate with payment gateways, processors, and other financial service providers to facilitate seamless transaction routing and processing.

How does a payment aggregator work?

Now that we’ve taken you through the payment aggregator meaning, let’s understand how it works. Here’s a general overview of how a payment aggregator works:

• Onboarding and Account Setup: Merchants interested in using the services of a payment aggregator go through an onboarding process. They provide relevant business information, complete applications, and agree to the aggregator’s terms and conditions. This may involve submitting identification documents, business details, and banking information and undergoing a risk assessment.
• Payment Integration: Once onboarded, the payment aggregator provides the necessary tools and resources for integrating payment functionality into the merchant’s website, mobile app, or other sales channels. This often involves using APIs (Application Programming Interfaces) or plugins that enable the secure transmission of payment data between the merchant’s platform and the aggregator’s systems.
• Payment Collection: When a customer purchases, the payment aggregator handles the transaction process. It securely captures and encrypts the customer’s payment information, including credit card details, bank account information, or digital wallet credentials. The aggregator then transmits the encrypted data to the relevant payment processor or acquiring bank.
• Authorization and Settlement: The payment processor or acquiring bank receives the transaction data from the payment aggregator and performs necessary validation, fraud checks, and authorization procedures. If the transaction is approved, the funds are reserved or captured from the customer’s account, depending on the payment method. The payment aggregator deducts fees (including transaction fees) from the transaction amount.
• Funds Settlement: After deducting fees, the payment aggregator holds the funds in a settlement account associated with the merchant. The aggregator usually has predefined settlement periods, such as daily or weekly, during which they aggregate the funds from multiple transactions made by the merchant. At the end of each settlement period, the payment aggregator initiates the transfer of the accumulated funds (minus fees) to the merchant’s designated bank account.
• Risk Management and Security: Payment aggregators typically manage risk and implement security measures for their merchant clients. They employ various tools and strategies to detect and prevent fraudulent transactions, monitor suspicious activity, and ensure compliance with industry regulations such as the Payment Card Industry Data Security Standard (PCI DSS).
• Reporting and Analytics: Payment aggregators provide reporting tools and analytics that allow merchants to access transaction data, track sales volumes, analyze revenue trends, and generate financial reports. These insights help merchants better understand their business performance and optimize their operations.

By leveraging the services of a payment aggregator, merchants can simplify the payment process, access multiple payment methods, and benefit from streamlined onboarding and support services, particularly if they do not have the resources or expertise to establish direct relationships with payment processors or acquire merchant accounts.

What are the Pros and cons of payment aggregators?

Pros of payment aggregator: Using a payment aggregator offers several benefits for merchants. Here are some of the key advantages:

• Easy Setup and Onboarding: Payment aggregators typically have a streamlined onboarding process, making it quick and easy for businesses to start accepting electronic payments. The documentation and technical requirements are often simplified compared to establishing direct relationships with payment processors or acquiring banks.
• Simplified Payment Management: Aggregators provide a unified platform or API that integrates with various payment methods, allowing merchants to accept multiple forms of payment, including credit cards, debit cards, digital wallets, and more. This eliminates the need for separate integrations with individual payment providers.
• Faster Time to Market: By leveraging a payment aggregator, merchants can accelerate their time to market. They can start accepting payments swiftly, without the delays associated with setting up individual merchant accounts and undergoing extensive underwriting processes.
• Reduced Technical Complexity: Payment aggregators handle the technical complexities of payment processing, including security, compliance, and payment data transmission. This relieves merchants from the burden of building and maintaining complex payment infrastructure, enabling them to focus on their core business activities.
• Fraud Prevention and Risk Management: Payment aggregators often offer robust fraud prevention tools and risk management services to protect merchants from fraudulent transactions. These tools employ sophisticated algorithms and data analysis techniques to identify and mitigate potential risks.
• Scalability and Flexibility: Payment aggregators cater to businesses of all sizes, from small startups to large enterprises. They provide scalable solutions that can accommodate increasing transaction volumes as businesses grow. Additionally, aggregators often offer flexible pricing models, allowing merchants to pay transaction fees or a percentage of sales, which can be advantageous for businesses with fluctuating sales volumes.
• Reporting and Analytics: Aggregators provide comprehensive reporting and analytics tools that offer valuable insights into transaction data, revenue trends, and customer behaviour. These analytics enable merchants to make data-driven decisions, optimize their sales strategies, and identify growth opportunities.
• Support and Customer Service: Payment aggregators typically offer customer support and assistance to merchants. They have dedicated teams to address queries, provide technical support, and help resolve any payment-related issues that may arise.

Payment aggregators provide a convenient and efficient solution for businesses to accept electronic payments, allowing them to focus on their core operations while enjoying the benefits of a simplified and secure payment infrastructure.

