Selecting a Payment Gateway for Indian E-commerce

I recently noticed some Google search traffic coming my Blog’s way with people looking for “payment gateways used by Flipkart and other e-commerce players in India”. So I thought I could talk about this topic for the benefit of folks trying to work with a gateway or researching a gateway to plug into their e-commerce website.

I did a tad bit of research while trying to identify which payment gateway is best for an e-commerce business when I was responsible for integrating them at Jabong.com. I used good old Google to find places seldom visited. I scoured blogs and forums where people discussed such topics. I was trying to understand who the players are, what they offer and finally, who is better. I shall talk about how you can understand these gateways better, what they do and how to evaluate them for your company. There is a lot more information to consider when picking a payment gateway, but I hope this information will be helpful for someone trying to pick and chose a payment gateway provider.

The following are the parameters that I think are very important in identifying a good payment gateway for your business. While the answers to some of these questions will not come directly from the payment gateway, there are industry sources (friends, competitors etc.) who can throw some light on it during your research.

    • Transaction rate or processing rate or fee
      • Yes, while I it isn’t the single reason for choosing a gateway, it is a fairly important parameter to look at. You don’t want to end up paying a significant portion of your sales to a 3rd party processor especially in a low-margin e-commerce business.
      • the lowest I have seen is 1.5% (there is no point mentioning who offers this as all rates are on a per-case basis in this muddled business). The highest I have seen is 3%. Like fine-print, there are some hidden assumptions around what card (Visa vs Amex) or bank (Citi vs HDFC) we are talking about when the rates are being offered.
    • Gateway unannounced down-time
      • While gateways that frequently announce down-time cannot be spared either, unannounced down-times kill an e-commerce business irrespective of the lame but valid reason as to why it happened – bank server down, maintenance issues, connectivity with bank lost but it’s not our fault etc.
      • While gateways always give a rosy picture on this front (obviously!), it is good to check from friends or contacts in other places who have used the different gateways. CCavenue has been accused of not doing a great job here while none of the other aggregators are exemplary either.
    • Transaction success rate (%)
      • The success rate of transactions that were transferred from the merchant website to the gateway is an indication of how effective the gateway is in completing the sale for the merchant. Low rates here are indicative of the poor quality of the payment gateway.
      • This is also an elusive data to get directly from the payment gateway. CCavenue and Tpsl bear the brunt of negative reviews with their success rate somewhere between 60-65%. However, claims made by other gateways that they are better and around 75-80% has also been refuted by companies that have used them. EBS and PayU seem to be relatively better in this area, but overall the best way to measure this sometimes is to unfortunately integrate and test the gateway out.
      • Another variation of this parameter is to look at how many customers have dropped while they are transferred from a website to a payment gateway to begin with. Surprisingly enough, there is a drop off rate even at this stage before the transaction reaches the gateway. The problem is that this loss is in no man’s land as the gateway does not consider this in their success/failure rate calculations and neither can they. As a result, the e-commerce merchant should devise a way to capture such failures and re-invite the customer to transact again by saving their cart or session. A smart team member of mine was able to identify this loss and come up with a simple and clean solution to invite customers to transact again on the website.
    • Retry option for failed payments (works better in a redirect option)
      • Transactions at a payment gateway fail for various reasons. In some cases  it is prudent to allow the customer to retry the transaction rather than make them exit the checkout experience. This feature can be provided either by the e-commerce merchant (on the website when checkout fails) or by the payment gateway on their page (in a non-API integration scenario or if better even with API integration).
      • PayU and EBS are capable of providing the retry option to customers when such an issue occurs during payment. A retry option in itself does not guarantee a successful transaction as the payment may fail again. But, at least providing that option can capture a small percentage of the previously failed transaction.
    • T+1 or T+2 or T+n days for transfer of funds
      • Payments gateways take a little time before they transfer captured funds to the merchant’s bank account. This may or may nor matter depending on the number of transactions you generate as a merchant.
      • ICICI can process payments in T+1 days whereas most other aggregators do it in T+2 days.
    • Real-time fraud detection
      • Real-time fraud detection is very important to the success of an e-commerce business. Suspicious transactions have to be flagged immediately by a payment gateway so that necessary action can be taken to prevent an order from being shipped out or being unrecoverable.
      • While an e-commerce business can invest in its own fraud detection mechanism either through internally developed features or a separate 3rd party integration, a start-up firm cannot afford the high cost of setting up a robust fraud handling mechanism. Manual review of fraud issues is necessary to take meaningful decisions and this in turn means additional costs for the company.
      • Payment gateways like EBS provide the best available fraud detection and alert mechanisms by leveraging the benefits offered by its standalone RMS (Risk Management System) that uses velocity checks, device fingerprinting, Nexus network, blacklist database and so on to trap fraudulent or suspect transactions. They also do it in near real-time. Most other gateways mostly offer only velocity checks or limited set of fraud detection capabilities. CCavenue and ICICI don’t have real-time capabilities although they do get back to the customer in a 6hr to 48 hr window.
    • Reports or dashboards for viewing payment success/failure analytics
      • While all payment gateways have a dashboard for general maintenance of transactions, very few offer some good reports or charts that depict where transactions are failing or at what point the customer is lost while completing a transaction. This is tremendously valuable information to help an e-commerce merchant determine where the leakage is in and how it can be plugged to not lose customers.
      • EBS and PayU offer such capabilities while most other gateways don’t have this information (never collected) or cannot share this information (no way to present or share).
    • Netbanking banks offered
      • Surprisingly, not all payment gateways offer the same number or list of banks as part of the netbanking option. Netbanking can represent about 20-30% of prepaid sales for an e-commerce business as the payment transaction is within a bank’s four walls (online banking) and hence deemed safe and convenient by some customers.
      • CCavenue and Billdesk have the most banks (about 40-50 or so) while EBS, PayU are catching up. ICICI offers netbanking exclusively through Citrus payments but the number of banks is not high enough. However, having a high number of banks isn’t a deal breaker as SBI, ICICI, HDFC, Citibank, Standard Chartered and Axis bank are offered by most and probably cover about 90% of all netbanking transactions.
    • Add-on benefits like EMI (monthly installments) or other packaged offerings provided by the payment gateway  + Support
      • ICICI offers the largest suite of EMI option with multiple banks (outside of a 3rd party player Innoviti that seems to be exclusively the best option for all EMI under a single roof). The rest of the payment gateways offer one or more banks as EMI options plugged into a single gateway offering.
      • Most aggregators have a good support infrastructure for handling issues although things may vary on a case-case basis based on complexity of issue and solution provided. EBS, PayU, BillDesk are all good on the support front.

