Understanding RBI guidelines: Navigating payment aggregators in India

The numbers are staggering - India processed over 8.7 billion digital transactions worth ₹14.19 trillion in December 2023 alone.

Payment aggregators serve as vital intermediaries that enable digital payments for thousands of businesses throughout India. The landscape has transformed dramatically since the Reserve Bank of India (RBI) implemented strict guidelines to oversee these payment aggregators.

Every business that accepts online payments needs to understand India's payment aggregators and their regulatory framework. The RBI's detailed rules cover everything from licencing to day-to-day operations to ensure digital payments remain secure and reliable. This piece walks you through the essentials about payment aggregators, the latest RBI guidelines, licencing requirements, and tips to select the right payment aggregator that fits your business needs.

What do payment aggregators do?

Payment aggregators play a vital role in making digital payments possible in India. These digital payment partners help businesses accept payments without building their own infrastructure 1. They act as middlemen who handle everything from processing transactions to settling funds.

Here's what happens during a typical payment through an aggregator:

1. The aggregator securely captures and encrypts payment information at the time a customer pays
2. The encrypted data moves to the right payment processor or bank
3. The funds get reserved from the customer's account after validation and authorisation
4. The aggregator collects these funds in a special escrow account
5. They send the collected amounts to merchants after taking their fees

Payment aggregators do much more than process transactions. They run detailed background checks on merchants to prevent fraud. To process payments securely, merchants must follow industry standards like PCI-DSS and PA-DSS.

Security is their top priority. These aggregators build resilient infrastructure, use encryption protocols, and protect sensitive data through tokenization. Their machine-learning algorithms spot transaction patterns and catch potential fraud.

Indian businesses can accept many payment methods through these aggregators. Options include debit cards, credit cards, UPI, digital wallets, and BNPL services. Quick settlement services are available even during holidays and after banking hours, though extra fees apply.

These aggregators excel at customer support. Their dedicated teams help with everything from payment status questions to technical help with API integrations. This will give a smooth payment experience to merchants and their customers alike.

Choosing the right payment aggregator

The regulatory framework by the Reserve Bank of India plays a vital role in shaping payment aggregators' operations in India. The RBI's 5-year-old complete guidelines help separate different types of aggregators and define their operational scope.

Key Objectives and Scope

The RBI's regulatory framework protects consumer interests and ensures secure payment processing. New payment aggregators must have a minimum net worth of ₹25 crores at application time. The core team at existing aggregators needs to maintain ₹15 crores by March 31, 2021, and raise it to ₹25 crores by March 31, 2023.

Payment aggregators must meet these requirements:

• Build resilient security infrastructure to prevent fraud
• Set up customer grievance redressal systems
• Keep designated escrow accounts for fund management
• Get a full picture of merchant backgrounds
• Follow data localization norms

Differentiation between bank and non-bank aggregators

Bank and non-bank aggregators have unique characteristics. Bank Payment Aggregators cost more to set up, and integration can be challenging 7. However, they provide stable infrastructure and proven security protocols.

Non-Bank Payment Aggregators bring groundbreaking solutions and intuitive features such as:

• Complete dashboard for transaction monitoring

• Simple merchant onboarding processes

• Fast customer support resolution

The settlement timeline is a significant factor to think over. Non-bank aggregators complete settlements within T+1 days (where T is the transaction date) for delivery responsibility. Merchant-managed deliveries see settlement within one day of delivery confirmation.

E-commerce marketplaces that provide payment aggregation services must now separate these activities from their main business. This separation gives better focus and regulatory compliance.

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Pros and cons of using a payment aggregator

The practical advantages and limitations of payment aggregators deserve a closer look after understanding their regulatory framework and selection criteria for businesses in India.

Payment aggregators offer these compelling benefits:

• Quick Setup and Integration: Payment aggregators make onboarding smooth with minimal paperwork, which lets businesses accept payments right away

• Simplified Fee Structure: Their pricing stays straightforward without complex fixed contracts

• Complete Security: Merchants get strong fraud prevention tools and sophisticated risk management services.

• Advanced Analytics: Their platforms give valuable data about transaction patterns and customer behaviour.

We should think over several key limitations. Business growth can substantially increase transaction costs. High-volume merchants' payment aggregator charges might be nowhere near as budget-friendly as direct merchant accounts.

Account security is a vital concern. Payment aggregators enforce strict fraud prevention measures that sometimes trigger temporary account holds. These holds last 24-48 hours or, in rare cases, even a month. This protects against fraud but could affect your business's cash flow.

Our analysis shows payment aggregators control when settlements happen. Most merchants see their money in 1-3 business days, but some aggregators might take longer based on their risk checks. They also set lower processing limits than direct merchant accounts.

Indian businesses that use licenced payment aggregators can cut costs substantially. Some companies save hundreds of crores yearly through lower processing fees and operational costs. To cite an instance, see how a food delivery platform handling ₹13,000 crores quarterly could save about ₹65 crores each quarter by optimising its payment processing strategy.

This explanation helps businesses make smart choices about using payment aggregators while keeping both opportunities and limitations in mind.

Disclaimer: This blog provides general information about payment aggregators in India and should not be considered as financial or legal advice. For specific guidance related to your business, please consult with qualified professionals or refer to the latest RBI guidelines.

Contributed by Denila Lobo

Denila is a content writer at Winvesta. She crafts clear, concise content on international payments, helping freelancers and businesses easily navigate global financial solutions.