Cons of payment aggregator: While payment aggregators offer numerous benefits, there are also some potential drawbacks that merchants should consider:

• Higher Transaction Fees: Payment aggregators often charge higher transaction fees than establishing direct merchant accounts. Since aggregators take on the risk of multiple merchants under their accounts, they may pass higher processing costs to merchants through elevated fees. For businesses with high sales volumes, this could significantly impact their overall profitability.
• Limited Control over Funds: With a payment aggregator, the funds from customer transactions are typically held in an account controlled by the aggregator. Settlement periods may also be predetermined, delaying the transaction and the merchant receiving the funds. This lack of direct control over funds can impact cash flow management for some businesses.
• Risk of Account Holds and Terminations: Payment aggregators manage risk and fraud prevention on behalf of their merchants. However, they also have the authority to impose account holds, freezes, or even terminate merchant accounts in response to suspected fraudulent activity or violation of their terms of service. This can disrupt a business’s operations and cash flow if the aggregator takes such actions without sufficient cause.
• Limited Customization and Branding: Payment aggregators often provide a standardized payment experience, which may limit customization options and branding opportunities. The checkout process may not seamlessly integrate with a merchant’s website or app, potentially affecting the overall user experience and brand consistency.
• Dependency on Aggregator’s Reliability: The reliability and uptime of the payment aggregator’s systems become crucial for businesses relying on their services. If the aggregator experiences technical issues or service disruptions, it can result in payment processing downtime or transaction failures, potentially impacting sales and customer satisfaction.
• Compliance and Underwriting Requirements: Although the onboarding process for payment aggregators is generally streamlined, they still require merchants to comply with specific regulations and undergo risk assessments. Businesses operating in high-risk industries or with complex business models may need help meeting the aggregator’s compliance requirements or may even be denied service altogether.
• Potential for Fund Withholding or Disputes: Payment aggregators may withhold funds from merchants’ accounts until the resolution is reached in case of customer chargebacks or disputes. This can tie up funds and create administrative burdens for businesses, mainly if disputes are frequent or time-consuming.
• Limited Access to Customer Data: Payment aggregators typically handle customer payment data and may have restrictions on sharing or accessing that data. This can limit the merchant’s ability to gather customer insights, personalize marketing efforts, or build direct customer relationships.

Before partnering with a payment aggregator, merchants should carefully evaluate these potential cons against their business needs, transaction volumes, and growth plans. Assessing the overall cost-effectiveness, control over funds, and long-term scalability of using such services is essential.

What are the features of payment aggregators?

Payment aggregator platforms offer a range of features and functionalities that simplify payment processing for businesses. While specific features may vary among different payment aggregators, here are some common features typically offered by payment aggregators at an industry level:

• Multi-Payment Method Support: Payment aggregators enable merchants to accept various payment methods, such as credit cards, debit cards, e-wallets, bank transfers, and alternative payment options. This versatility allows businesses to cater to diverse customer preferences and expand their customer base.
• Quick Onboarding: Payment aggregators streamline the onboarding process, allowing businesses to start accepting payments swiftly. The simplified application and approval process reduces merchants’ administrative burden and enables them to go live faster.
• Seamless Integration: Payment aggregators provide integration options, such as APIs, plugins, or SDKs, that facilitate easy integration of payment functionality into merchants’ websites, mobile apps, or other sales channels. This ensures a seamless payment experience for customers and minimizes development effort for merchants.
• Security and Fraud Prevention: Payment aggregators employ robust security measures to protect sensitive payment data. They often provide features like encryption, tokenization, and fraud detection mechanisms to ensure secure transactions and minimize the risk of fraud.
• Payment Analytics and Reporting: Payment aggregator platforms offer reporting and analytics tools that provide valuable insights into transaction data, sales volumes, revenue trends, and customer behavior. Merchants can access these analytics to track payment performance, identify opportunities for growth, and make data-driven business decisions.
• Subscription Billing and Recurring Payments: Many payment aggregators support subscription billing models and recurring payments. This is particularly useful for businesses offering services or products with recurring billing cycles, such as software subscriptions or membership fees.
• International Payments and Currency Support: Payment aggregators often facilitate cross-border transactions and provide support for multiple currencies. This enables merchants to expand their customer base globally and accept payments from customers in different countries.
• Risk Management and Compliance: Payment aggregators employ risk management strategies and compliance measures to mitigate fraud and ensure adherence to regulatory requirements, such as PCI DSS (Payment Card Industry Data Security Standard). They often implement fraud monitoring tools, chargeback management systems, and compliance checks to protect merchants and customers.
• Customer Support: Payment aggregators typically offer customer support services to assist merchants with inquiries, technical issues, and payment-related concerns. This support may include email, phone, or live chat options to ensure prompt assistance when needed.

What are the types of payment aggregators in India?

