E-commerce and Payment Gateways in India

The one single thing that would have the greatest impact on Indian e-commerce scenario, is not another website which utilizes it, but one which focuses on a more central theme, the creation of a payment gateway. The current scenario in India is pathetic and I would go on and try to explain my reasons for it below.

The basic problem is that the available options are way too expensive. This means that it is not very profitable to run an e-commerce website in India, without paying a considerable amount to your online payment partner.

It is a known fact that 88% of web start-ups die within a year, so the high setup cost is a big hindrance to such companies from investing in the gateway.

What I am going to do is prove my statement with a test case, say 1,000 transactions of Rs 100 each and try to show exactly how much money would go to the payment partner.

I would start with the first gateway which shows up on Google search, CCAvenue. CCAvenue is currently one of the best available gateways in the Indian market. It charges Rs 7,500 as installation fees. Rs 1,200 goes towards yearly maintenance, and then comes the clincher - they charge 7% on all credit card transactions and 5% on bank account transactions. The total cost for our test case would be:

Rs 7,500 (setup) + Rs 1,200 (maint) + Rs 7,000 (processing)
= You pay them Rs 15,700, while your revenue was Rs 1,00,000
= 15.7%

The other options which are available aren't much better - ICICI's payseal.com, which doesn't like customers (they never respond to emails, and there is no pricing information anywhere on the net, not even on their site), charges a hefty 75,000 for installation and 3.5% processing fees. So the total cost turns out to be:

Rs 75,000 (setup) + Rs 3,500 (processing)
= You pay them Rs 78,500, while your revenue was Rs 1,00,000
= 78.5%

Citibank, which is used on a lot of websites, charges 75,000 for setup and 5% as processing fees. So the total cost turns out to be:
Rs 75,000 (setup) + Rs 5,000 (processing)
= You pay them Rs 80,000, while your revenue was Rs 1,00,000
= 80%

If you compare these with the other options available, (outside India), you realize that you end up paying fees for converting money from INR to USD and then back to INR from USD. Yet, the processing fees are quite less.

Paypal, the free payment gateway (no charges till a client actually pays), charges a transaction fee of 3.4% on Indian transactions, and $0.32 for conversion (Rs 13.2). These charges are on every single transaction. So the total cost turns out to be:

Rs 0 (setup) + Rs 3,400 (processing) + Rs 13,200 (conversion)
= You pay them Rs 16,600, while your revenue was Rs 1,00,000
= 16.6%

Compare this with the HSBC payment gateway in the UK. They charge 250 euros as setup fees and the processing charges are just 2%.

Rs 20,000 (setup) + Rs 2,000 (processing)
= you pay them Rs 22,000, while your revenue was Rs 1,00,000
= 22.2%

And to top it all, you add a 12.5% education cess, which I guess would be 13.5% now. And suddenly you start thinking if it would be easier on you if you make your services free.

If you include the education cess, the percentage of your revenue you end up giving:

CCAvenue = 29.2% goes away
ICICI Payseal = 92% goes away
Citibank = 93.5% goes away
Paypal = 30.1% goes away

That is not all. CCAvenue has a real problem with providing their payment gateway for a number of internet services. They can take as much as two weeks for processing, and the internet has its share of horror stories from CCAvenue. Also if your company is just starting up, they tend to be very picky. And if your company is not Pvt Ltd, more often than not, they are going to refuse to provide you with the service.

Paypal, and other free engines, pay you only once a month, and that check takes upto a month to reach your bank accounts. So the payments made at the beginning of January, reach you by the beginning of March. It's almost like getting your payments in the next quarter.

There is all this talk about India emerging as the software giant, yet there are so many roadblocks, which often stop us from progressing.

Almost every other startup that I know in India relies to an extent on using the Dollar to INR conversion for getting revenues which will make investors and clients take notice. It seems to me that India has moved from one form of slavery to another. And hope is hardly in sight.

We are looking for a market leader but there is none in sight yet. For Indian e-commerce to really come of age, we need a better, faster, and cheaper payment gateway. Is there anybody who is ready to build it?

We need more innovation, and not just the ability to tweak ideas to the Indian context. We need ideas, because without them, and without putting them into practice, in this era too, India would go down in history as just another struggling nation, trying to come to terms with the changing reality.

NOTE: The above figures are true only for the test case provided above.
Practically, as revenues keep increasing, the total cost as a percentage moves closer to 7%. But as I said earlier, 88% of the companies will die without making too much profit But not without the payment gateway increasing its revenue.