RBI Registration

How to Start Payment Gateway in India

In this post, we will cover the complete information on the query of how to start a Payment Gateway in India. Payment gateway business is a lucrative business opportunity citing the growth story of the digital payment mechanism in the country. We will also cover the characteristics of the best payment gateway along with the functioning of payment gateway.

What is Payment Gateway?

Payment gateways are used for making payment transactions via an electronically communicated channel. It is a front end technology that reads the banking information the user and communicates that information to the merchant banks at both ends in electronic signals.

How Payment Gateway Works?

A payment gateway is an elementary step towards making payment via digitally communicated payment transaction channels. A payment gateway reads the banking information of the person making a payment transaction. Further, it transmits the information to the merchant banker acquiring the payment.

The merchant bank then facilitates the authorization of the payment transaction taking validity from the issuing bank and payment processor.

Payment gateways are a blend of software and servers that create a platform where transaction information to acquiring banks and responses from issuing banks taken are exchanged in for of electronic signals.

Business Integration of Payment Gateway

Payment gateways are the digital channels for making payments for both web-based and brick and mortar businesses. However, the assimilation of the digital payment system in their payment operation has different methods of integration.

The businesses which operate on the website or mobile applications require integration of application programming interface (API) in their platform. The API enables their functionality to complete the transaction of payments.

On the other hand, the traditional Brick and Mortar businesses require integration of point of sale terminal for payment functionality. The point of sale terminal is connected electronically through telecom network i.e., either through a phone or internet connection.

The coming age terminal can now accept both contact and contactless cards (tap to payment cards). The terminal is also available with portability in usage to be connected via Wi-Fi connection. They also have the feature to display transaction information in usage.

What are the Steps to Start A Payment Gateway In India?

There are four significant steps to register a Payment Gateway Business in India

Register Your Company

The fundamental step is to register your company that can commence the business of payment gateway in India. You can register your company with a minimum of two directors.

Get PCI-DSS compliance

The second step is to PCI DSS security standards certification. The Payment Card Industry Data Security Standard (PCI DSS) represents a set of policies and rules that are to be taken in practice for processing online payment transactions. The PCI-DSS is a part of the Payment Card Industry (PCI) security standards.

Get Tax Registrations

It is essential to get mandatory tax registration as prescribed by the regulatory authorities.

Apply for Merchant Service Provider (MSP) or Payment Facilitator

An entity needs to apply for the merchant service providers to comply with the PCI DSS compliance. These are the payment facilitators in working relationships with multiple banks. You can also go to establishing a direct net banking relationship with the banks.

Business Scope for Payment Gateway in India

There is a vast scope for payment gateway providers in India. The payment gateway business is on growth in India, especially after the digital India initiative of the Indian Government. The digital revolution is already in place in the Indian economy.

As per the data released by Indian retail payments organization National Payments Corporation of India (NPCI), the total Unified Payments Interface (UPI) transactions in the country stood at 822.29 million (82.22 crores) for July 2019.

The majority of the businesses are shifted to online platforms in India. These web-based businesses use payment gateway for websites from where they operate the business, make sales, and accept payments in electronic mode.

The business scope of payment gateway in India is not just limited to online businesses. The traditional brick and mortar businesses are also using digital payment platforms to facilitate their customers. Traditional businesses are rapidly shifting to an online payment gateway.

Taking the vast number of businesses in practice in India, the scope for commencing a business of payment gateway in India business is both lucrative and profitable.

Legal Framework for Payment Gateways

The legal framework of the payment gateway is a critical milestone to start a payment gateway in India. The payment gateway business is regulated under the section of payments & settlements Act, 2007. It also has to comply with the guidelines laid by the Reserve Bank of India.

The application to start a payment gateway is to be made in Form A under Settlement System Regulations, 2008.

Additionally, in order to ensure transparency and security, the payment gateway entity needs to comply with AML, KYC, and CFT norms. Complete authorization of rules prescribed by the RBI should also be taken in practice.

There is a possibility to use payment gateway services for money laundering or anti-state activities.

In order to prevent such activities, it is mandatory for a payment gateway to comply with the Prevention of Money Laundering Act, 2002 & Anti Financial Terrorism Norms.

You can read more about the Legal Framework of the Business of Payment Gateway in India.

Precautions to Practice for Payment Gateway Operators

Although it looks like the world has entered into a utopian era of digital payments, it is not all green to work negligently. The sector poses a threat controllable threat from potential hackers and anti-state activists. The technology used for processing payments can be used by hackers for unauthorized usage and laundering of funds.

In order to get protection from such a situation, it is essential to follow the security and privacy protocol of the industry. The protocols are laid by the Reserve Bank of India to ensure the safety of information and transactions.

The strict practice of security protocols in payment gateways and payment processors is not only crucial to prevent fraud but also to secure the trust of the masses towards digital payment mediums.

You can read more about the business of Payment Gateway in India in the following posts

• What are Payment Aggregators?
• Major Differences Between Payment Gateway And Payment Aggregator