What is a payment aggregator? How do payment aggregators (PAs) work and what are their types? What is a payment aggregator example? Too many questions, one answer- This guide!

The term ‘payment aggregators’ has been a source of confusion for many. 

Most blogs on Google do not explain its exact definition, how it works and what separates it from a payment gateway, 

This blog is our attempt to fill that void. 

Payment Aggregator Meaning

Payment aggregators (also known as merchant aggregators) mean third-party service providers that allow merchants to accept payments from customers by integrating them into their websites or apps. 

In other terms, payment aggregators (PAs) bridge the gap between merchants and acquirers. It provides you with a ‘sub-merchant account’. After that, the PAs receive payments from customers on your behalf. Finally, they transfer the payments to you in batches after some time. This step is known as the settlement.

Payment Aggregators

Related Read: Reconciling your Payment: All You Need To Know

A payment aggregator in India is incorporated under the Companies Act, 1956/2013.

Now, it can be a bank or a non-bank entity. Since a PA handles funds, it requires a license from the Reserve Bank of India1.

However, only non-bank payment aggregators or PAs require unique authorisation from RBI.  This is because ‘handling funds’ is considered a part of the normal banking relationships for bank PAs.

Payment Aggregator Example: The Analogy You Need

Payment aggregators or merchant aggregators are platforms that help you offer various payment options in one place. 

But let’s simplify things with an analogy.

Let us say you own a shop that sells clothes. You’ve been thinking of expanding out of India for a while now. So, you decide on building shops in London and China. 

However, making clothes require factories, raw materials, chemical colours and lots more. While other things are manageable, building a factory in every part of the world is virtually impossible! So, you decide to outsource and hire clothes factories on rent. Now, you can focus on building good quality clothes, without worrying about the funding for new factories the world over.

This is literally all there is. The clothing business is synonymous with your business. The outsourced factory is the third party payment aggregator.

Payment Aggregators

Let’s take the payment aggregator example here to bring it into context. 

Let’s assume you’re a merchant looking to offer net banking payment options to your customer. (Just like the clothes merchant looking to expand his business)

Now, you cannot tie up with different banks as that would entail a lot of time in due diligence and integration procedures. Moreover, It would require a lot of capital. (Building a factory is a lot of work- and resources!)

This is where a payment aggregator comes into play. A PA can offer you various payment options like cards, net banking, UPI, wallets, EMI, Pay Later etc. under one roof. 

In simple terms,

Outsource the factory=Trust a reliable payment aggregator

How Do Payment Aggregators Work?

Here is the next obvious question after understanding what a PA is:

How exactly does it work?

Here’s the answer in simple steps:

How do PAs work

Payment Aggregators Provide Merchant Account

The payment aggregators onboard the merchants. Thereafter, they provide them with a sub-merchant account. Basically, the payment aggregators receive funds on behalf of the merchants. 

This also means that the PA uses its acquiring bank to receive money from the customer. 

Now, let’s understand how aggregator payment processing actually works.

The Customer Heads To Checkout

The first step of the process is the customer selecting a product and heading to checkout. They enter their payment details on the page page. The customer may choose to pay through UPI, cards, net banking, wallets or EMI options. 

The payment gateway tokenizes or encrypts these payment details. (VPA in UPI, sensitive card information or bank details) The payment gateway also performs a fraud check before sending information to the acquiring bank. 

Payment Aggreagtor’s Acquirer Receives Transaction Information

The payment aggregator works in the background while this process takes place. The transaction information is sent to the payment aggregator’s acquiring bank/acquirer. 

After checking the details, the acquirer sends the customer information to the respective card company via the payment processor.

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.

Issuer Accepts/Declines the Transaction

The Issuing Bank or the Issuer is the customer’s bank. This bank verifies the customer’s 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. 

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. 

Payment Aggregator Settles 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!

Instant Settlements

Types of Payment Aggregators In India

Online payment aggregators in India can be of two types: They can either be a private platform or a PA provided by banks.

