Why Credit Card Companies are Reluctant to Work with Payment Aggregators

As the world moves towards digital payments, the role of payment aggregators has become more prominent. However, credit card companies often resist partnerships with these aggregators due to various reasons. In this article, we will explore the reasons behind this resistance and discuss the challenges faced by both parties in such collaborations.

Understanding Payment Aggregators

Payment aggregators play a crucial role in integrating multiple payment methods and processing systems into a single interface. This seamless integration offers merchants and consumers a more convenient and efficient payment experience. However, as seen with powerful players like PayPal and Authorize, being a payment aggregator doesn't make one a sub aggregator, which raises questions about the role and limitations of aggregators.

The Regulatory Challenges

1. Risk and Uncertainty

One of the primary reasons why credit card companies may be reluctant to work with payment aggregators is the risk associated with the uncertain regulatory landscape. Credit card companies operate within a stringent framework regulated by various financial institutions. Working with payment aggregators can introduce additional risks as these aggregators may not have the same level of regulatory compliance. The uncertainty surrounding the legal and regulatory environment can make credit card companies wary of entering into such partnerships.

2. Risk of Disruption

Payment aggregators can pose a significant risk by disrupting the traditional payment flow. Credit card companies are concerned about the potential loss of control and the impact on their brand and reputation. Integrating a third-party service can lead to problems such as unauthorized transactions, chargebacks, and other fraudulent activities. These risks are magnified in the case of sub aggregators, who may not have the same level of risk management and compliance measures as the primary credit card companies.

The Process in Nepal

1. Local Bank Partnerships

If you wish to establish yourself as a payment aggregator in Nepal, it is imperative to form partnerships with local banks. This requirement aligns with the stringent regulations set forth by the Reserve Bank of Nepal (RNB). The process involves several steps, including:

Availing of a business license and a license to operate as a payment service provider from the RNB. Forming strategic partnerships with multiple banks to provide a diverse range of financial services. Ensuring compliance with local regulations and the highest standards of security for financial transactions.

The RNB plays a vital role in ensuring the stability and security of the financial system. Therefore, partnerships with the RNB must be robust and reliable, which can be a significant hurdle for new entrants in the market.

2. Regulatory Compliance

To comply with the regulatory requirements, companies should:

Adhere to the guidelines provided by the RNB for payment service providers. Implement a thorough vetting process for merchants to prevent fraud and ensure security. Provide regular reports and audit trails to demonstrate compliance.

Benefits of Working with Payment Aggregators

Despite the challenges, many credit card companies still see the potential benefits of working with payment aggregators. Here are some reasons why:

Enhanced Customer Experience: Aggregators can provide a more seamless and user-friendly payment experience for consumers. Innovation and Flexibility: Aggregators often bring innovative solutions and flexible payment options, which can help credit card companies remain competitive. Data and Insights: Aggregators can provide valuable data and insights on consumer behavior and payment trends, helping credit card companies make data-driven decisions.

Conclusion

While the collaboration between credit card companies and payment aggregators presents numerous opportunities, it also comes with its share of challenges. The regulatory framework, the risk of disruptions, and the need for stringent compliance are some of the key barriers. However, by carefully navigating these challenges and forming strong partnerships with local banks, payment aggregators can create value for both themselves and credit card companies.

By complying with the necessary processes and regulations, payment aggregators can establish themselves as trusted partners in the digital payment ecosystem. The key to success lies in understanding the regulatory landscape, managing risks effectively, and delivering superior service and solutions.