Desicritics Author: Sudhanshu

E-commerce and Payment Gateways in India

Sudhanshu — Tue, 13 Mar 2007 07:01:56 EDT

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.

Internet Media Roundup: Narmada Bachao Andolan

Sudhanshu — Tue, 18 Apr 2006 00:40:01 EDT

Aamir Khan, is now with Medha Patkar of the Narmada Bachao Andolan (NBA). I'm quite sure he can still take a few lessons regarding screen presence, for she certainly is the queen. Twenty years is a long time.

Before I begin, I would like to state that I'm not an ardent fan of Patkar's games on the telly. She can do enough of them if they gave her a channel of her own. But the point remains, is the objective correct? I readily disagree with some of the methods or the means but I would stand for her if I knew she had the right intentions. So I've decided to take a look at a few linked articles on the issue.

The first one is from India Awake.

It is really a pity that Aamir Khan, generally considered to be a sensible person, got carried away by the false propaganda of the Narmada Bachao Andolan. Medha Patkar and her cronies have been assiduously following the Goebbelian principle of telling lies long enough to make people accept it as truth.

These guys have organized a one sided debate referring to two posts against NBA (will come back to these two) and supreme court directives (There is no Anti-Supreme court, so we can't have the other side). Unluckily they fail to show anything which is pro-NBA. He sums it up thus:

The issue is whether a handful of objectors with their own unclear motivations can stop the progress of the country itself.

As I had mentioned earlier, India Awake had referenced two posts. The first one is by Lok-adhikar, which can be found here.

It is a pity that those who feel that Medha Patkar and her ilk have a just cause and a right to blackmail the Central and State Governments into changing their decisions are either not fully aware or ignore the background of the entire issue.

This made me think that this site would have something concrete to offer. He does indeed give an illuminating background on the subject, but rather fails later when he only accuses NBA of using wrong methods to attract attention, and states court rulings and procedures as evidence. The comments too, are all anti-NBA.

The second link is by Siddhartha Shome and can be found here.

His post is definitely most informative, creating and answering questions in a logical manner. He accuses Medha Patkar of this amongst other things:

Around 1989, Medha Patkar and the NBA decided to take an extreme ideological view that large infrastructure projects are inherently and irredeemably bad. Since then, the NBA has argued that rural people are best left as they are, and that adivasis are best suited to a subsistence-level existence "in harmony with nature".

He also brings to the forefront, another organization, Action Research in Community Health and Development (ARCH) Vahini, which has played a vital role in the resettlement and rehabilitation (R&R) in the area. Other than that he answers some important questions.

But I still fail to agree with him, because when he answers the question if the resettlement and rehabilitation is going as expected or is troubled due to corruption, he states,

There is some truth to this, but it is far from being the complete truth. As has been documented by the Center for Social Studies Surat, despite hiccups, R&R has generally been carried out successfully in Gujarat.

A little earlier he had said,

Four villages (three in Gujarat and one in MP [Madhya Pradesh]) will be fully submerged. 241 villages would be partially affected, (16 in Gujarat, 33 in Maharashtra and 192 in MP).

Now what does simple arithmetic show us? That R&R has been successful in Gujrat which had just 19 of the 245 affected villages. That is a dismal 7.7%. Hmmm.. Not quite reassuring. (But I still maintain, I really loved the way he's written the post.)

Since I still don't find myself convinced that NBA is for the wrong cause. I had a chat with one of my friends who has actually been to one of the affected villages. (She is doing her Masters in Social Work from TISS). She states quite emotionally,

The rehabilitation process isn't going on the right lines. The struggle has been on for a long time but only the well connected have been able to get 're-settled' properly. For the poor, R&R is still a synonym for running to government offices.

Standard Indian working procedures, you might say. Let me draw a paralell. The government decides to increase reservation and a million blogs cry foul. That is because the urban population gets affected. But how would the voice of the villagers who are getting affected reach our ears?

UPDATE: Do read this too before you make your conclusions.

Should Google Provide Earnings Guidance?

Sudhanshu — Tue, 14 Mar 2006 09:56:29 EST

Wall Street Analysts have been pestering Google to fall in line and start issuing Earnings Guidance to the stock market. This, despite Google's insistence on their IPO 18 months ago that they would not indulge analysts with any such results, since they are looking for long term investors, and such an activity would ensure short term investing. But now when Google's profits have fallen below industry expectations, the pressure is mounting.

