Payment Gateways for Small Businesses in India: How to Compare
Compare payment gateways on real cost, settlement, payment methods and support, with RBI's 2025 aggregator rules and the documents you need.
To choose a payment gateway for a small business in India, compare five things: the real per-transaction cost (MDR plus any “platform fee” and GST), settlement speed, UPI and payment-method coverage, onboarding and KYC requirements, and how refunds and disputes are handled. This guide explains each one, the RBI rules that payment aggregators now follow, the documents you need to sign up, and a simple scoring sheet you can use to compare any two providers.
Pricing and regulations change often. The figures here were checked on official pages in October 2026; confirm current terms on each provider’s site and the RBI website before you sign.
Key Takeaways
- Most providers you sign up with are RBI-authorised payment aggregators (PAs). They collect money on your behalf, hold it in an escrow account and settle it to your bank.
- MDR on UPI and RuPay debit cards is zero by government rule, but gateways often charge a separate platform fee. Compare the total amount you actually receive.
- Published standard rates for leading gateways cluster around 2% on domestic payments and around 3% on international cards, plus 18% GST on the fee, with no setup fee.
- Next-day (T+1) settlement is common; instant settlement usually costs extra.
- Under RBI’s September 2025 directions, small merchants with turnover up to Rs 40 lakh can be onboarded through a simpler route with PAN verification and contact point verification.
Payment gateway vs payment aggregator: why the difference matters
People use the terms interchangeably, but the RBI does not.
- A payment gateway (PG) is the technology that securely passes payment details between your website or app, the customer’s bank and the card networks or UPI.
- A payment aggregator (PA) is a business that also handles the money: it collects payments from your customers, pools them and settles them to your account.
Popular providers such as Razorpay, Cashfree, PayU and PhonePe’s business arm usually operate as payment aggregators for small merchants, offering gateway technology as part of the package. Because they handle your money, non-bank PAs need RBI authorisation and must follow the RBI’s rules on net worth, escrow accounts, merchant KYC and data security.
The RBI rules in brief
On 15 September 2025, the RBI issued a consolidated Master Direction on the Regulation of Payment Aggregators. The points that matter to a small merchant:
- Authorisation and net worth: A non-bank PA must have a net worth of Rs 15 crore when it applies and Rs 25 crore by the end of the third financial year after authorisation, maintained on an ongoing basis. In practice, this means you should check that your provider is on the RBI’s list of authorised PAs or has a pending application.
- Escrow: Non-bank PAs must keep collected funds in a separate escrow account with a scheduled commercial bank until they are settled to merchants.
- Settlement terms: The direction leaves settlement timelines to the agreement between the PA and the merchant, but says the agreement must be fair and transparently state the timelines. Read the settlement clause before you sign.
- Merchant KYC: PAs must carry out customer due diligence on merchants. Small merchants with annual turnover up to Rs 40 lakh, or export turnover up to Rs 5 lakh, can be onboarded through an alternative route that includes PAN verification and a contact point verification of the business address. Merchants onboarded before 2026 must be brought up to these standards within a year of the direction.
- Refunds: Refunds must go to the original payment method unless the customer specifically asks otherwise.
- Card data: Customer card credentials cannot be stored on the merchant’s servers. Saved-card features rely on tokenisation through the card networks.
Understanding the real cost: MDR, platform fee and GST
The merchant discount rate (MDR) is what you pay for accepting a payment. Since January 2020, the government has required zero MDR on payments made through UPI and RuPay debit cards to merchants. That is why many customers expect UPI to be free.
However, gateways often charge a separate platform fee for their technology and services on top of the zero MDR. For example, Razorpay’s pricing page, as checked in October 2026, lists UPI and RuPay debit as zero MDR with a platform fee applying, a 2% platform fee on domestic cards on its standard plan, up to 3% on international cards, no setup fee and no annual fee, with 18% GST charged on its fee. Cashfree’s charges page lists a standard platform fee of 1.95% on its main domestic methods, 2.99% on international Visa and Mastercard, and no setup fee, alongside time-limited offers for new merchants. Both pages carry several rate lines and offers, so read the details for your plan.
The figure that matters is what lands in your bank account. For an illustrative Rs 1,000 order on a 2% fee:
| Item | Amount |
|---|---|
| Order value | Rs 1,000.00 |
| Gateway fee at 2% | Rs 20.00 |
| GST at 18% on the fee | Rs 3.60 |
| Total deduction | Rs 23.60 |
| Net settled to you | Rs 976.40 |
If you are GST-registered, the GST on gateway fees is generally available as input tax credit if the provider’s invoice carries your GSTIN. Use our GST calculator to check the split, and ask your accountant about ITC on fees.
Watch for other costs too: instant settlement charges, international payment fees and currency conversion, EMI and pay-later costs, chargeback fees, and annual charges on premium plans.
How to compare gateways: the six questions
1. What will I actually pay on my payment mix?
Don’t compare headline rates. Estimate your mix: for example, 70% UPI, 20% domestic cards, 10% net banking. Multiply each share by that method’s total fee, including GST. A gateway with a lower card rate but a platform fee on UPI may cost more if most of your customers pay by UPI.
2. How fast will I get my money?
T+1 (next working day) is common for standard plans. Some providers offer same-day or instant settlement for an extra fee. If you run on tight cash flow, such as a food business buying stock daily, faster settlement may be worth paying for.
3. Which payment methods are covered?
Check UPI (collect, intent and QR), all major cards including RuPay credit on UPI where supported, net banking for major banks, popular wallets, EMI and pay-later options, and international cards if you sell abroad.
