For many founders, the first few months of accepting online payments feel straightforward. Customers pay, money settles, and the business moves on. Over time, however, payments begin to influence cash flow predictability, compliance exposure, reconciliation effort, and even product design.
That is usually when the question surfaces: should we be using a payment aggregator or a payment gateway? This is an operating model decision.
Payments Are an Operating Model Decision
Every payment setup implicitly decides three things:
Who carries regulatory responsibility, who controls how money flows, and who absorbs failure when something breaks.
Early-stage businesses typically optimize for abstraction and speed. That is sensible. Problems arise when the same abstraction is assumed to scale without friction. Payment decisions compound quietly. By the time constraints show up, switching models is rarely trivial.
Understanding the underlying model early helps founders avoid forced decisions later.
“Payment Gateway” as a Catch-All Term
In India, “payment gateway” is commonly used to describe any system that enables online payments. This loose usage masks a critical distinction.
In practice, businesses operate under two different models:
- the payment aggregator model, and
- the direct payment gateway model (gateway plus acquiring bank relationship).
They may look similar on the surface, but they distribute responsibility very differently.
The Payment Aggregator Model
Under the payment aggregator model, multiple merchants accept payments under a single regulated entity.
Operationally, this means the aggregator:
- onboards merchants,
- receives customer payments first, and
- settles funds to merchants after internal checks.
The merchant operates within the aggregator’s compliance and risk framework. This model exists because it lowers the barrier to accepting digital payments, especially for businesses without the scale or bandwidth to manage bank relationships and regulatory overhead early on.
The trade-off is dependency. Settlement timelines, policy changes, or compliance actions taken at the aggregator level can indirectly affect merchants, even when their own operations are sound.
The Direct Payment Gateway Model
In a direct model, the gateway primarily provides technical infrastructure, while the merchant maintains a direct relationship with acquiring banks.
This changes the operating reality. The business takes on more responsibility for onboarding accuracy, compliance readiness, and exception handling. Funds flow with fewer intermediaries, but the merchant must absorb the operational complexity that abstraction previously hid.
This model is not inherently superior. It simply shifts control—and risk—closer to the business.
The Difference Between Payment Aggregator and Payment Gateway
| Aspect | Payment Aggregator | Payment Gateway |
| Regulatory responsibility | Centralized with the aggregator (RBI-regulated entity) | Shared more directly with the merchant |
| Bank relationship | Aggregator maintains acquiring bank relationships | Merchant maintains a direct acquiring bank relationship |
| Fund flow | Customer → Aggregator → Merchant | Customer → Bank → Merchant |
| Merchant onboarding | Simplified and handled by the aggregator | More rigorous, handled by the merchant and the bank |
| Compliance exposure | Indirect, but impacted by aggregator-level actions | Direct and merchant-owned |
| Settlement control | Limited visibility and flexibility | Greater control over settlement timelines |
| Operational complexity | Low upfront | Higher upfront increases ownership |
| Dependency risk | Higher (policy or compliance actions affect all merchants) | Lower (risk isolated to the merchant) |
| Best suited for | Early-stage or fast-moving businesses | Scale-stage businesses with mature ops |
The difference between a payment aggregator and a payment gateway is not about features, dashboards, or supported payment methods. It is about where responsibility lives.
A payment aggregator centralizes compliance, risk monitoring, and settlement under one licensed entity. On the other hand, a direct payment gateway model decentralizes that responsibility, pushing more control—and obligation—onto the merchant.
Once framed this way, the decision becomes less about preference and more about organizational readiness.
RBI Regulation in India: Who Is Actually Accountable
In India, payment aggregators are regulated by the Reserve Bank of India (RBI). They must meet licensing, escrow, settlement, and reporting requirements.
Merchants using aggregators are not directly regulated as payment intermediaries. However, they are still accountable for business conduct, transaction legitimacy, and KYC accuracy. Regulatory action against an aggregator can indirectly affect merchants through settlement delays or operational restrictions.
In a direct gateway model, more responsibility sits with the merchant, particularly around onboarding rigor and audit readiness. Compliance does not disappear; it is redistributed.
There is no model that eliminates regulatory exposure. There are only different ways to carry it.
Control vs. Abstraction Is the Real Trade-Off
Abstraction is valuable early. It reduces cognitive load and accelerates launch timelines. Over time, that same abstraction can become a constraint, especially when margins tighten, volumes stabilize, or product requirements become more complex.
Control, on the other hand, is expensive upfront. It demands process maturity, internal ownership, and tolerance for operational friction. At scale, it can become leverage.
The common founder mistake is assuming this trade-off is easily reversible. In reality, switching models later often involves contract renegotiation, technical migration, re-KYC, and settlement risk during transition.
Failure Scenarios Founders Rarely Model For
This is where payment decisions usually show their true cost:
- Settlement delays surfacing during audits or fundraising
- Margins eroding unnoticed once volumes stabilize
- Migration complexity is underestimated when switching providers
- Dependency risk is exposed when policies or terms change
These are not edge cases. They are predictable outcomes of misaligned operating models.
Avoid these pitfalls with the right payment infrastructure from day one. Zwitch helps founders choose and implement payment models that scale with their business needs.
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When Each Model Is Rational
A payment aggregator is a rational choice when:
- speed to market matters more than customization,
- volumes are uncertain or volatile, and
- payments are a supporting function, not a core competency.
A direct payment gateway model makes sense when:
- payments are integral to product design,
- margins are sensitive to processing costs, and
- the organization can absorb compliance and operational overhead.
Both decisions can be correct. Indecision is usually the costly one.
Choose Your Payment Model Strategically
Payment infrastructure rarely fails loudly. It constrains quietly through cost, rigidity, or dependency.
Founders who treat payments as long-term infrastructure, rather than a setup task, make fewer forced decisions later. The goal is not to choose the “best” model, but the one whose trade-offs you are prepared to manage as the business evolves.
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