Introduction
Businesses are often faced with the challenge of selecting the right solution to facilitate seamless transactions. Two common options that often come into consideration are payment gateways and payment aggregators. Although these terms are sometimes used interchangeably, they represent distinct entities with unique functionalities, advantages, and use cases. This blog aims to demystify the differences between payment aggregators and payment gateways, helping you make an informed decision for your business.
What Is A Payment Gateway?
A Payment Gateway is a technology that allows merchants to process transactions through their website or application. It acts as a bridge between the customer’s bank and the merchant’s bank, securely transmitting payment information to facilitate the transaction.
Key Functions Of A Payment Gateway
- Transaction Authorization: It verifies the customer’s payment details and ensures that there are sufficient funds to complete the transaction.
- Data Encryption: Payment gateways encrypt sensitive data, such as credit card details, to protect it from cyber threats.
- Transaction Processing: It communicates with the customer’s bank to transfer the payment to the merchant’s account.
- Settlement: Funds are eventually settled into the merchant’s account, typically after a few business days.
Types Of Payment Gateways
Payment gateways are generally categorized based on their deployment method and the range of services they offer:
- Hosted Payment Gateways:
- Example: UPI Payments Standard
- Features: Redirect customers to a payment gateway’s page for payment processing, offering simplicity and security but at the cost of brand consistency.
- Self-Hosted Payment Gateways:
- Example: Stripe, Braintree
- Features: Payment data is collected on the merchant’s site before being sent to the gateway, allowing for more control but requiring greater security compliance.
- API/Non-Hosted Payment Gateways:
- Example: Authorize.net
- Features: Offer seamless integration via APIs, allowing the merchant to control the payment experience fully, suitable for advanced e-commerce sites.
- Local Bank Integration Gateways:
- Example: CCAvenue (in India)
- Features: Integrates directly with local banks to offer localized payment options, beneficial for businesses targeting specific regions.
How Payment Gateways Work
- Transaction Initialization: When a customer makes a purchase, the payment gateway encrypts and forwards the payment details to the acquiring bank.
- Authorization Request: The acquiring bank forwards the transaction request to the card networks (e.g., Visa, MasterCard) for authorization from the issuing bank.
- Authorization Response: The issuing bank approves or declines the transaction, and the response is sent back through the card network to the acquiring bank, and then to the payment gateway.
- Transaction Completion: If approved, the transaction is processed, and the payment is transferred to the merchant’s account.
What Is A Payment Aggregator?
A payment aggregator, on the other hand, is a service provider that allows merchants to accept payments without the need for a separate merchant account. Instead of setting up their own merchant account, businesses can use the aggregator’s account to process transactions.
Key Functions Of A Payment Aggregator
Onboarding and Merchant Management: Payment aggregators simplify the onboarding process for merchants, allowing them to accept payments without needing individual merchant accounts with banks.
Transaction Processing: They handle the collection of payments from various sources (credit cards, wallets, UPI, etc.) and channel them to the merchant.
Fund Settlement: Aggregators manage the settlement of funds, ensuring the merchant receives payments after deducting any fees.
Risk Management: They provide fraud detection, chargeback management, and ensure compliance with regulatory standards.
Multi-Channel Integration: Payment aggregators offer a unified platform to integrate multiple payment methods, streamlining the payment process for both merchants and customers.
Types Of Payment Aggregators
Payment aggregators are categorized based on the services they provide and the payment methods they support:
- Full-Service Payment Aggregators:
- Example: Razorpay, Stripe
- Features: Offer a comprehensive suite of payment methods including credit/debit cards, UPI, wallets, and more. They handle the entire payment process, from transaction initiation to settlement.
- Niche Payment Aggregators:
- Example: PayPal
- Features: Focus on specific payment methods or regions. They might specialize in cross-border payments, peer-to-peer transfers, or particular industries.