4. How easy is onboarding and integration?
Look for plugins for your platform (Shopify, WooCommerce, Wix), payment links and QR codes for WhatsApp and Instagram sales, a clear test mode, and good documentation for custom apps.
5. How are refunds, disputes and chargebacks handled?
Ask how refunds are initiated (dashboard, API, bulk), how long they take, whether chargeback evidence can be uploaded easily, and what fees apply.
6. What support will I get?
Small businesses rarely get a dedicated manager. Check whether you can reach support by phone or chat, and read recent reviews about how settlement holds and account freezes are handled.
A simple scoring sheet
Score each shortlisted provider from 1 (poor) to 5 (excellent) and multiply by the weight. Adjust weights to your business.
| Factor | Weight | Provider A score | Provider B score |
|---|---|---|---|
| Total cost on your payment mix | 30% | ||
| Settlement speed and reliability | 20% | ||
| Payment methods covered | 15% | ||
| Platform integration and payment links | 15% | ||
| Refunds and dispute handling | 10% | ||
| Support and account stability | 10% |
For example, a Coimbatore-based D2C textile brand selling mostly through Instagram and WhatsApp might give extra weight to payment links and UPI, while a Delhi edtech startup with many card and EMI payments would weight card rates and EMI options higher.
Do you need a gateway at all? Bank UPI QR vs gateway
Many small shops, tutors and home businesses in India do perfectly well with a merchant UPI QR from their bank or a UPI app, with no gateway at all. Here is how the two compare:
| Need | Bank or app UPI QR | Payment gateway |
|---|---|---|
| Walk-in customers, small volumes | Good fit, usually no fee | Not needed |
| Website or app checkout | Manual; customer must share a screenshot | Automatic order confirmation |
| Cards, net banking, EMI | Not supported | Supported |
| Automatic refunds and reconciliation | Manual | Built in |
| Subscriptions and recurring payments | Limited | Supported through mandates |
A sensible path for a new business is to start with a UPI QR, and add a gateway once you launch a website, start taking card payments or find manual reconciliation eating into your time.
Documents you will need to sign up
Exact requirements vary by provider and business type, but expect to provide:
| Business type | Common documents |
|---|---|
| Individual / sole proprietor | PAN, Aadhaar, bank account proof (cancelled cheque or statement), a business proof such as GST certificate, Udyam registration or shop and establishment licence |
| Partnership firm | Firm PAN, partnership deed, partners’ PAN and Aadhaar, firm’s bank account proof, GST certificate if registered |
| LLP | LLP PAN, certificate of incorporation, LLP agreement, designated partners’ KYC, bank account proof |
| Private limited company | Company PAN, certificate of incorporation, MoA and AoA, board resolution, directors’ KYC, bank account proof |
Your website or app is also checked. Keep these pages live before you apply:
- Clear product or service descriptions with prices in rupees
- Terms and conditions, privacy policy, and refund and cancellation policy
- Contact details with a business address, email and phone number
- Shipping or delivery policy for physical goods
Missing policy pages are one of the most common reasons for delayed activation.
Step-by-step setup
- Shortlist two or three providers using the scoring sheet.
- Sign up and complete KYC online, uploading the documents above.
- Integrate in test mode. Install the plugin or use the API, and run test payments for each method.
- Go live after approval, starting with a small real transaction to check settlement.
- Reconcile weekly. Match settlements with orders and fees, and download the provider’s GST invoice each month.
Mistakes to avoid
- Choosing on headline rate alone. Settlement holds and poor support can cost far more than 0.2% in fees.
- Selling restricted categories without checking. Each provider has a list of prohibited and restricted businesses. Activation can be cancelled later if your category is not allowed.
- Ignoring chargebacks. Keep proof of delivery and customer communication for every order.
- Single point of failure. Once you have volume, keep a second gateway or a direct UPI QR as a backup.
- Storing card data. Never collect card numbers through forms, email or WhatsApp. Let the gateway handle it.
Frequently Asked Questions
Which is the best payment gateway for small business in India?
There is no single best one. Compare the total cost on your payment mix, settlement speed, payment methods, integration with your platform and support. Shortlist two or three RBI-authorised providers and score them.
Is UPI free for merchants?
MDR on UPI payments to merchants is zero by government rule. However, payment gateways may charge a separate platform fee for UPI through their checkout. A direct UPI QR from your bank is usually free but does not give you checkout automation.
What is MDR?
Merchant discount rate is the fee a merchant pays for accepting digital payments, shared among the banks, networks and payment provider. It is zero for UPI and RuPay debit card payments to merchants.
How long does payment gateway settlement take?
Many providers settle on a T+1 basis, the next working day. Instant or same-day settlement is often available for an extra fee. The RBI requires the timeline to be stated transparently in your agreement.
Can I get a payment gateway without GST registration?
Many providers onboard individuals and small sellers without GST, using PAN, Aadhaar and other business proof, especially under RBI’s simpler route for merchants with turnover up to Rs 40 lakh. Requirements vary by provider and business category.
Is GST charged on payment gateway fees?
Yes, 18% GST is charged on the gateway’s fee, not on your full order value. If you are GST-registered, you can generally claim it as input tax credit.
Pick, test, then review in six months
Choose the provider that fits your payment mix and cash-flow needs, test it with real transactions, and reconcile every week. After six months, look at your actual costs, settlement record and support experience. If your volume has grown, use those numbers to negotiate better rates or add a second gateway.
