Payment Gateway vs Payment Aggregator : Understanding the Payment Ecosystem

Online transactions have become the norm, and businesses need reliable and secure payment solutions to meet customers’ needs. Efficient payment solutions enable businesses to streamline their operations, automate payment processing, and manage financial transactions effectively, contributing to their overall success in the competitive online space. While there a multitude of entities are involved in a Payment system, Payment Gateways and Payment Aggregators are two crucial entities for merchants to understand.

Understanding the difference between payment aggregator and payment gateway is crucial for businesses. In this article, we will understand the differences between a payment aggregator and a payment gateway by highlighting the features and benefits that help determine the efficient payment option for your business and customers.

Payment Gateway - An Intermediary

A payment gateway acts as an intermediary between a merchant and financial institutions, such as acquiring banks, networks, etc. A payment gateway is a technology that securely transfers payment data from the merchant to the issuing bank through acquiring banks and networks.

In simple terms, A payment gateway is a service provider that allows merchants to accept payments from their customers on their website or app through an acquiring bank. Payment Gateway is usually associated with card transactions. Even in UPI, an acquiring bank uses tech solutions that operate like Payment Gateways.

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

Acquiring bank - A bank or a financial institution that processes customer payments through debit cards, credit cards and UPI on behalf of a merchant. An acquiring bank transmits payment information like payment amount, payment instrument details (debit/credit card details, for example), etc., to the issuing bank via networks and collects payments from the issuing bank.

Issuing bank - As the name suggests, an issuing bank issues credit/debit cards or VPA (Virtual Payment Address) in case of UPI payments on behalf of networks. An issuing bank authorizes and releases the funds on behalf of the customer to the acquiring bank.

Networks - Networks act as intermediaries between the acquiring and issuing banks. Networks link the merchant’s acquiring bank with the customer’s issuing bank to verify the payment details and available funds/credit in the customer’s account to make the payment.

Now, let’s circle back to payment gateways; when a customer makes a payment on a merchant’s website, an acquiring bank transmits the payment information to the payment gateway. The Payment Gateway then processes the transaction. It is important to note that a payment gateway does not transfer funds; it just transfers payment information. The authority to move funds lies only with the acquiring & issuing bank.

Cybersource, Mastercard Payment Gateway Services (MPGS), ISG and Financial Software & systems (FSS) are the prominent Payment Gateways in India.

Payment Aggregator - An Interface

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 multiple payment modes by partnering with acquiring banks, allowing businesses to accept payments. These are the following features of a payment aggregator:

1. Merchant onboarding - Payment aggregators onboard merchants to enable payment options like cards, UPI, wallets, etc., for their customers.

2. Transaction processing - Payment aggregators collect the payment information from the merchant and send it to the acquiring banks or relevant PSPs or banks to process the transactions.

3. Settlements - Payment Aggregators perform settlements for the merchants. They collect payment from the partner entities (banks, issuers, PSPs) and deposit it into the merchant account within a set timeline (T+0, T+1, T+2 days)

4. Refunds & Chargebacks - Payment Aggregators process the refunds for the merchant and coordinate with the acquiring bank and merchant to resolve chargebacks or disputes.

5. Support - Payment Aggregators provide support to merchants in integration as well as in operations.

6. Compliance - Payment Aggregators are responsible for adhering to security standards and compliances as directed by RBI, card networks and their banking partners. In a way, Payment Aggregators are responsible for providing a safer and secure payment platform to merchants and their customers.

7. Dashboard - Payment Aggregators provide a dashboard to their merchants for tracking payment-related activities. Some payment aggregators also provide data analytics with their dashboards.

Payment aggregators partner with acquiring banks to enable multiple payment options on a merchant’s payment page. The acquiring bank uses a payment gateway to process payment information.

Now that we know what payment gateways and aggregators are, let’s understand how they differ.

Payment Gateway vs Payment Aggregator

A payment gateway is a subset of a payment aggregator. A payment gateway securely transfers customer payment data from a website or an app to the payment processor. In contrast, a payment aggregator simplifies the payment process by consolidating multiple merchant accounts into a single account, making it easier for businesses to accept payments without individual setups. While both facilitate online transactions, there are differences between them. Let’s try to break down payment gateway vs payment aggregator on different parameters.

Let’s dive into the key differences between payment gateways and payment aggregators:

Overall, a payment gateway is a technology used to perform online transactions, whereas a payment aggregator is a service provider with a collection of payment options.

