Part 2 of series on ecommerce in India [read the first part here: ecommerce in India - The Real Challenges?].
This article (contributed by Anshul of Designgrill) revolves around the challenges pertaining payment gateways in India.
Payment Collection Systems in India
You sell something so you need to have a mechanism to facilitate payments from customers. Cash, cheques, drafts, money orders are not a desirable mode of payment. Merchant has to wait for days to get the payment confirmation and buyers can’t do it from comfort of their home. Moreover, it’s difficult to automate it. The preferred solution is to pay by cards or bank transfers.
In order to accept card or bank account payments, you need to use a payment gateway. Payment gateway services are available from banks and independent gateways with significant difference in offerings. Unfortunately, the payment gateways in India don’t live up to the expectations of merchants.
Indian Payment Gateways – World Class Service?
A quick look at the websites of different payment gateways in India will reveal the scarcity of information. All they say is, you will be able to accept credit card and (few) bank payments using their system. I bet if a person can understand the whole process, especially pitfalls, just by visiting these websites.
- They don’t try to create a user community which can help each other. Compare this to companies like Paypal, Google Checkout, Authorize.net and you will notice the difference in efforts. Either they don’t see a value or they fear that it will backfire with people getting a platform to share their bad experiences.
- Developers won’t be able to look at the API documentation until you get into negotiations with these companies. Moreover, SDKs will be limited to one or two development languages.
- Expected time to get rolling is at least 1 month from the day you contact them. You will have to get into process of exchanging mails and phone calls. You will also need to send in good number of documents to get started. The process is not smooth and clear. Compare this to US/Europe, you can start collecting payments within 2-4 days.
- Unclear policy over fraudulent transactions, chargebacks, issue resolution etc. It’s very important given in most of the cases its merchant who is at loss.
- Unclear process flows from user point of view. Whether he will stay on merchant site or be forwarded to the gateway site? What will appear on buyer’s card/bank statement? These, and similar questions, are small, but user experience depends a lot on their answers.
All in all you will spend significant time searching the right, reliable option and get started.
Affordable?
This represents the pricing practices adopted by most of the Indian gateways out there.
- Discount Rate is a percentage of transaction amount of a sale which will be kept by the gateway. This ranges from 2% to 7% in most cases + service tax. If you deal in tangible goods not manufactured by you, your profit margin might be in that range. Moreover, the 2% rate can be obtained only if you maintain a heavy balance sheet with figures in crores. Startups are out of luck here.
- Setup fee, this can be up to Rs. 40,000.
- Annual software maintenance fee. This one is surprising. You will have to bear the recurring cost of all the software provided by the gateway.
- Credit card transactions involves acquiring bank and credit card network which are absent in bank transfers. Moreover bank transactions have relatively less chances of fraud as it is password based which you type only at the bank’s website. Still, charges for both type of payments are nearly same if you don’t use the gateway of that particular bank itself.
Adding up all these charges come out to to be prohibitive to ecommerce startups. Services companies can afford it as they have high profit to revenue ratio. But when you sell tangible goods with thin margin, you will try and save every rupee wherever you can. Having a payment gateway at 4% when your profit margin is 8% implies you have given out 50% equity to someone. Adding that markup on your prices means you are no more competitive.
IRCTC puts a markup on the ticket price for different payment options. Given its muscle power, it is also able to negotiate a incredibly low discount rates. For Airline ticket companies, they have been long used to accept payment through cards given the profile of their customers. It’s now part of their business model. Matrimony and Job portals are service sector companies and have huge margins. They also don’t have immediate need for the money and can opt for conventional modes of payment. Moreover, they have also done a good job of setting up the physical network for collecting money from people who don’t carry credit cards or net banking accounts, but this route is not for everyone.
It will be interesting to know your experiences and suggestions in collecting payments in a B2C environment especially while dealing with tangible goods. How did different payment gateways score?
Image credit
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Notes from Ashish: Do check out this discussion on Review of Payment Gateways in India
We miss something like PayPal here, and chances are best that PayPal itself will start supporting INR payments soon.
Cheers
Technically they can, remember Paisa Pay?