There is a lot more to the payment gateways business in India and to the selection of the optimum gateway. But, a balanced decision can be made if all these parameters are also evaluated to arrive at the best choice. I’ve seen some well-heeled and well-educated (IIM/IIT pedigree) salesmen from payment gateways draw a rosy picture of what they offer compared to the competition. Going prepared for meetings with the gateway representatives is highly necessary to understand and identify the real stuff from the bluff.

Many Indian e-commerce companies prefer to go with multiple payment gateways primarily due to the confusion and dissatisfaction that each option provides. Many companies use industry references like the IRCTC database to build an in-house payment gateway algorithm that switches between multiple gateways based on payment type (netbanking vs card payments), payment transaction costs (transaction % rate) and payment gateway performance (success rate with a certain card-type, downtime etc.). With PCI certification in place, an e-commerce merchant will all the more see less use for an aggregator (or at least more than one aggregator) integrated with the website.

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Digital Wallet Service by Flipkart.com

As any serious Product Manager in Indian e-commerce may have noticed, Flipkart.com, the best online player in India as of today, had introduced a feature called “digital wallet”. Now, the concept of a digital wallet is nothing new in itself. Paypal has one of its own. So does Google have one. Check this article to see what Paypal is up to with the concept of “money”- http://venturebeat.com/2012/03/09/paypal-wallet/. I am not particularly sure who pioneered digital wallet in the first place, but I don’t care much about that. What I do care for is that the team at Flipkart (hopefully a smart Product guy) figured out how valuable and important it is to have a digital wallet system in the Indian e-commerce scenario. The wallet that Flipkart offers is a bit different from the so-called wallet offering of others, but it has definitely been tweaked to benefit the Indian consumer.