Before the early 2000s. Only banks are used to provide payment aggregator services. However, most merchants were looking for technological advances in payment solutions. Third-party payment aggregators filled the void by disrupting the market with innovative solutions. 

Having said that, let’s study the two types of payment aggregators in detail. 

Types of Payment Aggregators

Third-Party Payment Aggregators

Newsflash: eCommerce sales are growing at an unprecedented rate. E-commerce sales are expected to hit USD 8.1 trillion by 20262. In fact, even after the pandemic, India saw a 36% increase in eCommerce orders in the last quarter of 20203 and expects to reach USD 350 billion by 2030.

This goes to show the important role payment aggregators will play in the future of eCommerce. 

Most businesses are attracted to third party PAs because of their innovative payment products. Moreover, they have user-friendly features like seamless onboarding, a dashboard and reliable customer support.

Most of them charge low Transaction Discount Rates (TDR), annual fees and charging setups. In fact, there are some third party payment aggregators that are even more budget-friendly. For instance, Cashfree charges zero setup fees or annual maintenance charges (AMC). 

Related Read: Payment gateway charges India: Busting the free payment gateway myth

Bank Payment Aggregators

These payment aggregators have high set-up costs and are harder to integrate. Their payment modes are not comprehensive. Moreover, reporting and analytics features are not present. 

They are not suitable for startups and small businesses as they can prove to be expensive initially. Usually, large enterprises that want to work with multiple service providers use bank payment aggregators.

Related Read: Multiple Payment Gateways: Guide for 2021

Now that we have covered the types of PAs, next move on to the next topic. 

What exactly is the benefit of online payment aggregators? How do they help merchants? (apart from the obvious cost-saving reasons)

Well, let’s find out.

Features of Online Payment Aggregator

Payment aggregators can help you with higher transaction success rates and a better customer experience. But how does it do all that?

payment aggregators

Let’s find out. 

Easy Onboarding and  Sub-Merchant Account

For starters, they can help you with a sub-merchant account. Without a merchant account, you would not be able to accept payment from your customers. 

You would require your business address and registration proof, bank account statement, and PAN card details. Apart from that, there might be certain KYC procedures for merchant onboarding

A suitable payment aggregator can help you onboard as a merchant in a matter of days. While the KYC and verification procedures are digitized, creating a sub-merchant account requires time. 

Highly Secure

They ensure the prevention and detection of fraud through adequate data security infrastructures. Moreover, they follow information security policies and mitigate possible risks to the security of their payment systems.

In case of any cybersecurity breaches, PAs report the incident to DPSS and CERT-In (Indian Computer Emergency Response Team). Internally, they establish a procedure for handling and following up on these incidents.

Moreover, they undertake assessments for comprehensive security risks of their employees, business process environment etc. This helps identify risk exposures and apply remedial measures. 

Instant Refunds

According to a recent survey by Cashfree, 17% of customers ask for a refund. Moreover, they prefer the refund to be instant and through IMPS, wallet or UPI. 

Instant Refunds

Now, usually, refunds take 7-10 days. This is because it involves a lot of players. Let’s have a look at how refunds usually go.

  1. The customer raises a refund request. The merchant forwards the request to the payment gateway
  2. The payment gateway, in turn, forwards the request to the Acquirer. The Acquiring bank settles the refund amount in the next settlement cycle with the payment gateway
  3. Next, the Acquirer validates the customer details with the card company and Issuing bank. This is to ensure that the refund is credited to the source of payment. Generally, this is the most time-consuming process

On the other hand, the right payment aggregator will make refunds a breeze.

This is how the Instant Refund process goes:

  1. The customer raises a refund request
  2. The payment aggregator pushes the payment back directly using a payout solution instead of asking the bank to refund

That’s it. There is no step 3.

Alternatively put, the payment gateway refunds the customer directly using a Payout solution instead of asking the bank to refund  Here, the refunds are instant and the customer gets a great customer experience.

