When is payment gateway and how to start one of your own?

Ever since the word “digitization” became a buzzword in India, Indians truly started to become comfortable with fast e-commerce transactions. Regardless of what time of the day it is, and where the money has to go, a payment gateway has proven to be the true helper. One-click, some details, PIN, OTP and viola, one transaction is done. It’s the gift of payment gateway license.

So, what is payment gateway exactly? Because knowing the science behind is as much important as using it?

What is a payment gateway?

Simply put, a payment gateway is an online analogues of a POS or Point of Sale system of a physical store. Acting as a point of sale, a payment gateway becomes a doorway through which customers enter their payment info and other info in a secure manner. That information is then filtered through a payment processor that authenticates said information and carries out the transaction.

If you wish to really dive deep into the explanation of whatever you’ve read above, read what’s written below:

  1. Authentication: First, the user enters his or her or their information within the fields that payment gateway provides. Upon entering the details, the data is authenticated. If the card numbers are correct, another window is shown. It prompts the user to enter the rest of the secure information.
  2. Encryption:  Conventionally, the rest of the information that the user has to provide is either the PIN number or the OTP (One Time password). Due to rising security concerns, it’s the latter (OTP) that’s given more preference these days, especially in India. The entered confidential information is then encrypted before it’s sent to the customer’s bank. The encryption methodology varies between 64bit to 128bit.  
  3. Finalization: The encrypted data that reaches the bank’s servers is then decrypted. It checks the viability of the transaction, and the confidential details of the user. If both are authorized, the money is transferred into the payee’s account.

The entire concept of payment gateway can be seen as quite fuzzy – because it is. The current scenario pertaining to the technology behind the payment gateway and the regulations that RBI provides to operate them is changing. Thus, if your wish is to start your own payment gateway in India, you should know the intricacies of the payment gateway license.

What is a payment gateway license?

As it can be seen by merely looking at the term. a payment gateway license is the license to run a payment gateway. In the simplest of terms, it’s the permission issues to a company to establish and integrate payment gateway in India. The Reserve bank of India, the APEX banking authority of India and the issuer of this license, has several eligibility requirements. You can only apply for the Payment Gateway License if you have the capabilities, the financial structure and the technological sturdiness to meet those requirements.

What makes one eligible to get payment gateway license in India?

Reserve bank of India, in a bid to remove the non-serious applicants of the license, has set forth several stringent eligibility requirements. Some of them are as follows:

  1. Only an incorporated company can be the applicant: Before applying for the RBI payment gateway license, you should have the right applicant, and it’s not you as an individual; it’s your business converted into an institution known as a private limited company.
  2. It’s required that banks and NBFCs meet the net worth requirements: If your company is either a bank or a Non banking Financial Company, your net worth should be at least 15 Crore rupees.
  3. Non banks or Non NBFCs have a different net worth requirement: if you’re an entrepreneur capable of bootstrapping your net worth to INR 10 Lakh, you can apply for the license.
  4. PCI DSS certification for the payment gateway is mandatory: Payment Card Industry Data Security Standard is the authority that assesses the new payment gateways before they can be presented before the RBI. If you don’t have the PCI DSS certification from them, you can’t apply for the license.
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Steps to obtain payment gateway license in India

After you meet each and every eligibility criteria that RBI has set before you, you can apply for the license. The process is a simple one:

  1. Gather the required documents
  2. File the application for the payment gateway license in India
  3. Let the RBI assess your application
  4. Get the payment gateway license once the application is approved.

The documents required to file the application for the payment gateway license

 Following are the documents required to file payment gateway license in India:

  1. Company Incorporation Certificate
  2. PAN card of the company directors
  3. DSC of the directors
  4. Address proof of the registered address
  5. Details of the bank accounts of the company
  6. Business plan of the company
  7. GST registration certificate
  8. Software code of the payment gateway.

What is a payment gateway and how to start your own? This blog discusses about the payment gateway, the payment gateway license and the procedure to obtain it.

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