Online Payments in India, an Opportunity in Waiting!


I recently came face to face with some realities of India as a market. Having started an R&D hub of our business in India, a large part of our India business looks at online software-as-a-service (SAAS) products. Part of this process was to look at setting up online payment options for our products.

Having done this for clients in Australia (our headquarters are in Sydney), I expected this process to be straightforward. Subsequently, we started discussions with an Australian provider and an Indian one.

This is where we started learning lessons the hard way about online payment acceptance. I discovered, very quickly, that India is still a conservative environment when it comes to online payments.

Two large challenges of payment provision hit us the hardest…

Non-Acceptance of Recurring payment

The first one is being able to accept recurring payments – most payment gateways in the country do not accept recurring payments (except for utilities) due to lack of RBI support on this issue. So if you have a business model that revolves around recurring payment, you should look at your pricing points seriously. As I understand it, this is largely based on a “feeling” in the sector that recurring payments are more open to fraud.

Payment processing

The second issue is that of being able to hold data and process payments as soon as the user decides to buy something. Again the regulatory environment is prohibitive to allow you to do that without the volume of transactions. That is, unless you are a payment gateway yourself (which involves a lengthy process of PCI Accreditation and bank approvals with large security deposits), this is not really something you can work around.

I realized quickly it is more an issue of the ‘culture’ of online transactions and the perception surrounding them.

Recently, I was at an Internet and Mobile Association of India (IAMAI) event on eCommerce in India. There was a session there on online payments, and it was pointed out that only 8,000 odd businesses accept payments online in India today.

Compared to Australia or US (where we are looking at setting up our online transaction processes now), India is still years behind on what it will let businesses do from an online payments perspective.

The thing I find most surprising in this sector is that banks already pass all the risk to the merchant. So if you are doing online business, you are going to bare the cost of chargebacks or fraud. This is interesting because, despite this, banks and gateways are extremely risk averse. This means that if a business is perceived as high risk, there is room to take substantial deposits to mitigate such risks.

Strange right?

There is one thing though that I understand from the payment gateway’s perspective and that is the high charge rates from Visa/MasterCard in India. The rates in India to the banks are more than 2% compared to say Australia/U.S. where they are around the 0.5% mark.

Unfortunately, we are now at a stage in our business where we are currently setup with make-do payment structures. However, we are looking at payment options not in India (even though we really want to accept Rupees as the currency of choice).

As an entrepreneur or an outsider looking in India, if you are a new business looking at online payments, the environment here is the opposite of supporting your cause. Most of the large players still do not accept Indian currency.

Of course, that just means there is a large opportunity in this space.

If you can find ways to provide exceptional customer service for competitive rates, this market, from my view is an open playing field. Being protectionist in this aspect is only prohibiting more businesses going online. Believe me, if no one else does this in the next 2-3 years, we certainly will.

  1. Fahd Korambayil says

    If your business can stomach a 5.5% transaction fee, I’d recommend 2CO. We use them and paypal for our recurring billing needs in India.

  2. pk says

    Payment gateways want that Merchants Ship the goods and then only accept the transaction and if not done within 12 days then transaction will automatically be canceled.

    Many payment gateways mark (say 20%) of the transactions as suspicious and want Merchants to wait till they are cleared before shipping or servicing. Earlier they were even asking for self attested ID card of customer (and surprisingly sometimes even photocopy of their credit card) to proof that customer did really approach the Merchant.

    Many Banks now have process where they immediately SMS the customer about the transaction and even call to confirm the online transactions above certain amount.

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