So a merchant/business who wants to collect payments would need to partner with -

• Acquiring bank directly (to process certain payment modes) and/or
• Payment aggregators (who can bring various payment modes on a single integration)

A merchant cannot partner with Payment Gateways directly.

Why do merchants need a payment aggregator?

To accept payments on a website or an app through different modes such as cards, UPI, wallets, etc, merchants would need to integrate directly with multiple banks and issuing entities, which is a cumbersome process. Also, the merchants have to forge techno-commercial partnerships and follow the compliance requirements of banks, which is a rigorous task. On top of that, they would require a lot of development efforts to integrate with multiple processing entities.

A payment aggregator acts as a liaison between the merchants and financial institutions. Payment aggregators integrate with multiple financial institutions (acquiring banks, wallets, etc). They comply with regulatory guidelines, reducing the merchants’ efforts and offering them a bundled solution, enabling them to collect payments through multiple modes.

A merchant may want to work with multiple Payment Aggregators or even acquiring banks to reduce dependency on a single vendor, increase coverage of payment mode and avail better commercials.

Such a strategy is logical but it brings additional challenges. As merchants have to manage integration of various PAs, manage routing etc. To resolve such challenges, a merchant would need a Payment Orchestrator.

Payment Orchestrator - A router

Payment Orchestration, also known as Payment Routing, acts as a connector between various payment service providers (PSPs), PAs, acquirers, and banks through a unified software layer.

With Payment Orchestration, businesses can streamline their payment infrastructure within a common platform, negating the need to manage multiple integrations across diverse PSPs, PAs, and banks. This approach facilitates scalable operations, enabling enterprises to expand into new markets, integrate multiple payment providers, and accommodate a wide array of payment methods, unify the operations dashboard, all while ensuring adherence to regulatory requirements.

Click here to learn more about payment orchestration.

Understanding the Payments Infrastructure

The payment infrastructure illustration below helps in understanding the payment gateway vs payment aggregator debate. Let’s look at the integration flow for a merchant to accept payments and what roles payment aggregators and gateways play in the integration.

A merchant needs to integrate with a payment aggregator or multiple payment aggregators, depending on their needs. With a multi-payment aggregator setup, a merchant can provide multiple payment modes to their customers, reduce their downtime by routing the transactions and optimize their costs.

Alternatively, a merchant can integrate with a payment orchestrator like Juspay HyperCheckout to reduce the hassle of integrating with multiple payment aggregators. Juspay HyperCheckout is integrated with 100+ payment aggregators, and allows merchants to add & manage different PAs without writing any code. Merchants can experiment and test faster with Payments and do so with greater agility, enabling them for faster Go To Market (GTM) motions

Conclusion

Payment aggregators partner with acquiring banks that are integrated with payment gateways to offer various exclusive payment services to their merchants and their customers.

A payment gateway is a service provider that enables merchants to accept payments on their website or app through an acquiring bank. Payment gateways offer control over the payment process. On the other hand, payment aggregators provide merchant onboarding, settlements, and scalability.

FAQs About the Difference between Payment Gateways and Payment Aggregators

1. Can I use a payment gateway without a payment aggregator?
It is necessary for a merchant to integrate with a payment aggregator if they want to use any payment gateway. A payment aggregator enables merchants to process card transactions through its acquiring bank partners, who in turn use a payment gateway.

2. Are payment gateways and aggregators secure?
Yes, payment gateways and aggregators prioritize the security of customer data and implement robust encryption and fraud prevention measures. However, choosing reputable and trusted providers is important to ensure maximum safety.

3. How long does it take for a merchant to set-up integration with a payment aggregator?
The setup time may vary depending on the provider and the complexity of your business requirements. Some of the factors affecting the onboarding time would be the KYC check, the banking partner’s approval for MID issuance, etc.

4. Can payment gateways and payment aggregators handle international transactions?
Yes, both payment gateways and payment aggregators can support international transactions. However, it’s important to check with the provider to ensure they have the necessary capabilities and support for cross-border payments, including currency conversion and compliance with international regulations.

5. Do payment gateways and payment aggregators offer fraud protection features?
Many payment gateways and aggregators provide built-in fraud prevention and security measures. These may include features like fraud detection algorithms, and risk assessment tools. Choosing a provider that prioritizes security and offers robust fraud protection features is crucial.