A payment gateway moves payment information; a payment aggregator moves money. A gateway carries payment details to the banks and card networks. A payment aggregator, or PA, also collects customers’ money for the merchant, holds it briefly and pays it out. Because a PA handles other people’s funds, the Reserve Bank of India (RBI) licenses and supervises it. A pure gateway, which never touches the money, is outside that licensing regime.
The difference in the RBI’s words
The RBI’s current rulebook, the Reserve Bank of India (Regulation of Payment Aggregators) Directions, 2025, issued on 15 September 2025, defines both terms.
A payment aggregator is an entity that facilitates the aggregation of payments made by customers to merchants, through one or more payment channels, and “subsequently settles the collected funds” to those merchants.
A payment gateway is an entity that provides “technology infrastructure to route and facilitate processing” of payments “without any involvement in handling of funds”.
Many companies offer both. The legal question is which one a company actually does for you.
| Payment gateway (PG) | Payment aggregator (PA) | |
|---|---|---|
| What it does | Routes payment data between merchant, customer’s bank and networks | Collects customers’ payments for a merchant and settles them to the merchant |
| Touches the money? | No | Yes, through an escrow account at a scheduled commercial bank |
| RBI authorisation | Not required; outside the PA Directions | Required for non-banks under the Payment and Settlement Systems Act, 2007; banks are exempt |
| Minimum net worth | None set by the RBI | ₹15 crore when applying, ₹25 crore by the end of the third financial year |
| Merchant due diligence | Not mandated by the PA Directions | Must carry out KYC-style checks on every merchant it onboards |
| RBI’s technology guidance | “Encouraged” to follow baseline recommendations | Must follow them |
Source: RBI, 2025.
How the rules got here
The RBI first regulated these businesses through its Guidelines on Regulation of Payment Aggregators and Payment Gateways of 17 March 2020. They already called gateways “technology providers” and required non-bank PAs to use an escrow account. Existing non-bank PAs had to apply for authorisation by 30 June 2021 and build up their net worth to ₹25 crore by 31 March 2023.
The 2025 Directions replaced the 2020 guidelines, their 2021 follow-up and the October 2023 circular on cross-border aggregators with one consolidated document. They now sort PAs into three types:
- PA-Online (PA-O): the customer’s payment instrument and the merchant’s acceptance device are not in close proximity, as with a website or app checkout.
- PA-Physical (PA-P): both are physically present, as with a card machine or a QR code at a shop counter. This category was brought under authorisation for the first time; entities doing only PA-P business had to apply by 31 December 2025 or wind up by 28 February 2026.
- PA-Cross Border (PA-CB): collects or pays out for cross-border current-account transactions, such as an Indian exporter selling online to overseas customers, or Indians buying from foreign websites.
Non-bank PAs must be companies incorporated in India, and a PA business may not also run a marketplace business.
What a PA has to do with the money
The escrow account is the heart of the regime. A PA does not keep merchants’ money in its own operating account; it holds it in a separate escrow account, and the 2025 Directions list exactly what can go in and out. Credits include customers’ payments, refunds and transfers from other PAs; debits include payouts to merchants, refunds to customers and the PA’s own agreed commission. The escrow account cannot be used for cash-on-delivery orders.
For a merchant, this means money owed to it is kept apart from the PA’s own funds.
Settlement timelines
| Rulebook | Settlement rule for merchants |
|---|---|
| 2020 guidelines (now repealed) | Fixed outer limits, for example no later than one day after the merchant confirmed delivery, or one day after shipment where the PA was responsible for delivery |
| 2025 Directions (current) | As per the PA–merchant agreement, which must be “fair, equitable” and “transparently mention the settlement timelines” |
So, as of October 2026, there is no single RBI deadline for paying merchants. The settlement period is a contract term, which is one more reason to read it before signing. The fee side of that contract, the merchant discount rate, is explained in our guide to what MDR is.
What a PA has to check about the merchant
Because a PA handles money on a merchant’s behalf, the RBI makes it responsible for knowing who that merchant is. Under the 2025 Directions, a PA must carry out customer due diligence on merchants in line with the RBI’s KYC rules and allot each merchant the correct merchant category code and IDs.
For small merchants, those with annual turnover up to ₹40 lakh, or export turnover up to ₹5 lakh, the checks are lighter: PAN (or Form 60) verification, a contact point verification of the merchant, and a certified copy of an officially valid document of the proprietor. Larger merchants go through full due diligence.
Merchants onboarded from 1 January 2026 must meet these checks at sign-up. For merchants onboarded until 31 December 2025, PAs were given one year from the date of the Directions to bring them into line.
The Directions also bar merchants from storing customers’ card credentials on their own databases or servers.
What it means for a small business choosing a provider
For a small business, the split comes down to a few questions. This is not legal advice; for a specific contract, check with a professional.
- Who will hold my money? If the provider collects and pays out your funds, it is acting as a PA. If it is a non-bank, it needs RBI authorisation, or must be an existing PA that applied in time and is awaiting a decision.
- Is it on the RBI’s list? The RBI publishes the status of PA applications, showing which entities are authorised, which are in process and which were returned or refused. In the RBI’s words, existing PAs that applied in time “can continue business unless advised otherwise”, but new PAs “cannot commence operations” until authorised. An in-principle approval is not an authorisation.
- When will I be paid? The settlement timeline should be written into the agreement.
- What will it cost? The MDR, any fixed fees and GST on those fees. Our explainer on GST for small businesses covers how input tax credit generally works on such business expenses.
- Which payments will go through it? Card machines and shop QR codes fall under PA-P, website checkouts under PA-O, and overseas sales under PA-CB, so check the provider covers the type you need. Our UPI pillar explains who else sits in the chain for a UPI payment.
The point: A payment gateway is plumbing for payment data; a payment aggregator collects and pays out a merchant’s actual money, which is why only the aggregator needs RBI authorisation, minimum net worth and an escrow account. The RBI’s 2025 Directions bring online, in-store and cross-border aggregators under one rulebook. For a small business, the useful questions are who holds the money, whether that company appears on the RBI’s list, and what the contract says about settlement and fees.
Sources
- Reserve Bank of India (Regulation of Payment Aggregators) Directions, 2025, Reserve Bank of India, 15 September 2025
- Guidelines on Regulation of Payment Aggregators and Payment Gateways, Reserve Bank of India, 17 March 2020 (updated 17 November 2020; repealed by the 2025 Directions)
- Status of applications received under the Payment and Settlement Systems Act, 2007: Payment Aggregators, Reserve Bank of India, as on 1 October 2026