Payment Aggregator (PA) and Payment Gateway

What is a Payment Aggregator (PA)?

A Payment Aggregator (PA), also known as a merchant aggregator, is a third-party service provider that enables merchants (businesses) to accept online payments from customers. This service is typically integrated into websites or mobile apps for smooth transaction processing.

Functions and Features of Payment Aggregators:

• Payment Options: PAs provide a variety of payment methods such as debit/credit cards, UPI, bank transfers, e-wallets, and cardless EMIs, among others.

• Fund Settlement: After processing a transaction, PAs handle fund settlement, i.e., transferring funds from the customer’s bank to the merchant’s bank account. They also manage disbursements to various stakeholders like employees, suppliers, or tax authorities.

• No Need for a Merchant Bank Account: A PA allows merchants to accept payments without the need for a direct merchant account with a bank.

• Incorporation and Licensing: In India, a PA is incorporated under the Companies Act, 2013 and must be authorized by the Reserve Bank of India (RBI). If the PA is non-bank based, it requires specific authorization from the RBI as it handles funds.

Examples of Payment Aggregators:

• Amazon Pay India

• Google Pay India

• Razorpay

• Pine Labs

What is a Payment Gateway?

A Payment Gateway is a software service that connects a merchant’s bank account to an online platform for processing transactions. The gateway securely handles the authorization of transactions and ensures that money is transferred from the customer's bank account to the merchant’s account using different payment methods like:

• Net Banking

• Credit/Debit Cards

• UPI

• Other Online Wallets

Key Role of Payment Gateway:

• Authorization: It facilitates the approval of payment transactions through various payment modes.

• Intermediary: The payment gateway acts as an intermediary between the customer's bank and the merchant's payment portal.

Difference Between Payment Aggregator (PA) and Payment Gateway:

• Payment Gateway is the technology enabling a secure transaction, whereas a Payment Aggregator offers multiple payment gateway services along with additional functionalities like fund settlement, merchant account management, and more.

• Payment Aggregator essentially consolidates multiple payment gateways, offering merchants the ability to accept payments through various modes without needing separate relationships with each service provider.

• Most PAs Own Payment Gateways: To offer exclusive services and ensure smooth transaction processing, payment aggregators usually own and operate the payment gateways.

What Is a Merchant Account?

A merchant account is a specialized business bank account used by businesses to accept payments, particularly credit card and debit card payments. Here are its key points:

• Business Account: This account is specifically set up for handling business transactions, enabling companies to accept electronic payments.

• Acquiring Bank: For a merchant account to function, the business must partner with an acquiring bank or a merchant account provider that facilitates the processing of electronic payment transactions.

• Payment Methods: It supports various payment options such as cards, online transfers, and digital wallets.

Payment Aggregators vs. Payment Gateways:

• Payment Aggregators provide a comprehensive payment solution, allowing merchants to accept various types of payments through multiple gateways.

• Payment Gateways are the underlying technology that enables the actual transfer of funds between banks for each specific transaction.