The Reserve Bank of India (RBI) recently granted in-principle approval to 32 firms to function as online Payment Aggregators (PA) pursuant to the Payment and Settlement Systems Act, 2007 (PSS Act). This highlights the growing importance and potential implications of this evolving payment system.
Understanding Payment Aggregators
Online Payment Aggregators are firms that play a crucial role in facilitating internet transactions. Acting as the liaison between the customer and the merchant, these companies manage, process, and secure online payments. Their introduction saves businesses from having to establish their own intricate and high-priced payment processing systems. Some well-known examples include PayPal, Stripe, Square, and Amazon Pay.
Key Features of Payment Aggregators
Payment aggregators offer multiple payment options, including credit and debit cards, bank transfers, and e-wallets. Not only do they ensure that transactions are secure and reliable; they also employ machine learning and algorithms for fraud detection and prevention. These services also provide detailed reports on payment transactions and can be integrated with other business operation management systems like accounting software and inventory management systems.
Types of Payment Aggregators
This industry can be bifurcated into two kinds – Bank Payment Aggregators and Third-Party Payment Aggregators. While the former involve high setup costs and lack many popular payment options, making them unsuitable for small businesses and startups, the latter offer innovative solutions, user-friendly features, and easy merchant onboarding, making them increasingly popular. Examples of these are Razorpay and CCAvenue and PayPal, Stripe, and Google Pay, respectively.
RBI’s Criteria for Approving an Entity as Payment Aggregator
According to RBI’s payment aggregator framework, only authorized firms can offer payment services to merchants. To gain authorization, a company must possess a net worth of at least Rs 15 crore in the first year of application, which should increase to Rs 25 crore by the second year. It must also comply with global payment security standards.
Differences between Payment Aggregator and Payment Gateway
A payment gateway is a software that connects an online merchant to a payment processor, thereby enabling the merchant to receive payments from customers. In contrast, payment aggregators link multiple merchants to different payment processors through a single platform. The principal difference between the two lies in the fact that payment aggregators handle funds while payment gateways provide technology.
RBI’s Regulatory Measures for Fintech Firms
In order to regulate fintech firms, RBI has initiated several measures. The Fintech Regulatory Sandbox established in 2018 tests fintech products in a controlled regulatory environment. The Payment System Operators license was introduced to scrutinize the rapidly expanding payments landscape in India. RBI’s Payment Vision 2025 aims to make payment options more accessible and affordable. Additionally, all digital loans must now be disbursed and repaid only through bank accounts of regulated entities. To control malpractices in digital lending, RBI has prepared a “white-list” of approved digital lending apps.
Last Modified: February 20, 2024