What are Payment Aggregators? Meaning, Types, Benefits & How It Works

A payment aggregators are third-party service providers that enables businesses to accept online payments without opening a separate merchant account with a bank. It collects customer payments into a nodal account and settles them into the merchant’s bank account after processing.

In simple terms, a payment aggregators acts as a bridge between customers, merchants, banks, and payment networks.

A payment aggregator serves as a strong bridge between merchants and customers, ensuring the seamless, secure transfer of funds from one account to the other. It is a third-party service provider that allows customers to securely send money on the website or the app to a merchant account. The payment aggregator acts as a payment solution for both parties. With the help of payment aggregators, a customer can send a payment using any payment method, such as credit card, debit card, e-wallet, EMI, bank transfer, or e-mandate, or set up a buy now, pay later plan.

Every payment aggregator requires a valid RBI licence to acquire merchants and enable a secure backend system or infrastructure that helps both customers and merchants to pay and accept payments without disruption.

Once the payment is made, it is collected into a sub-merchant account, handled by the payment aggregator. Once payment is received in that sub-merchant account, it gets eventually settled in the merchant’s account, reducing the risk of fraud or loss of important financial details.

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

Payment Aggregators 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.

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?

Below are the steps in which a payment aggregator helps a merchant’s business to accept online payments seamlessly and securely.

Payment Aggregators Onboard a Merchant

Before any transaction is made, the payment aggregator opens a merchant account, and every payment is first received in the nodal account.

Once the payment is successfully and securely received in the nodal account, the amount is transferred to the merchant account.

A nodal account is a special account mandated by the Reserve Bank of India, where payment aggregators act as intermediaries, temporarily holding funds on behalf of merchants.

Customer Heads to Checkout Page

The payment gateway tokenises or encrypts these payment details. The customer is given the choice of mode of payment, like through UPI, cards, net banking, wallets or EMI options. The payment mode, once chosen, is then verified by the payment aggregator, in which they ensure it is free from fraud before the final checkout is processed.

Payment Aggreagtor 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 Aggregators Settle 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!

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.

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).

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

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 Aggregators

Online payment aggregators have become the backbone of digital commerce, especially in a fast-growing digital economy like India. In simple terms, they collect payments from customers on behalf of merchants and settle the funds after processing. Below is a detailed explanation of the key features of online payment aggregators.

Easy Onboarding and Sub-Merchant Account

A payment aggregator can help set up a sub-merchant account that is mandatory and necessary in order to accept payments from customers.
Payment aggregators offer simplified onboarding and skip unnecessary heavy documentation or approval processes.
There is minimal paperwork, fast approval timelines, digital KYC for swift and quick onboarding, and no need for merchants to register for individual bank registrations.
Small businesses, startups, freelancers, and D2C brands can start accepting payments quickly without technical or banking complexity.

Highly Secure

A trustworthy and renowned payment aggregator provides the utmost care in handling and preventing fraud and data breaches.
Payment aggregators are a one-man army, as they provide complete support to the merchant, ensuring their payments are received seamlessly.
Payment aggregators are already PCI-DSS compliant and provide hosted checkout pages in order to avoid storing customer card information on the merchant’s portal and instead use tokenisation, where tokens are useless outside the secure payment environment, thereby ensuring safety for recurring payments.
The payment aggregators handle encryption and secure transmission of card data

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.

Following the traditional method of refund, it usually takes around 7-10 business days for the refund to successfully reflect in the customer’s account. And manually handling refunds and customer disputes can be quite time-consuming, hence the built-in systems.
With the right payment aggregators, refunds are a piece of cake – simple, smooth, and seamless.
The customer raises a refund request, and the payment aggregator pushes the payment after providing appropriate solutions, instead of asking the bank to refund.
Payment aggregators offer automated refunds, partial refunds, and cashback as refunds, depending upon the payout solution, leading to better customer experience and reduced operational burden.

Instant Settlements

As per payment aggregators’ policies and agreement with the merchant, the merchant’s payment from the customer is received in T+2 days after the payment aggregator deducts.
The payment aggregator offers scheduled and instant settlement options before releasing funds to the merchant account. This is done after a transparent fee deduction.
Instant settlements of payments help to improve cash flow management for businesses, especially MSMEs and online sellers.

Dedicated Customer Support

Payment aggregators provide a dedicated account manager for mid- to large merchants and technical support available to you 24×7.
The payment aggregator’s technical team and dedicated account manager will be there to support you throughout your onboarding process and resolve any roadblocks on priority.

Real-Time Dashboard and Tracking

Payment aggregators provide live transaction tracking and settlement reports.
Every merchant is provided with a dashboard that tracks payment success rates and reasons for payment failures.
With the support of payment aggregators, the merchant can instantly check and resolve cases where money has been deducted but not received.

Payment Aggregators 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.

Basis of Comparison	Payment Aggregators	Payment Gateway
Core Function	Serves as a middleman, collecting payments from clients and transferring money to retailers on their behalf.	Supplies the technologies needed to safely approve and handle internet payments.
Merchant account Specifications	Enables the onboarding of several companies under one roof using a shared master merchant account.	Usually necessitates the merchant having a bank account specifically for their business.
Onboarding Process	It helps to onboard a merchant in a quick and seamless order with minimal documentation and simplified digital KYC.	Onboarding depends on acquiring bank requirements and may take longer.
Settlement of Funds	Money is collected, and then fees (T+1, T+2, etc.) are deducted before paying the merchant.	Does not hold funds; funds are directly settled by the bank into the merchant’s account.
Regulatory Compliance	In charge of merchant risk management, KYC verification, and regulatory compliance.	Emphasises mainly security standards such as PCI-DSS over complete merchant compliance.
Risk and fraud Management	Closely monitors merchants’ transactions and assumes certain financial risks.	It keeps a check on fraud detection through relevant detection tools and does not assume any merchant financial risk.
What suits whom?	If your business is a startup, MSM, small business, or D2C brand that wants a quick setup, then a payment aggregator is a better provider.	If own a large enterprise that prefers direct bank relationships and more control over your transactions and do not rely much on providers, then this is a better provider choice.
Example	Cashfree Payments	PayPal, CCAvenue
Point of Control	Less direct control over acquiring bank, as the payment aggregator manages the bank partnerships on your behalf,	Provides greater control if you choose direct integration with the acquiring banks.

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.

Related Read: Payment Gateway vs Payment Processor

Conclusion

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.

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!

FAQs on Payment Aggregators

What is a payment aggregator?

A payment aggregator is a licensed third-party provider that enables merchants to accept online payments without opening a separate merchant account, by collecting funds in a nodal account and settling them later.

What is the difference between payment aggregator and payment processor?

A payment aggregator manages merchant onboarding, compliance, and fund settlement, while a payment processor only handles communication between issuing and acquiring banks.

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