What is Payment Gateway and Aggregator – License and How to Acquire One From RBI
A payment gateway is a financial service that reads payment cards (like debit card, credit card, net-banking and payment through your e-wallet, etc.), payment gateways refer to software and servers that transfer transaction info to acquiring banks and responses from issuing banks. Essentially, payment gateways facilitate communication within banks. A payment gateway performs as an intermediary between the payments receivers and facilitates the transaction via the customer’s bank account. Such a facility collects the information from the buyer bank and supplies this information to the receiving bank.

How to get a Payment Gateway License in India?
Security is an essential component of all payment gateways, as sensitive information such as credit/debit card numbers need to be secured from any fraudulent possibilities. The card associations have formed a set of guidelines and security standards, which must be followed by payment gateway provider. This set of instructions and security standards is recognized by the name of Payment Card Industry Data Security Standard (PCI-DSS or PCI)

How does Payment Gateway Work?
A payment gateway executes the significant role in processing and allow the payment or transactions between customer and merchants.
A payment gateway encodes sensitive details of payment such as credit/debit cards number. A payment gateway technology shall ensure the information is passed securely between customers and merchants. Below are the basic steps on how it works:

Step1: A buyer will book an order on the website by submitting the order, checkout from the cart, etc.

Step2: Merchant initiates the transfer order information to the payment gateway and chooses their preferred payment method. The transaction is then directed to the issuing bank or the 3D secure page to request transaction authentication.

Step3: Once the authentication process is successful, the transaction is then approved or declined (subject to funds available in the customer’s account) by the issuing bank or card (MAESTRO, VISA, MASTER, American Express).

Step4: The payment gateway facility sends a message to the merchant accordingly.

Step5: Post verification bank settles the money to the merchant.

Basic Requirements for getting Payment Gateway License

To obtain the payment wallet license, an entity shall be registered under the Companies Act, 1956 or the Companies Act, 2013
• Proof of position of the business
• Detailed business plan along with review model
• A minimum of two members or directors
• PAN and Current Account of the company
• Testing Report by Software certifying agency describing System Flow and Code
• Compliance with PCI DSS

Difference between Payment Aggregator & Payment Gateway

Digitalization of Financial Service Sector is not the outcome of day one, rather its ongoing process and regular innovation that all the stakeholder has witnessed in the continuous journey of Banking and Financial Service Sector. Finance is very core and confidential matter which need special consideration to transact in terms of secure and correct path to route and close the transaction in order to avoid any malpractices and fraud thereon. It can be facilitate through technological involvement on secured transmission line. And the way we are witnessing now days, technology is inevitable and gaining more on more popularity and uses on day to day function. The culture of cash is now been shifting gradually in various other modes of payments. Cash and Cheque payments are now been traditional modes and uses on limited row due to recent developments of various instruments on payment system. It is transitional phase to phase out the cash payment system from country unlike earlier. Various regulatory framework are developed to monitor and guide the digital transaction.

Business Requirement:
Most popular segment to take as example is online shopping portal i.e. e-commerce platform. Now the e-commerce has huge market share of doing business, making the offline retailers and business, visible across the India to do business at PAN India level. But the pain area is easy and convenient way of settlement on payment proceeds.

Need and Regulatory Framework:
For the sake of brevity, the easy payment settlement system is been need of an hour and that to be on regulated framework unlike the earlier recommendatory circular on directions for opening and operation of accounts and settlement of payments for electronic payment transactions involving intermediaries dated 24th Nov, 2009 issued by Reserve Bank of India. It took good years to define and design the regulatory framework and now after 10 years of evolvement and innovation on this particular segment, the Regulator has come up with Guidelines on Regulation of Payment Aggregator and Payment Gateway. It mandate the existing and new player with various requirements such as promoter fit and proper criteria, skilled Board of Director with in depth understanding of this market, technology framework, capital adequacy and so on. Now subject to Guidelines issued by Reserve Bank of India dated 17th March, 2020, we will discuss and understand the regulatory framework for this niche market.

