Barriers to e-Commerce in India – Mediocre Payment Gateways

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?

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Notes from Ashish: Do check out this discussion on Review of Payment Gateways in India

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