In India, there are several types of payment aggregators that offer payment processing services to businesses. Here are some of the prominent types:

• Banks: Many banks in India provide payment aggregator services to their customers. These banks leverage their existing banking infrastructure and expertise to offer payment processing solutions to businesses. Examples of banks offering payment aggregator services in India include ICICI Bank, HDFC Bank, Axis Bank, and State Bank of India (SBI).
• Non-Bank Payment Aggregators: Non-banking entities authorized by the Reserve Bank of India (RBI) also operate as payment aggregators in the country. These entities specialize in providing payment processing services and act as intermediaries between merchants and financial institutions. Some well-known non-bank payment aggregators in India include PayU, Paytm Payments Gateway, Instamojo, Razorpay, and BillDesk.
• E-commerce Platforms: Major e-commerce platforms in India, such as Amazon, Flipkart, and Snapdeal, have their own payment aggregation systems. They offer payment processing services to sellers on their platforms, allowing them to accept online payments from customers.
• Mobile Wallets: Mobile wallet providers in India, such as Paytm, PhonePe, and Google Pay, also function as payment aggregators. They enable businesses to accept payments through their mobile wallet platforms, either online or in physical stores, by integrating with their payment systems.
• Government-Owned Entities: In addition to private entities, the Government of India has introduced its own payment aggregator services. For instance, the National Payments Corporation of India (NPCI) operates the Unified Payments Interface (UPI), which allows businesses to accept instant payments directly from customers’ bank accounts.

It’s worth noting that the Indian payment aggregator landscape is dynamic, and new players may emerge over time. Businesses should conduct thorough research and consider factors such as transaction fees, features, security, customer support, and integration capabilities when selecting a payment aggregator in India.

What is RBI’s Criteria for Payment Aggregator in India

The Reserve Bank of India (RBI) has set specific criteria and guidelines for entities seeking to operate as payment aggregators in India. These criteria are outlined in the “Master Directions on Issuance and Operation of Prepaid Payment Instruments” issued by the RBI. Here are some key criteria and requirements for payment aggregators in India:

• Entity Type: Payment aggregators can be non-bank entities, subject to the condition that they are authorized and regulated by the RBI under the Payment and Settlement Systems Act, 2007.
  Net Worth Requirement: Payment aggregators must have a minimum positive net worth of INR 15 crore (INR 25 crore for entities involved in outward cross-border transactions) at all times.
• Risk Management: Payment aggregators are required to have a robust risk management framework in place to identify, assess, and mitigate various risks associated with their operations. This includes measures to prevent fraud, ensure data security, and monitor transactional and settlement risks.
• Security and Technology Standards: Payment aggregators must adhere to the prescribed technology and security standards for payment systems, including compliance with the Payment Card Industry Data Security Standard (PCI DSS) and guidelines issued by the RBI.
• Customer Grievance Redressal: Payment aggregators are required to establish a proper grievance redressal mechanism to address customer complaints and disputes. They should have a dedicated customer support system in place to resolve queries and grievances in a timely manner.
• Settlement and Funds Handling: Payment aggregators must ensure timely settlement of funds to the merchants’ accounts and maintain a clear segregation of funds between customer wallets and their own accounts. They should also have appropriate mechanisms for fund reconciliation and dispute resolution.
• Reporting and Compliance: Payment aggregators are required to submit regular reports to the RBI, including audited annual financial statements, compliance reports, and any other information as mandated by the RBI from time to time.

To summarize, the RBI requires payment aggregators in India to be authorized non-bank entities with a minimum net worth of INR 15 crore, maintain robust risk management frameworks, comply with security and technology standards, have grievance redressal mechanisms, ensure proper settlement and funds handling, and submit regular reports and comply with regulations.

FAQs About Payment Aggregator

1. What is the role of a payment aggregator?
The role of a payment aggregator is to facilitate electronic payment processing for merchants by acting as an intermediary between the merchant, customers, and financial institutions. They integrate various payment methods, handle transaction processing, ensure security and compliance, facilitate funds settlement, and provide support services.

2. Is UPI a payment aggregator?
No, Unified Payments Interface (UPI) is not a payment aggregator. UPI is a real-time payment system developed by the National Payments Corporation of India (NPCI). It acts as a platform that enables instant fund transfers between bank accounts in India using mobile devices. UPI facilitates peer-to-peer payments, as well as payments to merchants, but it does not aggregate payments or provide services like transaction processing, settlement, or integration with multiple payment methods like a payment aggregator does

3. Is Juspay a payment gateway or aggregator?
Juspay operates as both a payment aggregator and a payment gateway. By operating as both a payment aggregator and a payment gateway, Juspay provides a comprehensive payment processing solution, offering merchants the convenience of accepting payments from various sources while maintaining the security and efficiency of the payment transaction process.