Earnings guidance is defined as the comments management gives about what it expects its company will do in the future. These comments are also known as "forward-looking statements" because they focus on sales or earnings expectations in light of industry and macroeconomic trends. These comments are given so that investors can use them to evaluate the company's earnings potential.

This brings us to the all important question, are earnings guidances necessary at all? There were two articles today, one on CNN and the other in Forbes pointing out the two sides of the coin.

This is why issuing guidance is evil:

The experts suggest that 71% of the companies issue yearly guidance. Even though this is the norm, it is not a good practice since

1. It embeds perverse incentives (to manage the numbers rather than the business); relies on dubious assumptions; and feeds into a short-term mentality.

2. Not giving guidance does not mean not giving information. Earnings are part of the equation but not the only variable.

3. Good economic performance is a process, not a number. Even the Chinese Communist Party gets this concept. Their five year plan does not feature an economic growth target becaus they found that if it set a number, they got it - by hook or, more commonly, by crook.

4. Companies do the same. Burying expenses under the rubric of "restructuring"; timing asset sales; piling up debt; or squirreling money away in reserve funds are among the means desperate managers have used to hit their targets. None have anything to do with running a good business.

5. Good management requires that numbers be servants, not masters. And Guidance figures are at best Educated Guesses.

6. Examples from the present include, CEO John Thain, of the NYSE(Research) which went public recently, who indicated that analysts could expect no earnings guidance from them. In the past, Warren Buffett, from Berkshire Hathaway (Research), never gave them either. In contrast, Carly Fiorina made mistaken earning guesses in 2000 that lost $23 billion of Hewlett-Packard's (Research) market value in three days, bringing what guidance are supposed to avoid, volatility.

On the other hand,

1. The long run is really nothing more than a consecutive string of short runs. Indeed, short-run achievements are the best indicator we have of whether the firm is on track to achieve its long-run goals.

2. Well-run firms have to make short-run plans anyways, since it is part of the budgeting process. Management will still know what it expects for short-run sales and profits. It simply won't tell the investing public. Which would bring about greater uncertainity.

3. He argues, that if all the analysis hasn't resulted in more accurate earnings projections, why in the world does anyone think that the elimination of guidance will make things better?

4. The bigger fear, of course, is that bad management teams will hide behind the "no guidance" shield. Firms may find it all too convenient to simply keep bad news hidden just a little bit longer in the hope that it will simply go away over the next quarter or two.

I am not a stock market analyst, but I can relate to the reason why Warren Buffet or the guys at Google, decide not to provide Earnings Guidance. The reasons for it being very simple. I am a software engineer and like all the rest of them I work for a manager, and I have an account manager who handles the client. Now the account manager would like to know exactly how much time I would take to complete the job, even before I start off. Now this case is in many ways similar to the situation between a company and the analysts. I am the company, my manager is the company's internal analysts, who would know if we are meeing expectations or not. The account manager is the analyst, who needs to answer to the final client.

Now what are the options that I have in front of me, when asked with the question, about how much time I would need for the job. If I go with the first option, of specifying exactly how much time I would need, based on experience, I would add the time required to identify the bug, the time required to rectify it, and finally the time to test it properly and then some time to complete the formalities. This is my internal analysis (which would be a lot more complicated in the case of a company). Based on all calculations, I would say that I would be making the delivery by Tuesday.

Most of the times, I would be on time. But consider the case, when I take more time than I had initially allocated for the first stage. But since I have already commited, I would have two options, one would be to go and tell my manager that I'm running late and I would need more time. But it wouldn't do much good to my or my manager's track record to shift the ETA further, so we shut up and try to get it done within the time that's available. What happens in this case is that the part which gets compromised is testing. Which I now know, through really bad experience, that it would lead to a lower quality of work. Some mistakes would creep in over time, and without a complete check up if the delivery reaches the client, it wouldn't be exactly what we promised to deliver.

Now consider, the second case that I discuss with my manager on the expected ETA, but tell the account manager, that we cannot say with utmost certainity how much time would actually be needed. We describe to him, that the whole process would consist of three parts (which I have described above) and we would not be able to commit on the exact date till we know for sure.

