Online Transaction Battle: Payment Aggregator vs. Payment Gateway

Understanding payment aggregators and gateways is crucial for online transactions. Let’s explore the differences; Know payment aggregator vs. payment gateway.

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Have you ever wondered about the differences between a payment gateway and a payment aggregator? If you’re running an online business or planning to start one, understanding these terms is essential.

A payment aggregator is more like a helpful middleman. It gathers payments from various customers and lumps them together. The aggregator then distributes these funds to different merchants, like you, after deducting their fees, of course!

On the other hand, a payment gateway is a virtual bridge between the customer, the merchant (that’s you!), and the bank. When you make an online purchase, the payment gateway securely transfers your payment information to the bank for processing. It’s like a digital bouncer that ensures your payment reaches its destination safely.

In this blog post, we’ll break down the dissimilarities between a payment aggregator and a payment gateway, so you can grasp their unique roles and make informed decisions for your business. Let’s dive in!

What Is a Payment Aggregator?

A payment aggregator, or merchant aggregator, is a third-party service provider that lets merchants accept customer payments by integrating them into their websites or apps. 

In other words, a payment aggregator (PA) helps merchants and acquirers work together. It gives you a “sub-merchant account.” After that, the PA will receive payments from customers on your behalf. Lastly, it sends the money to you in batches after some time has passed. This step is called “settlement.”

A payment aggregator will enable merchants to accept various payment options without upfront work, whether by credit card, debit card, e-wallet, or bank transfer.

Payment aggregators typically charge a fee for their services, which may be a percentage of each transaction or a flat rate. They may offer additional features and services, such as fraud protection, invoicing, and reporting.

Overall, payment aggregators can help merchants streamline their payment processing and make accepting payments from customers worldwide easier.

Payment Aggregator Example

Examples of payment aggregators are mentioned below-

Firms like Stripe, PayPal, Google Checkout, Google Pay, and Amazon Payments act as payment aggregators.

Why Would You Require a Payment Aggregator?

A payment aggregator is the best option for a merchant who wants to expand their business by accepting all types of online and credit card payments with minimal fuss and in a short period of time. A payment aggregator platform eliminates the need for merchants to set up individual online payment processors by allowing them to accept credit cards and bank transfers without needing a merchant account with a bank or card association.

The payment aggregator platform can also store consumer card information to facilitate faster purchases or money in an account to facilitate future purchases. The Mindgate payment aggregator platform solution includes a centralized system for merchant management, reconciliation, and settlement, as well as a single POS.

How do Payment Aggregators Make Money?

Payment aggregators make money by charging fees or commissions for their services. When a customer makes a payment through a payment aggregator, the aggregator deducts a small percentage of the transaction amount as a fee. This fee is typically paid by the merchant or the business that accepts the payment.

Payment aggregators also generate revenue through other means, such as offering additional value-added services like fraud detection, data analytics, or customized reporting, for which they charge separate fees. These services help businesses improve their payment processes and make informed decisions.

Is Stripe a Payment Aggregator?

Stripe’s purpose is widely misunderstood. Some business owners believe it is a payment processor, others believe it is a payment gateway, and the majority believe it is a merchant account.  

Stripe is a hybrid of a payment platform and a service provider; it is a payment service provider (PSP). To be more specific, Stripe is a payment facilitator (payfac), also known as a payment aggregator.

What Is a Payment Gateway?

A payment gateway is a network that allows your customers to send money to you. Payment gateways are like the point-of-sale terminals used in most physical stores. 

A payment gateway authorizes customers’ data. It keeps track of all digital credentials. When an online transaction takes place, the cardholder and customer remain absent. Someone should advocate for the cardholder and the payment gateway’s performance. Providing customer information within a fraction of a second without exposing anything personal is the first job of a payment gateway.

Payment gateways use standard encryption. Because fraud is so likely, the data that is being sent is very well encrypted. Web developers call it the Secure Socket Layer (SSL). It ensures the customers’ data is forwarded safely and soundly.

Payment Gateway List

Examples of payment gateways are mentioned below-

  • PayPal
  • Square
  • Stripe
  • Amazon Pay
  • Apple Pay

Is PayPal a Payment Gateway or Payment Aggregator?

PayPal acts as both a payment gateway and a payment aggregator.

As a payment aggregator, PayPal aggregates payments from multiple sources, such as credit cards or bank accounts, and handles the transaction on behalf of the users.

As a payment gateway, PayPal allows people and businesses to send and receive money online. It is a secure bridge between buyers and sellers, facilitating transactions by processing payments and transferring funds between parties. PayPal is widely used for online purchases, money transfers, and e-commerce transactions.

What Is an Account Aggregator?

Account aggregation is getting financial information from different places—like a person’s different bank accounts—and putting it all together. It is also called “financial data aggregation,” it includes things like cash flow and investments in addition to traditional credit rating assets like credit cards or loans. Expenses, receipts, deposits, tax returns, equity investments, and so on are examples of data sources.

An account aggregator is an RBI-regulated entity with an NBFC-AA license that assists individuals in digitally accessing and sharing information from one financial institution to another. Data sharing occurs with the individual’s permission.

Payment Aggregator vs. Payment Gateway

A payment aggregator and a payment gateway are both important components of online payment processing, but they serve different functions. Let’s take a closer look-

  • Definition

Payment aggregators act as middlemen, connecting multiple merchants to various payment processors through a single platform.

In contrast, a payment gateway is a software application that connects an online store or merchant to a payment processor, allowing the merchant to accept payment from a customer.

  • Working Method

Payment aggregators can go through the underwriting process of the acquiring bank and process payments using either the same Merchant Identification Number, or MID, or different MIDs.

An online payment gateway has an interface that handles payment transaction data at the front end. On the back end, it works with a bank to issue merchant accounts. Thus, in the case of payment gateways, authorizing banks are compelled to organize the underwriting and fund transfer processes for multiple merchants willing to open accounts to process payments.

  • Function/Handling Subject

A payment aggregator handles funds, while a payment gateway provides technology.

  • Payment Success Rate, Or PSR

Payment aggregators have a much higher rate of payment success. The success rate of a payment gateway is determined by how much it can handle.

  • Permissions

A payment aggregator must be certified in accordance with the Payment Card Industry Data Security Standard (PCI-DSS). The RBI authorizes a payment gateway under the Payment and Settlement Systems Act 2007.

  • Roles of the Payment Aggregator and Gateway

Payment aggregators are third-party payment service providers who act as go-betweens for merchants and payment processors. Payment aggregators provide merchant accounts to enable them to accept payments online. 

Payment gateways, on the other hand, serve as conduits for transactions.

  • Ownership

Private fintech companies own payment aggregators.

Both private and public banks and payment aggregators can own payment gateways.

  • Acting Process

A payment aggregator can act as a payment gateway. However, a payment gateway can never work as a payment aggregator.

  • Features

Aggregators focus on simplified onboarding, unified reporting, and settlements, while gateways provide advanced features like fraud detection and recurring payments.

  • Target Users

Aggregators are suitable for small to medium-sized businesses, while gateways cater to businesses of all sizes operating online.

Wrapping Up

A payment gateway may be the best choice if you plan to accept payments from a few sources. Payment Aggregator provides many more functions compared to Payment Gateway.

At the end of the day, it ultimately depends on the requirements of your business. When deciding, you should consider other factors such as price, security, ease of integration, and customer service. Then decide which one you want for your business.

Understanding the differences between a payment gateway and a payment aggregator is essential for businesses navigating the world of online payments. While both play vital roles in facilitating transactions, they have distinct functions.

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