Payment Aggregators [UPSC Notes]

The Reserve Bank of India (RBI) granted 32 firms in-principle approval to operate as Online Payment Aggregators (PA) under the Payment and Settlement Systems Act, 2007. (PSS Act). In this context, it is important to understand what are payment aggregators. What are their functions and features, and how do they differ from payment gateways? This is an important part of the IAS exam economy section.

What are Payment Aggregators?

Companies that facilitate online payments by acting as intermediaries between the customer and the merchant are known as online payment aggregators. In March 2020, the RBI issued Guidelines for Regulating PAs and Payment Gateways. The Payment and Settlement Systems Act of 2007 establishes the RBI as the authority for the regulation and supervision of payment systems in India, as well as for all related matters.

Functions of Payment Aggregators:

• PayPal, Stripe, Square, and Amazon Pay are examples of payment aggregators.
• Businesses can avoid the need to set up and manage their own payment processing systems, which can be complex and costly, by using a payment aggregator.
• Payment aggregators collect and process payment information, ensuring the security and reliability of transactions.
• Customers are typically given a variety of payment options, such as credit and debit cards, bank transfers, and e-wallets.

Payment Aggregators in India Key Features

• Payment aggregators can integrate with a variety of other systems, such as accounting software and inventory management systems, to streamline the payment process and make business operations easier to manage.
• Payment aggregators provide detailed reports on payment transactions, allowing businesses to manage their finances and reconcile their accounts more easily.
• Payment aggregators make use of machine learning algorithms and AI to detect and prevent fraud which reduces the risk of chargebacks and other payment disputes.
• Payment aggregators use advanced security measures to ensure the safety and security of transactions.
• Payment aggregators give customers many payment options, making it easier for them to pay for goods and services.

Types of Payment Aggregators

• Aggregators of Third-Party Payments:
  • Third-party payment processors provide innovative payment solutions to businesses and are becoming more popular.
  • A comprehensive dashboard, simple merchant onboarding, and quick customer support are among their user-friendly features.
  • PayPal, Stripe, and Google Pay are a few examples.
• Bank Payment Aggregators: 
  • They lack many popular payment methods as well as detailed reporting features. Bank payment aggregators are not suitable for small businesses and startups due to their high cost.
  • They are expensive to set up and difficult to integrate.
  • For example, Razorpay and CCAvenue.

RBI’s Criteria for Approving an Entity as Payment Aggregator:

• It must also adhere to global payment security standards.
• A company seeking aggregator authorization must have a net worth of at least Rs 15 crore in the first year of application and at least Rs 25 crore by the second year.
• Only firms approved by the RBI can acquire and provide payment services to merchants under the payment aggregator framework.

Differences between Payment Gateways and Payment Aggregators

• Payment aggregators can provide a payment gateway, but not the other way around.
• The primary distinction between a payment aggregator and a payment gateway is that the former manages funds and the latter provides technology.
• Payment aggregators are intermediaries that provide a centralized platform for connecting multiple merchants to various payment processors.
• A payment gateway is a piece of software that connects an online store or merchant to a payment processor, allowing the merchant to accept payments from customers.

Payment Aggregators:- Download PDF Here