Overview of Payment Gateway License In the modern era of technology, businesses must obtain a payment gateway license to process transactions securely and efficiently. However, handling the complexity of payment gateways can be troublesome, as numerous regulations and requirements must be considered. Payment gateways have eased our lives by bringing flexibility to online shopping, bill payments, mobile or DTH recharges, and so on. They can be said to work as a bridge between banks and websites. They also assist in making the communication of transactions possible. According to Section 4 of the PASS Act, no person other than the RBI can either operate or commence a payment system until it has received authorization from the RBI. The application for authorization to the RBI must be made under Section 5 of the PSS Act. What is a Payment Gateway? An online payment gateway works as a tunnel that connects the bank account to the portal where you need to transfer the amount. It acts as software that permits a person to conduct an online transaction via different payment modes. Some payment modes are net banking, credit card, debit card, UPI, and other online wallets. A payment gateway is a third party that securely transfers your money from the bank account to the merchant's payment portal. For example, if you are buying some products from an online shopping portal like Amazon, when you make a payment. A payment gateway assists in transferring the money to Amazon. What are the key Features of a Payment Gateway? The payment gateway acts as an intermediary between an online marketer or merchant and a financial organisation involved in processing online transactions. Here, we have discussed below some of the key features of the payment gateway license for your better insight: 1. Privacy & Security Privacy & security can be of utmost importance. Payment gateways encrypt sensitive information exchanged among customers, merchants, and financial institutions to secure data transmission. 2. Multiplicity of Payment Methods A better payment gateway handles various payment methods, including credit or debit cards, digital wallets, bank transfers, and other alternate payment methods in different regions. 3. Consolidation Process Payment gateways smoothly consolidate with a range of digital commerce platforms, shopping carts, and different software systems. Application programming interfaces (API) are typically offered to facilitate the easy consolidation process. 4. Recurring Billings The payment gateway for businesses that depend on recurring payments should have features for automated recurring billing as a mechanism that allows a business to receive ongoing information from the customer only once. 5. Smartphone Optimization Payment gateways provide smartphone-optimized interfaces and mobile payment method support to improve the user experience on smartphones and tablets in the age of digital commerce. How does the Payment Gateway Function? The main function of a payment gateway is to secure sensitive information provided by the user throughout the process. It also ensures security by encrypting data such as the card and bank details. There are the steps discussed below as to how a payment gateway works: Step-1 The first step is for the customer to place his order in the portal and then press the checkout button, or any equivalent button, on the website. Step-2 In the next level, the website or the e-commerce platform directs the customer to a payment gateway where he or she can enter all the relevant information about the bank or the card they use to pay. The payment gateway then directly takes the user to the issuing bank's page or a 3D secure page asking to authorize the transaction. Step-3 After the payment gateway gets approval for the transaction, the bank then checks if the customer has sufficient balance in their bank account to make the transaction successful. Step-4 The payment gateway also sends a message to the merchant simultaneously. If the bank rejects the payment, the merchant immediately informs the customer about the issue related to the card or the bank account. The payment gateway refunds the payment to the customer, who receives the money in their account within 5-10 working days. Step-5 The bank then settles the money with the payment gateway, which then settles the money with the merchant. After completing this process, the customer receives a confirmation message that the order has been placed. Law Governing Payment Gateway License in India The Payment and Settlement System Act (PASS Act) was introduced by the RBI to regulate and supervise payment systems in India. The authority can refer to all matters that fall under the purview of this Act. Two regulations to govern payment gateway licenses in India are as follows: Board for Regulation and Supervision of Payment and Settlements Systems Regulations, 2008. Payment and Settlements Regulations, 2008 What are the Benefits of getting a Payment Gateway License? A payment gateway cannot only be used for transferring money, but it also has certain other benefits. A payment gateway permits the merchant to provide the user with a better experience by providing some major benefits like: 1. PCI-DSS Wallet PCI-DSS compliance provides security for users to store their data in the portal or gateway for recurring payments. For example, if you are a regular customer on Flipkart, you can save your bank account details or card details on their site or app, and the gateway will prevent any cybersecurity threat. 