Digital payments are the backbone of modern commerce, whether you’re running an e-commerce store, a subscription-based service, or a brick-and-mortar business. But when it comes to setting up your payment infrastructure, you’ll likely encounter two commonly used terms: Payment Gateway (PG) and Payment Aggregator (PA). While they often work together, they serve distinct purposes. This guide will demystify these concepts, explain their differences, and help you choose the right option for your business. By the end of this blog, you’ll have a clear understanding of the debate: payment gateway vs payment aggregator.
What is a Payment Gateway?
A payment gateway is a technology solution that facilitates the secure transfer of payment information between a customer, the merchant’s website, and the acquiring bank.
Key Functions of a Payment Gateway:
- Encrypting and transmitting sensitive payment data.
- Supporting multiple payment methods like cards, UPI, and wallets.
- Ensuring compliance with security standards like PCI DSS.
Benefits of Using a Payment Gateway:
- Secure transaction processing.
- Compatibility with various payment methods.
- Customizable checkout experiences
Example: Imagine a customer shopping on your e-commerce website. The payment gateway processes their card details and communicates with the bank to confirm the transaction.
When comparing payment gateway vs payment aggregator, it’s clear that a payment gateway focuses primarily on the secure processing of transactions.
What is a Payment Aggregator?
A payment aggregator is a service provider that enables businesses to accept payments without the need to set up a merchant account with a bank. Instead, the aggregator provides a shared account for multiple merchants.
Key Functions of a Payment Aggregator:
- Onboarding merchants to a shared system.
- Collecting and holding funds in an escrow account.
- Settling collected payments to the merchant’s withdrawal account.
Benefits of Using a Payment Aggregator:
- Quick and hassle-free onboarding.
- Simplified compliance processes.
- Cost-effective for small and medium businesses.
Example: You’re a small business owner who wants to start accepting online payments. Instead of setting up a direct merchant account, a payment aggregator enables you to start accepting payments instantly.
When considering payment gateway vs payment aggregator, aggregators are ideal for businesses that prioritize ease of use and quick onboarding.
Key Differences Between Payment Gateway and Payment Aggregator
| Aspect | Payment Gateway | Payment Aggregator |
| Role | Facilitates secure payment processing. | Aggregates and manages payments for multiple merchants. |
| Merchant Account | Requires individual merchant accounts with banks. | Uses a shared escrow account for multiple businesses. |
| Setup Time | Can take longer to set up due to direct bank integration. | Quick and easy onboarding process. |
| Ideal For | Larger businesses with high transaction volumes which also requires customized checkout experiences. | Small to medium businesses starting online payments. |
Understanding these differences in the payment gateway vs payment aggregator comparison can help businesses determine which solution suits their operations better.
Which One is Right for Your Business?
Choose a Payment Gateway(PG) If:
- You run a large-scale business with high transaction volumes.
- You need complete control over your payment process.
- You can manage compliance requirements like PCI DSS certification in case you want a customized checkout experience.
Choose a Payment Aggregator(PA) If:
- You are a startup or small business looking for a quick payment solution.
- You want to avoid the hassle of setting up a direct merchant account with a bank.
- You need a cost-effective way to start accepting payments.
Can They Work Together?
Yes, payment gateways and payment aggregators often complement each other. Many aggregators integrate payment gateway technology into their offerings to provide a seamless payment experience.
For example, an aggregator may use a third-party payment gateway to process transactions while handling fund settlement and compliance.
How Can a Payment Aggregator(PA) Offer PG Services?
- Dual licensing: In India, a payment aggregator can obtain both a PA license (for fund aggregation and settlement) and a PG license (for processing payments securely) from the Reserve Bank of India (RBI). This allows the aggregator to handle funds and provide the technological backbone for payment processing.
- Integrated solutions: Payment aggregators can embed gateway technology into their systems to enable smooth transaction processing, fraud detection, and multi-channel payment acceptance.
- Infrastructure ownership: Aggregators can develop or partner with a payment gateway to control the entire payment flow, from collecting customer payment details to settlement.
Example of Dual Functionality
- Payment Aggregator Function: A small business registers with an aggregator, which collects payments on its behalf and settles the funds after deducting fees.
- Payment Gateway Function: The same aggregator offers secure, tokenized processing for the payments made by customers using its payment gateway technology.
Benefits of an Aggregator Offering PG Services
- Convenience for merchants: Merchants can access a one-stop solution for both payment processing and fund aggregation.
- Cost-effective: Merchants avoid the complexity and cost of integrating separate solutions for PA and PG services.
- Streamlined support: Technical support and dispute resolution are centralized, reducing friction.
- Scalability: As a merchant grows, it can continue using the aggregator’s integrated services rather than switching providers.
Challenges of an Aggregator Offering PG Services
- Operational complexity: Managing dual functions requires strict compliance with separate regulations for PAs and PGs.
- Cost of compliance: Aggregators must meet RBI’s stringent guidelines, which would differ for both PA and PG licences.
Future Trends in Payment Gateways and Aggregators
- SaaS tools: CRMs or accounting platforms are integrating payments directly into their application with the help of these payment providers.
- Advanced security measures: Both solutions are adopting tokenization and biometric authentication to provide enhanced security to merchants.
- AI and analytics: Aggregators and gateways are using AI to detect fraud and provide merchants with insights about payment trends.
Conclusion
Both payment gateways and payment aggregators are essential components of the digital payments ecosystem, but their roles are distinct. For business owners, the payment gateway vs payment aggregator decision hinges on your scale, needs, and resources.
A payment gateway offers control and scalability, while a payment aggregator provides simplicity and accessibility. By understanding these differences, you can make an informed decision that aligns with your business goals.
FAQs
What is the main difference between a payment gateway and a payment aggregator?
The key difference lies in their roles: a payment gateway facilitates secure payment processing between customers and merchants, while a payment aggregator enables businesses to accept payments without the need for individual merchant accounts, using a shared system for fund collection and settlement.
Can a business use both a payment gateway and a payment aggregator
Yes, many businesses use both. For example, a payment aggregator might leverage a third-party payment gateway to securely process transactions while handling fund settlement and merchant onboarding. This combination offers convenience and security in payment processing.
Which is better for small businesses: a payment gateway or a payment aggregator?
For small businesses or startups, a payment aggregator is often the better choice as it offers quick onboarding, reduced compliance efforts, and cost-effective solutions. However, as businesses grow and require more control over payment processes, transitioning to a payment gateway might become necessary.
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