What is Payment Aggregator?
As per Reserve Bank of India definition entity that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations without the need for merchants to create separate payment integration system of their own. It facilitates merchants to connect with acquirers. In the process, they receive payments from customers, pool and transfer them on to the merchants after a time period.

Payment Aggregator Operation Model:
It handles the funds on behalf of user, platform and merchant via designated Bank Account i.e. Nodal/Escrow Account. Therefore it required the authorization from Reserve Bank of India under the Payment and Settlement System Act, 2007.

Users do shopping in digital platform. Now users need to make payment. Payment mode can be Wallet, Bank-Net Banking, Debit or Credit Card etc.

Platform is marketplace of various service provider, seller, financial services etc. They are defined as Merchant. Merchant are on-board by Platform on their agreed terms and conditions.

It involves user, platform, merchant and Bank to complete any payment transaction. User once do purchase or use the services listed on platform, required to pay which is landed in the entity doing payment aggregation business. User make payment form available/listed Bank or Wallet or any acceptable payments mode i.e. POS, Card, UPI, QR to Platform of Aggregator. It has to manage the payment receipt from user and bifurcate the amount into commission and actual to be reimburse to Merchant then after release the payment to merchant. It has step on step process to ignite and close the transaction. Now on wards, whomsoever be participant here as payment aggregation business need to take license/registration from Reserve Bank of India unlike earlier. The timeline is 30th June, 2021 where the existing non-entity has to apply for registration of whose Net Worth should be INR 15 Crore. New applicant should have INR 15 Crore Net Worth to apply for registration to Reserve Bank of India. Once authorization granted can do this business, with target to reach INR 25 Crore Net Worth by the end of 3rd Financial Year.

What is Payment Gateway?
As per Reserve Bank of India definition entities that provide technology infrastructure to route and facilitate processing of an online payment transaction without any involvement in handling of funds.

Payment instrument that are processed at cloud required safe, secure and fraud free platform to connect with credentials of Bank/Wallet/Debit or Credit Card to process the transaction, and it requires user interface which is in fact Payment Gateway in India.

For example: Digital Wallet where user can Load the Money. Money transfer from Bank Account to Wallet, and the path provider is Payment Gateway. Similarly, user make payment to platform from its wallet, the path used by it is Payment Gateway. So technology framework or say infrastructure i.e. user interface to transmit the Debit and Credit function digitally without handling the funds is Payment Gateway.

Payment Gateway Entry Requirement:
Existing or say new entity, need to full fill following criteria to enter into this market:-
• Company incorporated in India under the Companies Act, 1956/2013 either Public or Private with Payment Aggregation business as object of Company is eligible to start this business.
• Net worth requirement of INR 15 Crore
• Board of Director should understand and possess the technical requirement of this business as well as they shall pass the fit and proper criteria of Reserve Bank of India.
• Fund infused on Company need to be clean and the member can substantiate the fact that the fund is clean.

Requirement for obtain Payment Gateway License:
It is very much necessary to check the required documents/information are in order or not so tentative basic checklist to begin with this registration process are:-
• Demand Draft of INR 10,000/- (non-refundable)
• Applicant is Company and The Company has requisite Net Owned Fund.
• Board of Director understand the business and legal and technical complexities involve to do this business. Educational Qualification and Experience Certificate of Directors.
• Members fund are clear and clean. Net Worth and ITR of Members.
• Net Worth Certificate from Statutory Auditor
• Unaudited/Audited Financial Statement of Company
• Incorporation Certificate along with Memorandum and Article of Association
• Details of Statutory Auditor and Banker
• Banker Report of Company, Director and Member.
• System Specification
• IS Audit Report and Cyber Security Audit Report
1.Business Plan
2.PCI-DSS Approved
• Customer Grievance Redressal and Dispute Management Framework
• Security, Fraud Prevention and Risk Management Framework

As per the checklist, the required documents either to be prepared or collected and arranged accordingly with an application form to be submitted at Chief General Manager, Department of Payment and Settlement System (DPSS), RBI, Central Office, Mumbai.