Flipkart.com themselves have defined the benefits of a Wallet as the following:

  • Make one payment and shop multiple times
  • Simpler and faster check-out process
  • No more worries of failed payment transactions

While the first benefit is not something that Indian consumers will drool over, the third benefit is in my experience, a very big deal for both the consumer and the company. The first benefit is obvious to the consumer once they understand the basics of what a wallet is used for. The good thing going for Flipkart.com is that it has a music download service called “flyte” that works really well with a wallet. Nobody would care to make repeated purchases of Rs. 6 each for purchasing a music title. A wallet stores funds that can then be released for making these one-off payments. If flyte didn’t exist, the first benefit would rather be an aggressive MBA-trained marketing guy’s sales pitch for corporate glory than anything meaningful from a customer standpoint. Indians take pride in making a profit out of every penny they hold, whether in a bank or through tax savings (or evasions) to avoid paying too much to the government. They wouldn’t be happy parting with their money even before they make a purchase with the satisfaction that flipkart has it with them. Yes, it is true that the above points will be refuted once Flipkart turns into a giant e-commerce player and becomes a household name like Amazon.

Another reason why consumers will not like the idea shared in the first benefit is that the amount that you store in your digital wallet cannot be refunded by flipkart.com in case you no longer want to purchase anything on the website or just plain want your funds back. Flipkart.com is not a bank and RBI regulations does not allow it to function as one unless it applies to become one. It is possible that flipkart.com is currently working towards getting the needed RBI approvals to become one but it would only make sense if the digital wallet in its current sense is really taking off for them and this issue is constantly turning out to be a customer painpoint that needs to be addressed. A look at the digital wallet FAQ on Flipkart.com indicates something very interesting. It has a question that says – What is the change in the refunds policy of the digital wallet?. The answer is “As of 2nd February 2012, the Refunds Policy for the Wallet has been slightly modified. As per the earlier policy, the entire balance in the wallet was fully refundable. Under the updated policy, the Topped-Up balance in the Wallet will not be refundable starting 2nd February 2012.” The top up balance is basically funds that a customer directly puts into the wallet to make future payments and it is not refundable due to the regulations mentioned earlier. The fact that it was changed effective 2nd February indicates that Flipkart.com probably was not aware of the regulations that were meant to be followed and then had to correct their actions after the fact. This single issue with the functioning of a digital wallet turns against the overall benefits of offering one.

Now, coming to the third benefit, the challenge of facing failed payment transactions is very real in the Indian context due to the over-dependence of e-commerce retailers on a third-party gateway run by either an aggregator (CCavenue, EBS, PayU) or a bank supported entity (HDFC, ICICI pay seal). An e-commerce retailer can see about 30-40% of its customers lost at that point after having taken pains to carefully hold their hands and take them through the checkout stages. This is a very painful loss especially for Indian e-commerce retailers. It is not easy getting a customer that far only to see him drop. None of the payment gateways in India have a foolproof method of preventing such issues. The best success rates boasted by the best in the industry comes to about 78%-80%. Gateways like EBS and PayU offer a retry option for helping a customer try a payment again when things fail, but this doesn’t solve the issue 100%. In this context, having funds in a digital wallet ensures that a customer need not go back looking for his credit card, netbanking bank details or debit card and start entering all information in a 3rd party payment gateway only to see that things are slow due to the internet, the banks are not processing their payments or the payment gateway is down for maintenance. For an e-commerce site, on a per transaction basis, we no longer have to deal with bad payment gateways, good payment gateways who still can’t control issues and fickle minded or busy customers who may drop out at the last stage.

The digital wallet system should however evolve to provide more incentives and benefits to the customer to influence them to use the wallet and park funds there. These could be in the form of discounts at the checkout stage for using the wallet or as Paypal is doing, help the customer chose how the funds are used. The question of why build this service in-house when someone like a Paypal or Google may eventually do it better in India is however worth thinking about. Ideally the link with a 3rd party like Google or Paypal would turn out to be more reliable payment instruments in the mind of the consumer and also provide additional benefits that are not easy to replicate. As of now, given the aggressive pace with which Indian e-commerce retailers are racing against each other, waiting for something better to happen may not be a wise option. Getting things out the door and then re-adjusting (like the change in refund policy that Flipkart did) is the way the game needs to be played.

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