Payment Gateway vs Payment Aggregator: The RBI Distinction Every Founder Must Know

Understand the RBI distinction between a payment gateway and a payment aggregator, who needs the PA licence, and how TDR and MDR really work.

Two Roles That Look Identical

In everyday conversation founders use payment gateway and payment aggregator interchangeably, but the RBI has formally separated them since the March 2020 guidelines. A payment gateway is a pure technology layer that routes card and net banking instructions between the merchant, customer bank and acquiring bank. A payment aggregator actually pools merchant funds into a settlement account, holds them, and disburses to the merchant after a settlement cycle. The pooling of funds is the legal trigger that demands an RBI licence.

The RBI Payment Aggregator Licence

Any entity that onboards merchants and routes their collections through its own escrow or nodal account must hold a Payment Aggregator licence under the RBI guidelines, with a minimum net worth of Rs 15 crore initially and Rs 25 crore by year three. Razorpay, Cashfree, PayU and Easebuzz are all RBI-licensed PAs in India. A pure gateway provider that never touches merchant money, like a white-label tech vendor, does not need this licence. As a merchant you should verify your providers PA licence status on the RBI website before signing up.

Understanding TDR and MDR

Merchant Discount Rate or MDR is the total fee a merchant pays for accepting a card or digital payment, expressed as a percentage of the transaction value. Transaction Discount Rate or TDR is the same concept, more commonly used in the payment aggregator world, and is split between the issuing bank, the network like Visa or RuPay, and the acquirer or aggregator. For UPI and RuPay debit cards the government has mandated zero MDR since January 2020, which is why most aggregators do not charge for these instruments. Credit cards, international cards and wallets continue to attract MDR ranging from 1.75% to 3%.

Who Actually Needs a PA Licence

If you are a regular ecommerce or services business simply collecting payments from your customers, you do not need a PA licence, you just need a merchant account with a licensed aggregator. The licence requirement kicks in only when you build a platform where you onboard sub-merchants and collect on their behalf, like a marketplace, SaaS billing platform or ticketing aggregator. Operating as an unlicensed PA invites RBI action, frozen settlements and reputational damage. Many marketplaces work around this by using a licensed PA as their backend and acting only as a tech facilitator.

Picking the Right Setup for Your Stack

For a single merchant business, signing up with Razorpay or Cashfree gives you instant access to all instruments without licence headaches. For platforms onboarding multiple sellers, evaluate whether a sub-merchant routing arrangement with a licensed PA is cheaper than pursuing your own licence. BillBabu integrates payment links and reconciliation against any of the major aggregators, so you get clean invoice-to-payment mapping without locking yourself into a single provider.

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Built for Indian small businesses. BillBabu is GST-compliant billing software that helps you create invoices, manage estimates, track payments and stay audit-ready — from your phone. Learn more about BillBabu or download the app.