2.13 Payment Aggregator and Gateway: What it is and How it Works | Indian FinTech
In today’s digital economy, the ability to process online payments is crucial for any business. Two key players in this space are Payment Aggregators (PA) and Payment Gateways (PG). Although they may seem similar, they serve distinct roles in the payment ecosystem. Understanding these roles can help businesses choose the right partner for their payment processing needs.
What is a Payment Aggregator?
A Payment Aggregator is an entity that allows merchants to accept various payment instruments from customers without the need to set up their own payment integration system. This includes payments made via credit cards, debit cards, digital wallets, UPI, and more. Essentially, the Payment Aggregator creates a platform through which merchants can accept payments from customers, simplifying the payment process.
For instance, when you make a purchase on an e-commerce site and proceed to the payment page, the Payment Aggregator facilitates this transaction. The aggregator takes care of the payment processing, including customer authentication, fraud checks, and fund transfers. This allows merchants to focus on their core business activities, leaving the complexities of payment processing to the aggregator.
Payment Aggregators also play a critical role in managing funds. They receive payments from customers, pool these funds, and then transfer them to the merchant after a specific settlement period. This pooling aspect is where Payment Aggregators differ significantly from Payment Gateways.
What is a Payment Gateway?
A Payment Gateway, on the other hand, is a technology infrastructure that facilitates the processing of online payments. Unlike Payment Aggregators, Payment Gateways do not handle funds directly. Their role is purely technical — they route the payment information from the customer’s bank to the merchant’s bank, ensuring that the transaction is processed securely and efficiently.
For example, when a customer enters their credit card information on a website, the Payment Gateway securely transmits this data to the acquiring bank for authorization. Once the transaction is approved, the Payment Gateway relays this information back to the merchant, completing the payment process. Payment Gateways operate in real-time, meaning that they do not hold onto the funds; they simply transmit the payment information to the appropriate parties.
Key Differences Between Payment Aggregators and Payment Gateways
- Fund Handling:
- Payment Aggregators: Handle customer funds, pooling them before transferring them to the merchant after a specified settlement period.
- Payment Gateways: Do not handle funds; they only route the payment information between banks.
2. Regulation:
- Payment Aggregators: In countries like India, Payment Aggregators are regulated entities that must obtain authorization from the central bank (e.g., the Reserve Bank of India) to operate.
- Payment Gateways: Typically, Payment Gateways do not require the same level of regulatory oversight as they do not hold or manage funds.
3. Risk:
- Payment Aggregators: Carry more risk as they are responsible for holding and transferring funds, which can lead to potential systemic risks if something goes wrong during the settlement process.
- Payment Gateways: Have minimal risk since they do not deal with fund management, focusing instead on the secure transmission of payment data.
How Do They Work Together?
In many cases, Payment Aggregators and Payment Gateways work together to facilitate a seamless payment experience for both merchants and customers. Here’s a simplified flow of how a typical online payment might work:
- Customer Initiates Payment: A customer decides to purchase a product online and proceeds to the payment page.
- Payment Gateway Processes Transaction: The Payment Gateway captures the customer’s payment details and securely transmits them to the acquiring bank.
- Bank Authorizes Payment: The acquiring bank, in coordination with the card network (e.g., Visa, MasterCard), verifies the transaction details and authorizes the payment.
- Payment Aggregator Receives Funds: Once the payment is authorized, the Payment Aggregator receives the funds and pools them in a holding account.
- Funds are Settled to Merchant: After the agreed settlement period, the Payment Aggregator transfers the funds to the merchant’s account, minus any fees.
This collaboration ensures that online transactions are processed efficiently, securely, and with minimal hassle for both the merchant and the customer.
Conclusion
Choosing between a Payment Aggregator and a Payment Gateway depends on the specific needs of your business. Payment Aggregators are ideal for businesses that want a comprehensive solution for accepting various payment methods without the complexity of managing their own payment infrastructure. Payment Gateways, meanwhile, are essential for securely processing transactions in real-time, particularly for businesses that may already have their own payment systems in place.
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