In a brilliant strategic move they acquired what could be PayPal for India long back so that ebay.in can have minimum of competition. This has definitely given them lot of time to try different things.
I am using ccavenue and have earlier used Paypal. CCAvenue gives me 50+ payment options (compared to 4 options in PayPal), 24 by 7 support, pricing which is much cheaper than PayPal (ccavenue is at 3%), no chargeback representation fees (PayPal is USD 15 USD per transaction), No fixed fee per transaction (PayPal charges 35 cents per transaction), T +2 settlement in my local bank account (No loss of days of currency conversion losses), free risk management (it actually works). Hey Boys, why they heck are you discounting our local players, which are absolutely world class. You guys lust for everything phoren, dont you?
The pricing at ccavenue is as complex as it can get. It only proves what is said in the post above. To get the 3% transaction fee, the setup fee is Rs.40,000 (non-refundable) + Rs.3,600 annual fee. Else ccavenue charges 7%. http://www.ccavenue.com/content/pricing.jsp
Paypal did start INR operations but unfortunately it looks like Paypal has seized to be a useful gateway for Indian merchants with RBI deciding to enforce its regulations for online payment gateways on PayPal and PayPal deciding to not yield – http://paypalalternatives.in/content/email-sent-by-paypal-announcing-the-changes. Why is it that our system is trying to regulate and restrict growth than deregulate and promote growth? Perhaps what @Abinandan mentioned is a viable option for small business owners.
Good Information. Would you please also put up a list of payment gateways available in India.
There is a genuine need for a desi paypal! Paisa pay is an effort but it has its own restrictions.
helpful information. I have not read anything about using Moneybookers.com as they accept INR. Can anyone share about moneybookers?
PaymentGateway is big hurdle for Startups in India. As a startup, you have couple of options but all of them are same, they only play 2% or 5% or 7% of transaction amount and as rightly said in this article there is no API, no room to integrate smoothly, no developer community.
We (www.signure.com) have approached at least 3 to 4 PG in that last 2 yrs of operation and there is absolutely no innovation in payment gateway. Event banks are treating small startup as cash-rich.
I was hoping that may be Pluggd.in, Proto, Headstart and other folks will team up and we should reach our voice to Govt/Policy makers for Startups. Without that, Startups in India will hardly break-even.
-Santosh
@santoshpanda
Is there a best userfriendly, ofcourse cheap Payment gateway there in India ??
I am using ccavenue. Guess, you should try it too.
Seems that you work in ccavenue and are appointed to promote in online
Mr. Irani,
You are making it just too obvious that you are promoting ccavenue under a fake name. This is what is being talked about. This natwarlal like attitude in India that is making fool of people loose their trust on the system.
It is just about time that CCAvenue has a competition, you know that we know that they are very uncompetitive. The only reason they are still in the market is that they dont have a competition.
There is just 9% of population of India that is online, that too in metro cities. Once more population pentitrates internet, bandwidth issue is resolved, more and more such companies are going to get into this zone. That would be the time when CCAvenue would have to think about its survival.
There most important part the technical support of CCAvenue can stay out of your reach for as many as 3-4 days. That too on live chat as well as on phone. They just dont know anything. I had made the receptionist, go to the Tech support department, ask the people to be on seat and answer my query. This is just one example.
Companies like paypal are just not interested as there is hardly any business out here.
Try 2comm, I think thats what they call. or search google. one time setup charge just $49.00. no renewal or annual fee, and transaction charges just 5%. Good for small businesses.
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I have tried my hand at multiple payment gateways in India and would like to say that EBS by far is the best. I have also done a review at http://www.essayauthors.com/blog/internet-merchan… Hope this is helpful for startups and new online busnesses
Is it possible to pool in resources under an umbrella organization by 5-6 startups and approach these payment gateways for the lowest price.
Any thoughts on that.
Organisations like IVCA, NITIE and NEN can actually help such startups to reduce the costs.
Hey Folks,
Kudos to all who are speaking FOR compettiton to firangs! We have at Avhan Technologies have done some solid, tailor made IVR payment gateway solutions for well know brands. You can contact Vijay on 9870999850 and get going..