2. White-Label Wallet Some payment gateways permit you to make digital transactions via mobile wallet apps. This is the newest trend, enabling the user to make all his transactions by just sitting in one place. You can transfer the money from the account to the mobile wallet app and then use it to make payments on other apps or websites. 3. Fraud Screening Tools Some payment gateways offer fraud screening tools to reduce the risk of losing information. These tools consist of Card Code Value (CVV), Card Verification Value (CVV) or Address Verification Service (AVS). The primary purpose of these tools is to check that there is no fraudulent transaction. This makes it possible for a purchaser to purchase or sell goods and services whenever you want. Market Size of the Payment Gateway The Indian Payment Gateway Market is projected to grow from USD 1.21 billion in 2024 to USD 2.66 billion by 2029, with a compound annual growth rate of 17.16% during the forecast period (2024-2029). How does Payment Gateway Make Money? The payment gateway earns primarily from transaction, subscription, setup, and chargeback fees. The payment gateway also earns income from each transaction by taking a percentage or any fixed fees. Eligibility Criteria to Apply for Payment Gateway License The eligibility criteria to apply for the payment gateway license in India are mentioned below for your better insight: Entity Established under the Companies Act of 2013 or the Companies Act of 1956. A minimum of two members as partners or shareholders is required. A minimum of two directors is required. Proof of Business Address. PAN of the Company. The Company’s current bank account information. Registration number of service tax. Payment Card Industry Data Security Standard compliance. Essential IT Prerequisite for Securing Payment Gateway License The requirements for businesses concerning IT systems and security are explained below: 1. Information Security Governance The businesses must conduct a detailed security risk assessment of their customers to identify risk exposures with remedial measures and residual risks. 2. Security Incident Reporting The business shall report any cardholder breaches or security incidents to the RBI within the specified time. 3. Cyber Security Audit and Reports The entities must carry out and submit to the IT Committee quarterly internal and annual external audit reports; bi-annual Vulnerability Assessment or Penetration Test reports; Attestation of Compliance and Report of Compliance report with observations noted if any, including corrective or preventive actions planned with action closure date. 4. Cryptographic Requirement The business must choose an encryption algorithm as a well-established international standard. It has been subjected to rigorous checks by an international community of cryptographers. 5. Data Sovereignty Businesses must take preventive measures to ensure that data is stored in infrastructure that does not belong to any external jurisdiction. 6. Data Security in Outsourcing There must be an agreement relating to outsourcing providing the right to audit clause to authorize the entities or their appointed agencies and regulators to conduct security audits. Alternatively, the third parties must submit annual independent security audit reports to the businesses. 7. Payment Application Security Payment applications must be developed according to PA-DSS guidelines and complied with. The business will review the PCI-DSS compliance status as part of the merchant onboarding process. Documents Required to Apply for a Payment Gateway License Obtaining a payment gateway license usually requires different legal and regulatory criteria that are unique to the jurisdiction where you do business. There are the necessary documents required to apply for a payment gateway license discussed below: Certificate of Incorporation of Company PAN Card or Address proof of the Directors. DSC and DIN of the directors. Address proof of the place of business. Details of the Company's bank account. The Company's business plan is five years. Code testing report by a software agency. What are the Capital Requirements to Apply for a Payment Gateway License? The Company or business must have a net worth of at least 15 Crores. Its net worth should also increase to Rs.25 Crores within three years of its business operation. Process of Applying for Payment Gateway License in India Acquiring a payment gateway license in India requires careful preparation of documentation and strict compliance with Reserve Bank of India regulations, from submission and approval to the grant of the payment gateway license. There are certain steps to follow to obtain a payment gateway license in India discussed below for your better understanding: Step-1 As per Section 5(1) of