How do Payment Aggregator Platforms Work?

Prabhat Nigam

20 Jun, 2022

One of the major reasons of the success and penetration of e-commerce in India is the strong presence of payment aggregator platforms available to the e-commerce owners. Using the services offered by these aggregator platforms, the merchants have been able to accept payments from multiple payment gateways and increase the total volume of transactions.     

This article discusses the quintessential role of Insurance brokers^[1] in Indian Insurance sector.  

What is a Payment Aggregator Platform?

A payment aggregator platform is also known as merchant aggregator platform. A payment aggregator platform is a third party service provider which is integrated into the websites and applications of the merchants helping them in receiving payments from their customers. It is a link between the merchants and their customers where the platform offers them a ‘sub-merchant account’ where the payment aggregator platform receives payment on behalf of the merchant and released the payment to the aggregator in batches from time to time.

A payment aggregator platform offers various payment options at one place.

For example: you are an online seller (merchant) selling clothes across India. You wish to offer net banking options to your customers. Now, it is very difficult on your part to tie up with multiple banks because it takes a lot of time in their integration and due diligence. This is where the role of payment aggregator platform’s comes into play where it offers you various payment options such as credit and debit cards, net banking, e-wallets, EMI, pay later etc. at one place.     

How do the Payment Aggregator Platforms work?     

Onboarding of the merchant

The first step of the payment aggregator platform is on boarding of the merchant by providing him with a sub-merchant account. The aggregator receives the payments on behalf of the merchant in this sub-account. The aggregator uses the acquiring bank to receive money from the customer.  

Now, let us understand how the payment aggregator platform processes the payments.

Customer goes for Checkout  

The first step of the process begins when the customer selects the product it want to purchase and uses the option to checkout in order to make payment. The customer then enters his payment details on the web page. The customer has the option to choose from a number of payment options such as UPI, net banking, card payment, e-wallets, EMI options etc.

The payment gateway then tokenizes and encrypts the payment details as sensitive personal data is involved in the said case. A fraud check is also conducted at the payment gateway’s end before sending the payment information to the acquiring bank.   

Acquiring bank receives payment information  

The payment aggregator is working in the background while the payment information is sent to the payment aggregator’s acquiring bank. After checking the details, the acquirer sends the customer information to the card company through the payment processor.

Fraud check conducted by Card Company   

Every debit card or credit card is issued by the companies like RuPay, Visa, Mastercard, American Express etc. These card companies then verify whether the card has been issued by them and also run a fraud check at the same time. Thereafter, the card company forwards the information to the issuer bank through a payment processor.

Transaction is accepted/ declined by the issuer bank  

The bank of the customer is the issuer or the issuing bank. This bank verifies the details of the customer and checks whether sufficient funds exist in the customer’s account to make the payment.

After checking the funds, the bank sends the transaction approval or the denial message to the card network. The information of the transaction approval undergoes the same process where it came from i.e. from issuer to card network to the acquiring bank to the payment gateway.

Thereafter, the merchant is informed by the payment gateway about the transaction status who, in turn, informs the customer. 

Acquiring bank requests for funds   

Once, the transaction has been approved, the acquiring bank asks for funds from the issuing bank. Here in this case, the acquiring bank is connected to the payment aggregator.

Settlement of funds by the payment aggregator  

The settlement of funds is done by the payment aggregator in the merchant account. The settlement is a standard one i.e. it takes T+2 to 4 days for settlement. Settlement process can also be instant where the time taken is as fast as 15 minutes.      

Conclusion

The services offered by a payment aggregator platform are usually preferred by small businesses. Those businesses who do not want to grow their businesses to a bigger scale, the services provided by a payment aggregator platform serve as the best option. however, in case the business wants to grow bigger, then it is better to avoid payment aggregator platforms.     

Read our Article: Guidelines mandated by RBI on Regulation of Payment Aggregators