Recently, an article by Sanjay Goel (of MustSeeIndia, an Indian travel site) on Pluggd.in about Payment Processors in India sparked my interest. The  discussion highlighted 2 prominent points for me:

- lack of awareness about existing Indian + global payment options amongst Indian businesses (entrepreneurs, technologists, startups). Some users even suggested that PayPal is illegal in India.

- few merchants discussed real features (that they should demand more of) offered by their payment provider; most (and rightfully so in the Indian context) were concerned with pricing and ease of integration.

I thought it would be great to introduce the key players in the online payments ecosystem (also called e-payments or web payments) so everyone understands the differences between a payment gateway, a payment processor and a 3rd party payment platform.

Payment Processor is a huge banking or financial organization which is a super aggregator of financial transactions (online and offline) and is generally directly hooked in to the country’s payment engine. These processors acquire transactions from their own banking chain, smaller banks, payment gateways, 3rd party payment processors, etc. and settle the transactions multiple times in a day. An example of this is Chase Paymentech in the US.

Payment Gateway is a company that processes your financial transactions by acquiring the transactions from you, securing authorizations and managing settlement of funds. The gateway is one partner you integrate with which in turn connects you with card networks (Visa, Mastercard, American Express) and banking networks (domestic, international). Essentially, this is a transaction aggregation and settlement business with very low margins. Globally, Authorize.Net is a well known gateway. Before payment gateways came by merchants had to integrate individually with each card network; imagine the inefficiency in terms of cost and wasted time that a gateway saves you!

3rd party Payment Platform or Payment Provider is a company that uses a payment gateway or a payment processor as its transaction processing back-end, interacts with you through a front-end wrapper product and acts as your payment outsourcing partner. Such a company not only processes financial transactions for you but also provides you value added services such as shopping cart widgets, payment buttons, on your site and SaaS solutions, transaction reporting,  real-time fraud detection, custom risk management filters, an installed base of their e-wallet users, etc. PayPal with 184 million accounts is currently the poster child in this space. Google Checkout and Amazon Payments also fall in this category.

A visual representation of the payments landscape for a credit card transaction is well documented in a How it Works diagram at Authorize.net

Think Payments, Think India

- Payment Gateways (CCAvenue, EBS, DirecPay) in India currently charge like 3rd party payment platforms but offer no (and limited if any) value added services. Their technology and customer service are both serious painpoints for merchants. Most gateways deflect the blame on to government and RBI policy regulations, which is appropriate in the matter of pricing.  However, the same excuse cannot be applied to poor customer service or not investing in technology to offer better availability (no timeout errors) and accurately report transaction statuses.

-Bank processors like ICICI PaySeal,   HDFC Bank andAxis Bank (UTI previously) have no amazing service or technology either. In fact, their checklist for a merchant to qualify as their customer is as tedious as their total time to integrate.

- The rule of thumb in India is that banks have higher setup fees (50,000 Rs range) and lower transaction processing fee aka TDR (~2-3%) whereas, the Indian gateways have lower setup fees (5,000 to 30,000 Rs) and fees from 2.5% to 7%. None of the current payment options in India are plug and play with integration time being roughly 1-2 weeks at the minimum. This is obviously a far cry in times when global businesses can integrate the “Pay by PayPal” button on their e-commerce websites in 24-48 hours!

- EBS seems to be a popular choice in the current landscape while CCAvenue, has the biggest market share after a decade of its monopolistic regime. CCAvenue charges top dollar at 7% transaction fee and offers web 1.0 like services; in the interest of developing ecommerce in India I seriously hope new payment innovators will soon emerge with richer features.

- One of the major reasons for the high transaction processing fees is the fact that credit cards are still not processed domestically. Every time you swipe a credit card in a restaurant or buy an online ticket your merchant’s payment gateway actually has to connect with another payment gateway/processor that links it the Visa, Mastercard and American Express card networks to authorize the transaction. This is because we, that is India is not yet setup with a national payment network to do that. (Note with NEFT and RGTS we can do this for bank transfer but not credit cards.) National Payments Corporation of India NPCI was incorporated in December 2008 and their charter is to bring safe, easy, cheap and more payment options to the Indian market by 2012. Payment geeks are your listening? Drum up your ideas!

- Accepting and processing payments on the web is a big hurdle for e-commerce and web startups in India. No existing payment provider is doing more than ultra basic money movement. Slim pickins! Its early days in the world of online finance in India and we have a ton of innovation to look forward to.

How to choose your payment partner?

The key criteria you should think about are:

- Product Features (what do you need: one time or recurring payments, single or multiple currencies, high value transactions thereby need solid fraud detection or micro-payments, mobile, web and offline payments)

- Pricing (again depends on your average transaction ticket value and margins; if you have higher ticket size and margins PayPal and other global players could be viable solutions for you; for micro-payments banks may be your best bet)

- Uptime (This is a point that is not brought up as much as it should be. If you are a web company our revenue depends on accepting payments 24×7, please consider inquiring about server up-time/availability statistics)

- Integration (do you need an agile partner with faster process or can you live with a slow moving partner that will offer the cheapest TDR but will take you 2 months of wait time for the first live transaction)

- Customer & Technical Support (you do not want your transaction engine’s foundation to be based on a partner that wont respond to your tickets for 48 hours; listen to what other merchants are saying)

Dissolving Myths about PayPal

Paypal is illegal in India–> PayPal is not illegal.

The current PayPal offering is in USD because it has been set up to cater to the cross border business on eBay that is seller in India and buyer worldwide. The current online volumes in India would not make sense for PayPal to create a custom payment solution for Indian Rupees (INR). For various markets PayPal has launched local websites that offer payments in local currency! Try India and see products at PayPal Offerings Worldwide.

In fact, with no setup fees, a speedy integration and a robust feature set, PayPal’s 2.9% + 0.30$ fee per transaction (for monthly sales of 3000-10,000 USD) is far better than CCAvenue like players at many mid to high ticket sizes. The only reason PayPal is not more popular with Indian web businesses is the 0.30$ which becomes a huge number when converted to Indian Rupees especially for low value and low margin transactions.

was incorporated in December 2008