Payment Aggregator: A New Business Opportunity for Payment Players?

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We'll talk about why fintech players are competing to get payment aggregator license, and how it is going to be a game changer.

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Let’s dive in!

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Payment aggregator provides services by integrating different payment options like cheques, cash, online payment options, and offline touch points (in-store, in-field, and remote SMS-based transactions). It allows merchants to accept any type of payment without having separate accounts with banks.

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More than 185 fintech businesses and startups submitted their applications for a license to operate as payment aggregator to the RBI. Currently, there are 80 payment aggregators in India, including third-party payment aggregators and bank payment aggregators. Apart from India’s public and private sector banks, third-party players like BharatPe, Infibeam, Cashfree, Paysharp, Hitachi payment services, Enkash, Worldline ePayments, etc., have the license. Meanwhile, RBI has asked PayU and Paytm to reapply for a payment aggregator license.

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How do payment aggregators work in India?

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Image Credits: Cashfree

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Payment aggregators operate on wafer-thin margins. Income and profit depend on how they negotiate costs and deals with merchants and banks. Payment aggregators earn revenue from the merchant discount rate (MDR), and the profit depends on pricing. This is the beauty of the volume games; a small margin translates into huge profit over the period, but with a small mispricing merchant will end up losing huge money.

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How to make a profit?

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There are several ways for payment aggregators to make a profit:

• Keep the MDR higher than the cost paid to different payment instruments/modes
• Intelligent routing mechanism to direct the volume towards less charging payment modes
• Charge the banks some subvention for a volume commitment

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Why are many fintech players trying for a payment aggregator license?

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Many payment players are trying for a payment aggregator license in India because it allows them to provide a range of payment services to customers through a single point of integration. This includes services such as online payments, mobile payments, UPI (Unified Payments Interface) and BNPL transactions. Obtaining a payment aggregator license will also allow payment players to access the country’s large and growing e-commerce market and to compete with established players in the payments space.

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Additionally, embedded finance is on the rise and becoming more popular. Many fintech companies are offering it on digital marketplaces. Many payment players are looking to get a payment aggregator license to take advantage of embedded finance.

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