Instant Settlements

As mentioned, a payment aggregator can offer standard or instant settlements. 

Usually, the payment aggregator 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 particular transactions as well. This means that you can avail of the Instant Settlement feature on the transactions you select. 

Excellent Customer Support

Another important feature of a good payment aggregator is that it can aid you with excellent customer service. A dedicated account manager can be your point of contact. In case you encounter any roadblock during the onboarding 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. 

Payment Aggregator vs Payment Gateways

A Payment Aggregator offers the customers various payment options so a merchant does not need a separate integration system. A payment gateway (PG) is a company that provides technology infrastructure to facilitate online payment processing.

The main difference between a payment aggregator and a payment gateway is this. A payment aggregator handles funds, while the gateway only provides the technology. 

If we were to draw out an analogy, here is how it would go.

Let us take the same analogy we took to explain the concept of a payment aggregator. We know that the clothes factory is analogous to the PA. Then, the machine inside the factory is the payment gateway. It is the technology making it all possible.

So, a PA will provide you with a merchant account, capture customer funds and settle them with you. A payment gateway will help you tokenize the customer payment details. Moreover, it will safely relay the information between the acquirer and customers. 

Now that we have the basics covered, let’s dive deeper.


The criteria of authorization are mainly dependent on whether the entity (PA or PG) handles funds or not.

As we mentioned before, non-bank Payment aggregators require special authorization from RBI. Existing non-bank PAs apply to the Department of Payment and Settlement Systems (DPSS) for this authorization. 

On the other hand, payment gateways are considered ‘outsourcing partners’ or ‘technology providers’ of banks and non-banks. So, bank Payment gateways have to follow the RBI regulation on “Managing Risks and Code of Conduct in Outsourcing of Financial Services by Banks4” 

Capital Requirements

To have a payment aggregator licence, a company must reach and maintain a specific net worth. Net worth is a combination of compulsorily convertible preference shares, paid-up equity capital, free reserves, the book value of intangible assets, etc. 

According to the latest RBI regulation, existing ones have to achieve a net worth of at least ₹25 crores by March 31, 2023, and maintain it. 


The directors of Payment Aggregators have to satisfy the ‘fit and proper’ criteria of RBI.

On the other hand, the top management/Board in Payment Gateway establish organisational processes and approves policies pertaining to information security. The executive management implements the IT strategy approved by the board along with the IT Steering Committee.

Safeguards Against Money Laundering

All Payment Aggregators follow The Know Your Customer (KYC) / Anti-Money Laundering (AML) / Combating Financing of Terrorism (CFT) guidelines issued by RBI. Moreover, they have to uphold the provisions of the Prevention of Money Laundering Act, of 2002.

Moreover, payment gateways run risk assessment procedures. This identifies any vulnerabilities or threats to the confidentiality or integrity of assets from a contractual or business compliance perspective.

Merchant Onboarding

PAs have a merchant onboarding policy approved by the Board. They usually run background checks on their merchants to ensure that they do not have any mal intentions to dupe customers or sell fake products.

In addition to this, Payment Aggregators ensure Payment Application-Data Security Standard (PA-DSS) and Payment Card Industry-Data Security Standard (PCI-DSS) compliance

Payment Aggregators might also carry out security audits of merchants’ sites to ensure that customer card-related data is not stored. In fact, Payment Aggregator agreements with merchants include incident reporting obligations and PA-DSS compliance rules. 

The Payment Gateway follows similar rules during the merchant onboarding process. They undertake comprehensive security assessments to ensure that the merchants adhere to the baseline security controls.

Related Read: Payment Gateway vs Payment Processor


Now, before we wrap up this guide, here’s something interesting.

In India, a payment company can work as a PA with some banks and a payment gateway with others. This is considered a hybrid model.

Payment Aggregators

But I hope this blog gave you a thorough understanding of a payment aggregator and how it is different from a payment gateway.

Do you have any more questions on the topic? Reach out to our experts!

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