Never has so much rested on the electronic arms of a concept. If e-commerce, in all its hues and acronyms, is to flourish, you need consumer confidence, security, and legality. And the common thread coursing through these nebulous attributes is something called a payment gateway. The internet’s payment mechanism. Simply put, a gateway indulges in the authentication and routing of payment-related data between transacting parties and the concerned banks and financial institutions. Everyone wants in : today, there are at least five payment gateways offerings, with another 10-12 in the wings.

It’s early days yet : the market is just about opening up. Most banks are still making investments in setting up infrastructure; moreover, there are aren’t enough customers wanting to shop on the web. Says Bhargav Dasgupta, Deputy General Manager, ICICI : “In India, the banks have taken the lead. I don’t see any role for a third-party service provider. The payment gateway is a domain of the banks per se.” While there are third-party providers, like Jain Networks – which has an alliance with HDFC – they would per se have to tie up with banks, to assist in verifying and authenticating the buyer’s credit cards. The major banks in the payment gateways fray : Citibank, HDFC and ICICI, with American Express waiting in the wings.



A Matter of Differentiation

At a basic level, every gateway has a similar revenue model. In short, charge installation fees at the first point of contact, maintenance fees (in some cases), and a per transaction fee. The latter is the bread and butter of the gateways, and is usually in the range of 5 percent of the transaction (shared between the payment gateway provider, the acquiring bank, and the credit card company). Most banks say they are working out their pricing policies. We got an example : Jain Networks charges an up-front fee between Rs. 60,000 – Rs. 1 lakh. Then it has a monthly maintenance fee in the range of Rs. 3,000 – 10,000 per month. Finally, the transaction fee is 5 percent of the transaction.

The great payment gateway war will be fought around these fees. For the moment, the banks do not feel the need to pursue any aggressive marketing strategies as they have an existing database of customers. The real game will emerge when B2B commerce takes off – currently, B2C and B2B commerce require different payment gateways. As you know, B2C commerce transactions are still very thin-ended in the country, apart from being few and far between. Once B2B commerce blooms, the stakes will be higher, as transactions would involve inter-bank fund transfers. Expect competitive pressures to bring down transaction costs; marketing will become more important too.

This is not to imply that differentiation is dead; it is well and living, often couched in minutae. For instance, ICICI’s Payment Gateway provides an ‘auth and capture process’ that authenticates the transaction first and captures it later. This, it claims, reduces the charge-back ratio for the merchant. “Our differentiation is the credibility of the name that goes with the product, our pricing is competitive, we facilitate online real-time payment and offer flexibility to the customer,” adds Samir Bhatia, Country Head, Corporate Banking, HDFC.

Then, Jain Networks touts the fact that it has a fraud detection facility, which monitors behaviour patterns of merchants and cardholders. Adds ICICI’s Dasgupta: “We are providing a consolidated service unlike the others, that is a value proposition. And a host of services to e-tailers, like MIS reports.” Then, security continues to be the backbone of the offerings; after all, it’s the gateways’ raison d’etre. All the major players say that they have SSL-128 encryption, the highest level of security available on the internet today.



The Cogs in the Wheel

There’s no denying that the banks’ presence may boost the confidence of the buyer as consumers have a deeper relationship with them. Says Sriram Jagannathan, Vice-President and Head (Internet, Mobile & e-Commerce), Citibank: “The competition among banks and payment gateways at this stage will be settled depending on who is the most successful in enhancing customer comfort in making online payments for their e-purchases.”

But the buck doesn’t stop here : the banks remain facilitators, to ensure a smooth transaction. The ultimate onus lies with the websites (e-tailers and the B2B players). Agrees Rediff.com’s Director (e-Shopping) Balachandran Unni : “One of the main issues here is that the consumer should have a good option in terms of shopping portals and ultimately a good shopping experience.” Rediff.com has about 1 lakh registered shoppers.

The numbers of credit card holders in the country are around 3.3 million. That’s a small number. And then out of every hundred users on the net, only 30 have a credit card. Driven by the fact that many people remain wary of providing credit card information on the net, alternative payment systems – from Citibank’s e-card to smartcc’s cash card – are also emerging. Says Divyanshu Mishra, CEO, smartcc.com: “Some 75 percent of internet users don’t own a credit card or a debit card. They, therefore, have no payment gateway solution. That’s where we come in.”

Perhaps B2B will be the future. But the hurdles in putting in place inter-bank fund transfer norms is an issue. For one, there is a lack of electronic infrastructure with just a few banks wired up. Moreover, there is an absence of a proper settlement mechanism. Currently, the RBI is the only settlement bank in the industry, with second rights to the SBI. Industry watchers expect a consortium of banks to emerge to fill up this space. Finally, for payment gateways to be effective, they have to be real-time, cost effective, and controlled by the buyer. QED ? Not yet.