the PSS Act, apply Form A. This application must be made to the Chief General Manager of the Department of Payment and Settlement Systems at the Central Office of the RBI in Mumbai or any other office prescribed by RBI from time to time. Step-2 According to Section 6 of the Act, the RBI has the discretionary power to authorize the payment gateway license. The inquiries will help clarify the authenticity of the details submitted by the applicant and check the credentials of the involved participants. Step-3 The RBI will check the following conditions before issuing the authorization of the payment gateway: The requirement for making a proposal payment system or the services proposed to be undertaken by it. The technical standards are set for the payment system or the structure of the proposed payment system. The terms and conditions include any security procedure for the operation of the proposed payment system. The proposed way in which the transfer is done in the given payment system; The prescribed manner for getting instructions that affect the payment obligations under the payment system. The financial status and the integrity of the applicant. The prescribed terms and conditions govern the customers' relationship with the payment providers. The credit and monetary policies. The time frame for authorization. Step-4 If the RBI is satisfied with all the requirements laid down in Section 7(1), it might issue the Authorization Certificate in Form-B to the applicant for commencing and carrying on a payment system. Step-5 According to Section 4 of the PASS Act, the RBI must process the application for authorization as soon as possible with a maximum time limit of six months from the date the application for authorization was made. Services Offered by Payment Gateways Payment Gateways, apart from facilitating quick payments, also offers the following services: Delivery Address verification. Advanced Visual System checks. Computer Finger Printing Technology. Velocity Pattern Analysis. Identity morphing detection. Calculation of tax for authorization of request transmitted to the processor. Types of Payment Gateway Providers Post-License Acquisition Two categories of payment gateway providers allow the business to take payment from national and international customers in Indian National Rupees via Credit or Debit Cards and net banking methods. The types of Payment Gateways Providers are: Second Party Providers Third-Party Providers How Payment Gateways Keep Information Secure? A payment gateway assures the security of the information. Below mentioned is the list of things that a Payment Gateway does to keep your Data Safe: Firstly, the entire transaction is done through an HTTPS web address. HTTP is distinct from HTTPS as the S in HTTPS stands for secure. The sale is made through this same tunnel. The system uses a signed request as a result of the hash function. The signed request from the merchant validates the request for the transaction. The signed request is usually private and is known only by the merchant and the payment gateway. To secure the payment page as a result of the process, the IP of the requesting server must be verified to detect any malicious activity. Virtual Payer Authentication (VPA) can be said to be something that acquirers, issuers, and payment gateways support to secure the process. The VPA implemented as per the 3-D secure protocol adds a layer of security and also helps online buyers and sellers for authentication purposes. Fee Structure for Payment Gateway License The fee for obtaining the payment gateway license can range between Rs.16,00,000 to Rs. 25,00,000. Time Frame for Obtaining Payment Gateway License The time required to obtain a payment gateway license is a maximum of six months from the date of filing the application. Why Choose Enterslice for a Payment Gateway License Enterslice makes getting a payment gateway license easier by providing in-depth support. From the first meeting to handling the application process and ensuring continuous compliance, we offer expert assistance throughout the entire process. Here is a detailed overview of how we can assist a company in acquiring a Payment Gateway License, which is as follows: 1. First Consultation We will begin by understanding your business model, the type of transactions you will handle, and your specific needs related to payment gateways. 2. Assist in Documentation We will assist you in preparing the essential documentation needed to acquire a payment gateway license. We will help you prepare and draft applications, business plans, financial statements, and other documents. 3. Manage Application We will oversee the entire application procedure for you, coordinate with regulatory bodies, submit paperwork, and ensure all criteria are fulfilled on time. 4. Compliance Aid Even with the license secured, we can offer continuous assistance to help your business comply with regulatory standards. 5. Legal Advisory We may also offer legal advice services concerning payment gateway operations, such as contract drafting, resolving disputes, and managing risks.
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