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Payment Aggregator are service providers through which e ecommerce merchants can process their Payment transactions.
Aggregators allow merchants to accept credit card and bank transfers online without having a set of merchant account with the bank or card association. They are also called as Merchant Aggregator. Isn’t this interesting?
- Payment Aggregators were actually set up in India was incorporated in the year 2013 under the Companies Act 1956.
- Payment Aggregators can be a bank or Non Banking Entity. As Payment Aggregators holds funds it requires license from Reserve Bank of India. However non bank aggregators require unique authorization from RBI.
- Lets say you own a shop that sells clothes. You have been thinking of expanding out of India for a while now. As of now your business has expanded in India due to Online platforms So you decide on building shops in London and China. However making clothes requires factories, raw materials, chemical colors and lots more.
- Building a factory in every part of the world is virtually impossible! So here you decide to outsource and hire factory on rent and you focus on building good quality clothes . This is how exactly Payment Aggregator works.
- The payment aggregators on boards the merchant. Thereafter they provide the sub merchant account. So here Payment Aggregators receives fund on behalf of the merchant. What are the steps involved in the entire process ? Let have a look
1. Customer Heads for Purchase and Online Payments :
The First step of the process is the customer selects the products and heading to check out. Customer enters the payment details on the page.
The customer than chooses to pay either through UPI , Cards, Net Banking, Wallets or EMI options. The payment gateway tokenizes or encrypts these payment details. The payment gateway then performs a fraud check before sending information to the acquiring bank.
2. PA’s Acquirer Receives Transaction Information
Payment Aggregator works in the Background while these process takes place. The transaction information is sent to the payment aggregators acquiring Bank.
After checking the details the acquirer sends the customer information to the respective card company via the payment processor
3. Card Company Runs Fraud Check
Every card is issued by a card company like Visa, MasterCard or American Express.
The card company verifies if the card is actually issued by them and runs a fraud check. Thereafter, it forwards the information to the Issuer Bank through the payment processor.
4. Issuer Accepts/Declines the Transaction
The Issuing Bank or the Issuer is the customer’s bank. This bank verifies the customer details and checks if the customer has sufficient funds in their account.
After this, it sends a transaction approval or denial message to the card network. From here on, the information of transaction approval is passed through the same route it came from: Issuer> Card Networks> Acquiring Bank> Payment Gateway. The payment gateway informs the merchant about the transaction status. In turn, the merchant informs the customer.
5. Acquirer Requests for Funds
Now, this is what happened behind the scenes. Once the transaction is approved, the acquirer asks for funds from the Issuer. As we mentioned before, this is the acquiring bank connected to the payment aggregator.
6. Payment Aggregator Settles the Funds
The payment aggregator settles the funds in the merchant account. The settlement may be standard i.e. it requires T+ 2 to 4 days. On the other hand, the settlement can be instant which can be as fast as 15 minutes!
Doesn’t these all these online process sounds like a lifesaver for the merchants? But there is one thing that Payment Aggregators needs to follow-Rules by RBI
Types of Payment Aggregators in India
Third-Party Payment Aggregator
- A Third-Party Payment Aggregator (TPA) in India helps online merchants and e-commerce sites to process payments easily and quickly.
- These services help merchants accept payment methods such as debit cards, credit cards, net banking and e-wallet.
- Unlike merchants who must set up separate payment integration systems, a payment aggregator takes care of all of these tasks while offering minimal or no start up fees.
- Third-Party Payment Aggregators must have a board-approved policy for on boarding merchants. They should also perform background checks on prospective merchants and ensure the security of their infrastructure.
- A company must also ensure customer privacy, which requires it to prohibit storing card details on merchants’ servers. Additionally, it should implement a customer grievance redressal framework and designate a nodal officer to handle complaints.
Bank Payment Aggregator
- Payment aggregators are more expensive to set up and harder to integrate. Analytics and reporting features are not available.
- Additionally, they do not offer comprehensive payment options. These are not recommended for small and startup businesses, as they can be costly initially.
- Bank payment aggregators are used by large companies that wish to collaborate with many service providers.
Payment Aggregator Guidelines
1. Authorization
- Non-banking payment aggregators must obtain a separate RBI license from the Department of Payment and Settlement Systems.
- Payment gateways are technology suppliers for payment aggregators. They don’t need permission from the RBI as long as they follow the RBI’s standards and code of conduct for outsourcing financial services and controlling risks.
2. Capital Requirements
- To get a payment aggregator license, a company needs to reach and keep a certain net worth. Net worth is the total of compulsorily convertible preference shares, paid-up equity capital, free reserves, the book value of intangible assets, and other things.