I have observed, over the last couple of years, that the second method of handling work makes sure that the clients receive a better quality of work since I am emphasizing on each of the stages of the process rather than fighting the clock to be on time. A task will take up as much time as it requires. And if I take up some extra time on a job, it does not necessarily mean that I am inefficient or unable to perform my job properly. And the client, though he might be pissed for a day or two, would value our quality work much more than coming back to us to fix another bug which crept in last time.

In all cases, it is the markets who will decide eventually. Yet personally, I think it should be left up to the individual companies to decide for themselves, as earning guidance is not as necessary to a Good business as the analysts say.

Whistle Blowing In The Software Industry

Sudhanshu — Tue, 28 Feb 2006 12:54:40 EST

There is something really wrong with the IT industry. I'm not only talking about the global or the economic perspective, but every angle of it. I am talking about the bosses, the managers, the HRs, the developers, the testers, even the office boy and the watchmen.

What is wrong with it, you may ask? It all looks so good, there is so much work being outsourced to India that every developer in the US is scared about losing his job to some Indian, "living in the wild".

The benches (For those who don't know, if you are not assigned any work at all, you are said to be on the bench), Yeah the benches in software companies are overflowing. Yet they keep recruiting more and more people every year. You would like to imagine that in each of those companies, there are hundreds of engineers, slogging day and night, trying to catch up with thier deadlines.

Now you would like to ask, who am I to be telling you all this. There are a lot of reasons actually, firstly, I am surrounded by software engineers all the time. Everyone I have known in the last two years is a software engineer. So I am fairly well-versed with them. Secondly, I joined a software firm with high hopes, since I had been an exceptional Electronics engineer. For the first two days, I really wanted to learn. (Though on the third day I was enlightened and haven't done anything constructive since).

Since I believe I have been wronged, I have decided to come out with this. Thirdly, I have spent sometime abroad (Yes, on company expenses) and I have come across many incompetent people across the globe, and can actually understand the differences in the methodology of work-evading tactics. Finally, and most importantly, I had once spent ten minutes thinking about how you can really work if you wanted to.

To collect more convincing data, that I am not the only one making a killing here, I call up all my classmates (who as I said are all software engineers), during office hours, and ask them what are they doing. So after I make the early morning call to my PM and tell him everything is in control, I start calling the subjects. This is what I find out.

* Dhil is playing minesweeper, and he has created a new company record in Expert mode.
* Prav is having free coffee which sucks, and he plans to shift jobs because he doesn't like the coffee.
* Gop has gone back home to take his afternoon nap.
* Dub is busy talking to his girlfriend and doesn't pick up his cell.
* Ank is standing on the roof and waving because Mots told him he can see him waving on Google Earth.
* Riks is reading Of Human Bondage, because she has read every other e-book she could lay her hands upon.
* Mots is asking his HR out for dinner. He plans to quit the company soon, since it's been over three months since he joined.
* Shobs went to Bangalore to get some training but since the person who was to train her has quit and taken the code with him she is developing the code again and so is quite busy.

In case you didn't notice, NOBODY IS WORKING (except poor Shobs of course).

Initially, when I started thinking about it, I though CEO's tend to keep the best staff on thier payroll on a salary higher that the company next door, just so that they can brag about it at the next CEO's get together, because I failed to see where was the potential really used.

In due course of time, however, I imagined that there was no hidden agenda, they keep them on payroll just because they can. They have money and they need to show off.

But as time progressed, and my wits became sharper, it dawned on me, that the only way to explain the huge inflow of money without work, into the industry, was the underworld. Yes, you heard me right. The UNDERWORLD. Black money from everywhere is being dumped into dummy companies, where they have employed engineers and give them salaries, and they pay taxes. It is one of the biggest conspiracies ever dreamt of. Everybody is involved, the media is right in the middle of it. They were the ones who made up the big hype about IT which has been created. The builders are in the nexus, they keep on building more and more IT parks everywhere across the country, and sell them at outrageous prices. The banks are ready to finance it. It is becoming the most lucrative business to convert black money into hard earned white money.

It's just bad that I am stuck here in the middle of it all. On one side is my conscience and on the other, my vanity. So I put it up here on my blog, because nobody would read it and I can say to myself that I tried my best, and since nobody would find out about it, I would get to keep my job too.