90. PA — Almighty
Do you recognize these?
From left to right… The One Ring (from the Lord of Rings), the Deathly Hallows (from Harry Potter), and the Infinity Gauntlet (Avengers).
These are the most powerful ‘things’ in those fictional worlds.
My favourite one is the Infinity Gauntlet and it holds 6 infinity stones (Space, Mind, Reality, Power, Time, Soul). And the one who is wearing the gauntlet can snap his fingers and change the universe!
In this article, I will talk about the most powerful ‘thing’ of the payments universe… i.e. license.
In 2020, RBI started with the PA/PG license, followed by PA-CB and then BBPS guidelines were updated. Recently RBI issued a draft circular to regulate offline payment aggregators.
You can read details (here, here)
Now, we have different types of PAs
- PA-O: Online Payment Aggregators
- PA-CB: Cross border PAs which can be PA-CB-Import, PA-CB-Export, PA-CB-Import-Export
- PA-P: Offline Payment Aggregators
Wait… wait…
We should include BBPS, as PAs are allowed to operate as COU (Customer Operating Unit) and/or BOU (Biller Operating Unit) (Read here)
Entities are classified as existing PAs (the one already operating aggregation business) and new PAs (which do not have existing aggregation business and can operate business only after receiving license)
All of these PAs are connected to PA-O
Note: RBI is yet to publish the final guidelines for PA-P (Offline); I will change the diagram if anything changes in the final circular.
Look at that…. PA-O is all shiny at the centre of all PAs. An authorised PA-O can venture into all other PA models.
So in a way, PA-O is the second most powerful license, after the banking license.
Great Power Comes with Great Responsibility — Ben Parker (Spiderman’s Uncle)
If he knew about PA, then he would have said… “PA license comes with a lot of compliance, audits and reporting”
These responsibilities and compliances need to be fulfilled whether a PA has 10 merchants or 10 thousand, or processes 1000 transactions or a billion.
PAs are not here to play the ‘compliance-compliance’ game… they are in this money moving business to make money.
Depending on which type of PA and capabilities that they have, these different PAs (PA-O, PA-CB, BBPOU and PA-P) can earn MDR, more MDR on EMIs and international card processing, Forex, bill payment fees, and fees from other tertiary/ value add/ complimentary services/products.
Wonderful!
But, each of these PAs have their own challenges in running and scaling business. I can write a few paragraphs… But what is fun about that.
Let’s do a ‘Match the Following’ (like the school days… Hint: One to Many is possible)
Did you enjoy it?
You might have but the one who is actually in ‘the game’ may not :)
End Game:
PA-O is a powerful license, but just because one has the powerful license doesn’t mean everything will fall in place for them.
Back to Avengers reference… Everyone who wore the infinity gauntlet paid the price… Thanos, Hulk, and Iron Man.
Few of the non-bank PAs are in this because they are in this game for quite some time and will play the game till the end. (Like me… I will retire in this payments domain)
But new PAs will have a tough time… most of them never operated in the payments domain, they might have worked ‘near’ payments, or, at best, seen payments or read reports on payments :)
So, they thought that the PA license was a great idea and that they could be part of the ‘payments game’.
I would say they will go through 5 stages of realisation (similar to 5 stages of grief)
Few entities fast forwarded this process, and gave up or will give up the license (Zomato and Stripe).
And I expect many new PAs will surrender their license in the next two years (you see, they have to go through those realisation stages… right?)
Yes, one can operate a niche business (if PA is not the primary business for the company), but Payments is a game of volumes…. Big volumes will help get economies of scale (to some extent), bargaining power, and brand visibility.
You can’t build a niche business in a commoditized market and command a high margin. In short, ‘You can’t build a Mercedes model in payments, only a Tata Motors model works’.
PA (any type) is not an easy business, and one has to fight on a daily basis on multiple fronts. But remember, payments is an important, quintessential, and ever growing domain.
You can only be an optimist in the long run if you are pessimistic enough to survive the short run — Morgan Housel
Big Announcement: A lot has happened in the payments space since I published the book ‘Auth N Capture’. I am publishing Auth N Capture (Revised Edition) in a couple of weeks. The present book will be removed from all marketplaces. So wait for it!
