Payment Gateway License is the RBI issued certification that allows the applicant to establish and run a payment gateway.

A payment gateway, meaning in simple terms, is a gate through which electronic transactions takes place. It does this by first establishing a secure line between the customer and the seller. And then, it provides a confidential path through which the customer can enter its details and complete the transaction. Throughout this process, the payment gateway securely connects either the customer’s digital payment wallets or bank accounts to the seller’s bank accounts and only then, it allows the transaction to take place.

How does the payment gateway work?

The payment gateway process takes place that to work in three stages:

1. Encryption: This takes place when the user enters his details in the payment gateway browser. That data is encrypted to protect it from prying eyes.
2. Authorization:  The encrypted data is then forwarded to the bank, who then decrypt it with their private key to find out whether the details are correct or not.
3. Finalization:  If the details are found to be correct, the transaction process is initiated through the payment gateway.

The components of payment gateway:

There are two components of an online payment gateway:

1. Merchant Agreement: Those with the payment gateway license first get into an agreement with the merchant that uses the gateway.
2. Secure electronic transactions: It’s a security system that verifies the user information without peeking into it. In doing so it authenticates the information without any compromise to the user’s Credit card/ debit card/ net banking information.

 What is payment Gateway License

A payment gateway license is the registration given by the Reserve Bank of India to companies to want to create and run a payment gateway. RBI promotes this license to:

1. To promote secure online transactions.
2. To make sure that the payment gateway don’t compromise the personal data of the customers or the sellers.
3. To ensure that no data is vulnerable.
4. To ensure that no extra payment gateway charges in Indi are levied on the users.

What are the kind of payment gateway providers that require this license?

Following are the payment gateway providers for whom it’s mandatory to get the payment gateway license

1. Second party providers: The system setup cost to become a second party provider is high, but the TDR (part of payment gateway charges) or Transaction Discount Rate is low, making it more lucrative.
2. Third party providers:  The system setup cost to become a third party provider is low, but the TDR lies between 2 to 4 percent.

Eligibility to get Payment gateway License

Following is the eligibility criteria to get the payment gateway license:

1. The applicant must either be a private or a public limited company.
2. The company must have a PCI DSS certification.
3. The net worth of the company should be at least 15 Crore.
4. The net worth should increase to INR 25 Crores within 3 years of operation.
5. If the applicants are NBFCs or banks, then only those who adhere to the capital requirements specified by RBI are eligible for the payment gateway license.
6. If the net owned funds of the companies that are neither NBFCs or Banks should be at least INR 10 Lakhs.
7.  For entities with FEMA authorization, there is no minimum capital requirement for issuing foreign exchange PPIs. However, they would be limited to current permissible transactions.

Process of getting payment gateway license

In the effort to make it easy to get payment gateway license, India has formulated the following steps for payment gateway registration process:

1. File the payment gateway application via FORM A addressed to the Chief Manager of Department of PSS.
2. Along with the application, don’t forget to pay the payment gateway registration cost.
3. Once you file the application for payment gateway license, RBI will start its assessment. It will check the details you’ve mentioned in your applications.
4. Once RBI finds that you’ve provided correct application, they start the scrutinizing the application on the basis of following points:
   1. What services would the proposed payment system conduct?
   2. What technical standards are implemented in developing the proposed payment system?
   3. What security systems are put in place to conduct electronic transactions through your payment system?
   4. What is the method of transfer used in your payment system?
   5. What is the method of dispensing the payment instructions to the user and how it affects the payment obligations of the user?
   6. How financially stable is the applicant?
   7. What are the terms and conditions put in place to govern the relationship between the payment providers and the customers?
   8. What are the monetary and credit policies you’ve implemented?
   1. How long after the authorization can the applicant start conducting the payment gateway business?
5. Once the RBI authorizes your application, it will send you the payment gateway certification of conducting payment gateway business in FORM B.

Once the application is filed, the RBI would take maximum of 6 months to grant the payment gateway certificate, unless there are some issues with application form.

Documents Required for Payment Gateway License

Following are the documents required for Payment Gateway registration:

1. Certificate of incorporation.
2. Pan card of all the directors of the company.
3. Digital Signature Certificate of the directors of the company.
4. Address proof of the registered address.
5. Details of the bank accounts of the company.
6. Your company’s business plan for the next 5 years.
7. GST registration certificate.
8. The software code of the payment gateway system and it’s testing report by a certified software testing agency.

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