Payment Aggregator in India: Meaning, How It Works, Types, and More

Payment Aggregator - Paytm for Business

Setting up an online business means handling various facets simultaneously, whether it is product supply, inventory management, logistics, or more. But if there’s one thing that gets significant attention, it is online payment acceptance.

Most businesses want to look for ways to start accepting payments online with the least payment failure and seamless customer experience. If you are starting an online business, then the chances are that you are in search of the best payment solution and hence, might have come across terms like ‘Payment Gateway’ or ‘Payment Aggregators’. 

The selection of the right payment solution for your business requires you to gain knowledge about what works in this industry. If you are wondering whether you need a payment gateway or payment aggregator, continue reading.

What is a payment aggregator?

A payment aggregator is a service provider that integrates various options of online payments together and brings them into one place for merchants. It facilitates different types of payment transactions, including cash/cheque, online payments through multiple payment sources, or offline touchpoints (in-store kiosk, in-field payments, remote link-based payments, or billing counters). 

It allows merchants to accept bank transfers without setting up a bank-based merchant account. It means a merchant need not have a merchant account directly with the bank.

At its core, payment aggregators bear the heavy load of integration with various payment providers to provide an all-inclusive solution for payment acceptance.

Can a payment aggregator work as a payment gateway?

An interesting fact about payment aggregator vs. payment gateway comparison is:

Payment aggregators can offer a payment gateway but the reverse is not true.

Payment aggregators in India offer payment gateways to merchants and ask them for specific payment gateway charges. These service providers help them accept money from customers and then transfer the total amount to the merchant account as per the settlement period defined in their payment aggregator policies.

Initially, payment gateways in India were primarily offered by leading public and private banks. However, there are several other payment aggregators in India offering similar payment suites to merchants all across the country.

Recommended Read: A Complete Guide to Payment Gateway Charges in India

How does a payment aggregator work?

The payment aggregator meaning is often misunderstood and used interchangeably with payment gateway. The truth is – the payment aggregator model is meant to process online payments. Besides this, there is another common myth that says a payment gateway alone is enough to process payments. In reality, an online payment gateway just handles the technical side of transactions.

In general, payment gateways join hands with the bank(s) that work behind the scenes to create merchant accounts. When there are so many merchants applying for these accounts to accept payments online, the underlying bank needs to organize both the fund transfer process and underwriting, which often become challenging.

This is where a payment aggregator steps in. It basically handles the underwriting process with the acquiring bank and then processes payments for merchants. 

In the constant debate about a payment gateway vs. payment aggregator, you cannot select one or the other.

The general steps involved in the working of a payment aggregator in India are as follows:

  • After a customer proceeds to checkout and enters the payment details, the integrated payment gateway tokenizes these details and performs a fraud check. 
  • The payment aggregator’s acquiring bank or acquirer then checks and sends the customer information to the respective card company (Mastercard, VISA, etc.) with the help of a payment processor.
  • Once the company verifies the card and performs a fraud check, it forwards the information to the issuing bank via the payment processor.
  • Here, the issuing bank is the customer’s bank, which verifies the details and checks for sufficient funds in the customer’s account. Based on the fund balance, it sends a denial or approval message to the card network.
  • Now, this information reaches the payment gateway via the same reverse route:

Issuing Bank -> Card Network -> Acquiring Bank -> Payment Gateway

  • Based on the status received, the payment gateway notifies the merchant about the transaction status.
  • The merchant then informs the customers about the same.
  • Behind the scenes, the acquiring bank, which is connected to the payment aggregator, asks for funds from the issuing bank once the transaction is approved.
  • The underlying payment aggregator then settles the funds in the merchant account based on its settlement cycle.

What are the types of payment aggregators in India?

There are two types of payment aggregators in India:

  • Third-party payment aggregators
  • Bank payment aggregators

Until the early 2000s, only banks provided payment aggregator services. Soon after that, third-party aggregators came into existence and disrupted the fintech market with their innovative solutions. Let’s find out more about them.

Bank payment aggregator

These types of payment aggregators in India involve high setup costs and are difficult to integrate. They lack many of the popular payment options along with detailed reporting features. Because of the high cost, bank payment aggregators are not suitable for small businesses and startups. 

Third-party payment aggregators

Third-party PAs offer innovative payment solutions to businesses and have become more popular these days. Their user-friendly features include a comprehensive dashboard, easy merchant onboarding, and quick customer support. 

What are the features of payment aggregators?

Given below are the primary features of payment aggregators in India:

  • Easy to create a merchant/sub-merchant account to start accepting payments from your customers
  • Detection and prevention of fraud with the help of adequate payment security measures (they also report cybersecurity breaches to DPSS and CERT-In)
  • Instant refund processing
  • Timely settlements (standard or instant)
  • Dedicated merchant support 

Payment aggregator Vs. payment gateway: key differences

A payment aggregator and payment gateway might seem to do the same job. However, the fact is – there are several differences between them. 

Again emphasizing the truth, a payment aggregator allows merchants to offer various payment options to their customers. A payment gateway provides the underlying technology for fund transfer.

The main difference between a payment aggregator and payment gateway is that the former handles funds while the latter provides technology.

Let’s dive deeper into the parameters that will further clarify the payment gateway vs payment aggregator comparison:

  • Authorization

The authorization requirement is mainly based on whether these entities handle funds. In that sense, non-bank payment aggregators do require authorization from the Reserve Bank of India (RBI) and apply to the DPSS (Department of Payment and Settlement Systems).

The case is different with payment gateways that are considered technology providers. Bank payment gateways adhere to the RBI regulations on managing risks. They are also approved and licensed by the RBI under PSSA, 2007.

  • Merchant onboarding

Payment aggregators define and follow merchant onboarding policies as approved by the Board. They run background checks on the merchants to ensure the legitimacy of their businesses. Besides this, they also adhere to PA-DSS (Payment Application Data Security Standard) and PCI-DSS compliance.

Similar is the case with payment gateways that also follow strict merchant onboarding guidelines and undertake comprehensive security checks.

  • Role between parties

Payment aggregators provide merchants with merchant accounts to help them accept payments online. Payment gateways, on the other hand, act as a medium through which the transaction occurs.

  • Ownership

Private fintech companies can own payment aggregators, while a payment gateway can be owned by banks (both private and public) and payment aggregators.

The bottom line

By developing an in-depth understanding of payment gateway vs. aggregator comparison, you will find it easier to select the right payment solutions for your business. At Paytm, we provide seamless payment solutions to our merchants via Paytm Payment Gateway. Get onboarded now and benefit from 0% MDR on UPI and RuPay transactions.


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