- Mobile Payment Aggregators:
- Example: Google Pay, Paytm
- Features: Specialize in mobile payments, often integrating with mobile wallets and offering QR code-based payments.
How Payment Aggregators Work
- Merchant Onboarding: Payment aggregators handle the onboarding process, allowing businesses to start accepting payments without a direct relationship with banks.
- Transaction Processing: The aggregator collects payments from various payment methods and channels them to the merchant’s account.
- Settlement: Aggregators manage the settlement process, transferring the funds to the merchant’s account after deducting fees.
- Risk Management: They provide fraud detection, chargeback management, and compliance services.
Payment Gateway vs Payment Aggregator: Key Differences
Feature | Payment Aggregator | Payment Gateway |
Merchant Relationship | Merchants use the aggregator’s bank relationships. | Merchants must have their own acquiring bank relationship. |
Integration | Single integration for multiple payment methods. | May require separate integrations for each payment method. |
Risk Management | Aggregator handles fraud detection, chargebacks, and compliance. | Gateway handles secure data transmission but not chargebacks. |
Settlement | Aggregator manages fund settlements to the merchant. | Settlement is managed by the merchant’s bank. |
Setup Complexity | Easier to set up, with less technical complexity. | Requires more setup, especially for security and compliance. |
Control | Less control over the payment process. | More control, including custom payment experiences. |
When To Choose A Payment Gateway
- Established Businesses: If your business is well-established with a high volume of transactions, a payment gateway might be more cost-effective in the long run.
- Customization Needs: Businesses that require a high degree of control over their payment process, such as custom checkout pages or specific fraud prevention measures, will benefit from a payment gateway.
- Direct Merchant Account: If you prefer to have direct control over your merchant account, a payment gateway is the better choice.
When To Choose A Payment Aggregator
- Startups and SMEs: If you’re just starting out or running a small to medium-sized enterprise, a payment aggregator offers an easier and quicker setup.
- Low Transaction Volume: For businesses with lower transaction volumes, the simplicity and flexibility of a payment aggregator are advantageous despite the higher per-transaction fees.
- Wide Range of Payment Options: If you want to offer customers a variety of payment methods without managing multiple integrations, a payment aggregator is ideal.
Conclusion
Choosing between a payment gateway and a payment aggregator depends on your business’s size, needs, and future growth plans. Payment gateways offer more control and potentially lower costs for high-volume businesses, while payment aggregators provide a more straightforward and flexible solution for smaller businesses or those looking to get started quickly.
FAQs Around Payment Gateways and Payment Aggregators
A payment aggregator allows merchants to accept payments without needing a direct merchant account with a bank. It manages various payment methods and consolidates them under one platform.
A payment aggregator allows merchants to accept payments without needing a direct merchant account with a bank. It manages various payment methods and consolidates them under one platform.
A payment gateway focuses on securely processing payments, while a payment aggregator handles the entire payment process, including onboarding, transaction processing, and settlement.
Not necessarily. Small businesses often opt for a payment aggregator for simplicity, while larger businesses might prefer the control offered by a payment gateway.
Payment gateways typically charge setup fees and transaction fees, while payment aggregators might only charge transaction fees, often at a slightly higher rate due to the convenience provided.
It depends on your business needs. If you need simplicity and a one-stop solution, a payment aggregator is ideal. If you require more control and customization, a payment gateway might be better.
Payment aggregators collect funds from customers and settle them into the merchant’s account after deducting any fees. This process typically happens on a scheduled basis (e.g., daily or weekly).
Yes, businesses can start with a payment aggregator for simplicity and later switch to a payment gateway as they scale and require more control over their payment processes.
Payment aggregators collect funds from customers and settle them into the merchant’s account after deducting any fees. This process typically happens on a scheduled basis (e.g., daily or weekly).
Yes, both payment aggregators and gateways comply with global payment regulations, such as PCI DSS, to ensure secure processing and protect customer data.
