Payment Aggregators

Tanisha Sabherwal
Tanisha Sabherwal
July 19, 2021

The terms Payment Aggregators(PA) and Payment Gateways(PG) are often used interchangeably but they are not the same. Let us define these first.

Payment Aggregators are processors are the entities which onboard the merchant and collect funds from the consumers on their behalf in an escrow account(third-party account which holds funds temporarily) before its settlement.

Payment Gateways are the piece of software to facilitate the transactions by providing technology infrastructure (encryption etc).

Payment aggregators can provide their payment gateways as well but need not the same necessarily.

To give an analogy, think payment gateways as a traffic controller which facilitates the movement but aggregators as the driver which actually moves the fund.

Payment Aggregator Transactional flow

Payment Aggregator Transactional flow

Clearly, PA uses the PG's infra as a layer to enable the transaction. The PA uses the services of its partner bank for clearing and settlement of the payments (this process is highly dependant on the type of instrument used).

Now, there are some risks involved in such transactional flows. MDR or the Merchant Discount Rate is the measure of such failures. This varies from the type of merchants and also the Point of Sale(POS) which is the place where transaction is made.

For eg: MDR of educational institutes is 1% and e-commerce is 1.8%.

Similarly for rates. In case of POS, CP(Card present scenario), transaction charges are lower than CNP(Card not present).

The regulation of these entities is specified in the guidelines provided by RBI.

Since PA are solely responsible for onboarding of these customers, they should be:

  1. Performing a background check on these merchants to eliminate any risks and analyse their business model.
  2. Verify the KYC documents (in accordance to the Master KYC guidelines).

Resources: Vinod Kothari Blog, Enter Slice