ByIndia.com, another search engine is planning to start a keyword based advertising plan designed for India. Though it might sound like yet another flicked idea, this could be a welcome change for Indian internet publishers. If this starts paying better than Google adwords, why wouldn’t one start with it. (via AlooTechie)
However, the one single thing which would have the greatest impact on Indian e-commerce scenario, is not another website which utilizes it, but one which creates a payment gateway, which is a more central topic, and we cannot leave it up to a company based across the globe to do it for us. The current scenario in India is pathetic and I would go on and try to explain it below. The problem is that the current available options are not just expensive, they are way too expensive, which means that it is not too profitable to run an e-commerce website in India, without paying a hell lot to your online payment partner.
What I am going to do, is take up a test case, say 1000 transactions of Rs 100 each and try to show exactly how much money would go to the so-called payment partner.
CCAvenue, one of the best currently available gateways in the Indian market, charges a Rs 7500 installation fees, Rs 1200 goes towards yearly maintenance, and then come 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 7500 (setup) + Rs 1200 (maint) + Rs 7000 (processing)
-> you pay them Rs 15700, while your revenue was Rs 100,000
-> 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 ever their site), charges a hefty 75,000 for installation and 3.5% processing fees.
Rs 75,000 (setup) + Rs 3500 (processing)
-> you pay them Rs 78,500, while your revenue was Rs 100,000
-> 78.5%
Citibank, which is used in a lot of places charges 75,000 for setup and 5% as processing fees.
Rs 75,000 (setup) + Rs 5000 (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 is quite less.
Paypal, the free payment gateway (no charges till a client actually pays), charges a transaction fess of 3.4% on Indian transactions, and $.32 for conversion (Rs 13.2). These charges are on every single transaction.
Rs 0 (setup) + Rs 3400 (processing) + Rs 13,200 (conversion)
-> you pay them Rs 16,600, while your revenue was Rs 100,000
-> 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 100,000
And on top of all this 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 that, you might end up giving up a percentage of your revenue:
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 internet services. They can take as much as two weeks for processing if you are just starting out, the internet has it’s share of horror stories from CCAvenue.
Paypal, and other free engines, pay you only once a month, and that check takes upto a month to reach India. So the payments at the start 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 the only one’s getting richer as a result is the foreigners, who keep cribbing about losing thier jobs. It is not the Indians who are taking away your jobs, it is the corporates. Blame them if you really want to blame some one.
Almost every other startup that I know of 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, not using the global ideas in the Indian context. We need ideas, because without our own ideas, and without putting them into practise, in this era too, India would go down in history as just another struggling nation, trying to come to terms with the changing reality.
UPDATE: 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%.
It is a known fact that 88% of web startups die within an year, so the high setup cost is a big hindrance to such companies from investing in the gateway, which stays atleast till they are more mature.
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March 5th, 2007 at 11:09 pm
Hi,
Thanks for the well researched analysis.
Though, still wondering about the percentage that an international e-payment gateway would charge from its customers in US for the case study transaction?
Btw, would you mind if a snippet of your analysis gets published on Aloo?
March 6th, 2007 at 11:00 am
Hi Rajesh, the processing fees is a lot lower in the US.
And, it would be great to have this on AlooTechie
March 6th, 2007 at 1:30 pm
hi there,
I think the math over here is little goofy:
Why are you counting Rs. 7500/- which is a fixed cost in calculating the expense %age. It’s incorrect in two ways and I have demonstrated that below:
1. suppose, the revenue was 2,00,000/- instead of 1,00,000/- then the gateway expense would be 7500 + 14,000 = 21500 — suddenly expense %age becomes 10.75% instead of 21.5%. so the logic does not work.
2. Since, Rs 7500/- is a fixed cost i.e. it would not reappear in the consecutive years. Therefore, for year 2 of the operation of the organization — they would be paying only 7000/- on the revenue of 1,00,000/-. Essentially taking the gateway expense %age to 7% instead of 21.5%.
Similarly, you are using flawed math for the calculation using ICICI gateway.
I am by no means a supporter of expensive pricing, however, just wanted to point out the flawed math over here.
-tarun
March 6th, 2007 at 1:40 pm
The percentages were true only for the test case I had provided above.
Here is what I think:
1. I do agree that as your revenues keep increasing, the percentage cost would start moving towards 7% which is the processing fee.
Literally, when revenues tend to infinity, charges tend to 7%.
2. Even at a revenue of 200,000, paying 21,500 for just using a payment gateway in way too expensive. Considering your CA would charge just as much for the whole year.
3. The problem with considering it over two years is it, almost 88% of the web startups, die within an year
So who is making the money, you do that math.
March 6th, 2007 at 4:35 pm
Hi!
I am in desparate neeed of a online payment solution/gateway. This article was very good and thoroughly researched. But I am still confused that which option to select from the various options discussed. Can anyone help me to choose the best option?
March 6th, 2007 at 5:52 pm
make your own
or get ICICI, if they respond ofcourse, they are cheapest if you busniness starts growing.
March 7th, 2007 at 11:50 am
Besides just credit cards, PayMate which is a mobile payment gateway can be integrated at zero cost. Mobile payments are soon going to be a reality in India considering how covenient and safe they are so why not offer customers this option too. Check paymate.co.in. Over 2500 online portals in India already accept PayMate. No set-up cost, just transacton fee.
March 7th, 2007 at 12:21 pm
paymate is a wonderful solution, but the only people in India who can make payments using it are customers of citibank.
March 13th, 2007 at 11:31 am
I think the best gateway is Itz Cash it works in the Indian market the gateway is not expensive, there is a low setup fees. I think its better of than a master and visa. As they have no issues of a charge back and belive it or not Itz Cash guarantees the funds to its merchants.
Check it out it just may be worth its while. http://www.itzcash.com
March 15th, 2007 at 3:55 pm
Hey …
Thanks for sharing the information.
I faced the same dilemma while researching on payment gateways sometime ago …
BTW Gurpreet, the ITZCash card is a big hassle …
I could not get one for the life of me when I had to renew my Dish TV subscription instantly, even after calling all their dealers in Pune.
Anyways, eBay India has this PaisaPay service (3.5% CC and 2% Bank) - no setup.
However, this is available only to eBay sellers …
So one good option - though extremely messy could be - you list your service on eBay and use their service to sell your solution or app or whatever is it that you’re writing.
Elegant? No!
But I think it’s the cheapest option and if someone really wants to use your product, they’d undergo the wee bit of hardship of having to go and buy it through eBay instead.
It could turn in your favour as people would probably trust paying a site like eBay rather than pay you directly …
April 2nd, 2007 at 10:29 pm
i had been using paypal since years and its cool
i once got a call from icicibank for there merchant services.
and i was surprised by there charges. OUTRAGEOUS charges, they take major part of it.
and +13 % is our govt service tax
what do i earn then?.
this providers dont even think of clients profits before charging,
how cud they charge so much.
April 6th, 2007 at 2:57 am
@gurpreet, as Saurabh says, there is a different set of problems with itzcash.
@saurabh, completely agree with you on Itzcash. And about Ebay, selling software is a problem.
@sukhoi, absolutely correct man. I decided to use paypal too.
April 14th, 2008 at 4:05 pm
Great analysis!
Have you looked at wallet365 / timesgroup & yesbank offering - http://www.wallet365.com : They have a transaction cap of 3K, but no fees at all. Any feedback?