- The latest rule from the RBI says that existing ones must have a net worth of at least 25 crores by the end of the financial year and keep it up.
3. Governance
- Payment aggregators need to be run in a professional manner.
- The RBI says that the investors in a company must be “fit and appropriate.” Other regulators and government agencies will be asked for more information to find out if the applicant business and its management are “fit and proper,” as required by the Reserve Bank of India (RBI).
- Agreements between payment aggregators, merchants, acquiring banks, and all other stakeholders should make it clear what each party’s role and responsibility is when it comes to sorting/handling complaints, refunds/failed transactions, return policy, customer grievance redress (including turnaround time for answering questions), dispute resolution mechanism, reconciliation, etc.
4. Anti-Money Laundering Measures
- All payment aggregators follow the Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating Financing of Terrorism (CFT) rules set by the RBI.
- Furthermore, payment gateways undertake risk assessments. This identifies any vulnerabilities or threats to the confidentiality or integrity of an asset from a contractual or business standpoint.
5. Seller/Merchant Onboarding
- The board has created an onboarding policy for merchants.
- They investigate the backgrounds of their merchants to ensure that they are not committing fraud or selling counterfeit items.
- Payment Aggregators additionally ensure compliance with the Payment Card Industry-Data Security Standard (PCI-DSS) and the Payment Application-Data Security Standard (PA-DSS) (PA-DSS).
- The payment gateway follows the same criteria during the merchant onboarding step. They undergo rigorous security evaluations.
Payment Aggregators under the purview of RBI
- RBI has recently granted approvals to PA license in India to fintech firms like Razor pay , Stripe, Pine Labs, and 1Pay.Bill Desk have been in Business in India since 2000.
- Phone Pe and Paytm has also been in to the online business and have performed well. Of course Paytm faced a lot of Restrictions and bans!
- In the year 2020 after watching digital services boom , RBI decided that everyone who calls themselves PA needs to get license first.
- RBI is worried that many companies is operating in an incorrect way without following any rules and regulations. So RBI decided lets end it.
- RBI invited applications for the license and set out criteria , with minimum net worth . The main aim was to ensure that people who are using payment aggregators platform should not involve into legal matters later on.
India is one of the most efficient digital payments markets in the world, with lowest pricing offered to merchants. As per RBI’s detailed benchmarking report, India is a ‘leader’ in this metric compared to 21 other developed and emerging markets. The combination of a large TAM, fast growth, low entry barriers, open architecture and standard pricing has attracted several players into this competitive, dynamic market.
What can be features that Payment Aggregators Have ?
- Easy Onboarding
For starters payment aggregator can help with sub merchant account. Without a merchant account you wont be able to accept payments. A suitable payment aggregator can help onboard within a matter of days
- Highly secure
Payment aggregators ensure prevention and detection of fraud through adequate data security infrastructures.
- Instant Settlements
Usually, payment aggregators credit the customer funds in T+2 days after deducting the Merchant Discount Rate. Instant settlements can help you access your funds within 15 minutes of fund capture. In fact, instant settlement can be activated for selective transactions as well. This means that you can avail of the Instant Settlement feature on the transactions you select.
- Instant Refunds
On the other hand, the right payment aggregator will make refunds a breeze. This is how the Instant Refund process goes:
- The customer raises a refund request.
- The payment aggregator pushes the payment back directly using a payout solution instead of asking the bank to refund.
- Excellent Customer Support
A dedicated account manager can be your point of contact. In case you encounter any roadblock during the on boarding process, they can help you with real-time assistance like live chat or helpline. Now, ‘payment aggregator’ is often confused with the term ‘payment gateway’. In reality, they are two different entities. However, there may be companies that provide merchants with both payment gateway and payment aggregator services.
What are the disadvantages of payment aggregators?
- While the payment aggregation business model is suited to small and medium businesses with low transaction volumes, the cost of operating under the aegis of a merchant aggregator can shoot up as you start processing more transactions.
- The aggregator model works perfectly if you process only a handful of transactions. Sub merchants typically only have to pay when they process online payments, rather than shell out a monthly fee.
- Depending on your business goals and projected growth, you may need to decide if a merchant account is better suited to your needs.
Conclusion
- The payment aggregation business model is suited to small and medium businesses with low transaction volumes, the cost of operating under the aegis of a merchant aggregator can shoot up as you start processing more transactions.
- The aggregator model works perfectly if you process only a handful of transactions. Sub merchants typically only have to pay when they process online payments, rather than shell out a monthly fee.
- Depending on your business goals and projected growth, you may need to decide if a merchant account is better suited to your needs.
