Some start-ups pose a challenege to established players in the online payment gateway segment

Until recently, three big players - BillDesk, TechProcess and CCAvenue - dominated the payment gateway segment. But they are suddenly being challenged by a host of newcomers.

Growth in government bodies and educational institutions taking to online payments: Satyen Kothari (right) with Jitendra GuptaPhoto: Nishikant Gamre Growth in government bodies and educational institutions taking to online payments: Satyen Kothari (right) with Jitendra Gupta<em>Photo: Nishikant Gamre</em>
Chennai-based Direct to Home services operator, Sun Direct, began accepting online payments three years ago. It needed a payment gateway through which to make collections and chose two of the three well known companies in the segment - BillDesk and TechProcess Solutions Ltd. But recently, Sun Direct added a third company, a relative newcomer, the Mumbai-based Citrus. Today, Citrus takes care of 90 per cent of Sun Direct's collections, while the two older players handle the remainder. What prompted the shift? "Citrus is much more technologically advanced," says a senior executive in Sun Direct's marketing team, who does not want to be named. He notes that the failure rate for online payments to Sun Direct has dropped to less than 25 per cent from 30 to 40 per cent since Citrus took charge.

The failure rate of online payments is perhaps the biggest bugbear of e-commerce. Customers start the process, but do not complete it, and it is not always because they change their minds - something or other goes wrong. For most sites, the success rate of payments on purchases is not more than 60 to 65 per cent, and is a source of enormous bother. "Even a one per cent improvement in success rates can add Rs 20 crore to our topline," says Kunal Bahl, CEO of Snapdeal, one of India's largest e-commerce sites. Any means of reducing payment failures is more than welcome.

That is why, although Gurgaon-based e-commerce start-up HealthKart makes its collections through five different online payment gateway companies, Citrus being only one of them, it is extremely gung-ho on Citrus. "We like the daily and monthly reports we get from Citrus pointing out which payment transactions failed, and why," says Prashant Tandon, Co-founder and Managing Director, HealthKart. "That helps us a good deal to look into the problem areas."

Sun Direct and HealthKart's responses are pointers to the great battle at the gate that is currently raging in the online world. Until recently, the three big players - BillDesk, TechProcess and CCA venue - dominated the payment gateway segment. But they are suddenly being challenged by a host of newcomers - Citrus, Zaakpay, PayU among them - with claims of superior technology. Citrus has already acquired 650 clients across sectors and Zaakpay 170, while PayU, owned by the South Africa-based media giant Napster Group and with a presence in 16 countries, has 4,000.

"Online payments are broken," says Mohit Bhatnagar, Managing Director at venture capital firm Sequoia Capital. "These start-ups are trying to iron out the consumer experience with cute, innovative features." Sequoia Capital has invested in both Citrus and Zaakpay.

Upasana Taku, CEO, Zaakpay
Reducing the number of hops from eight to two raises the success rate by 15 per cent: Upasana Taku photo: Shekhar Ghosh/
So how are the new technologies better? Usually, while making an online payment, a customer has to pass through at least eight separate hops - or fresh web pages - before the transaction is completed. At each hop, there is a chance of failure. Thus, reducing the number of hops makes an immediate difference. "Citrus has a one-click payment solution," adds the Sun Direct executive. So too Zaakpay has developed technology that reduces the number of hops from eight to two. "That raises the success rate by at least 15 per cent," says Upasna Taku, Founder-CEO, Zaakpay.

Again, Citrus has a feature by which, even when a transaction fails, the customer does not return to square one - instead he finds himself at the payments page, with the particulars he had filled in still remaining. PayU has the same facility. This reduces the customer's frustration level, and increases his chances of giving the payment a second try. To overcome the lack of trust that often keeps customers from making online payments, PayU has also set up a facility called PayU Paisa, under which it keeps the payments made by customers in a nodal account. The money is transferred to the e-tailer only after the item purchased reaches the customer.

Increasingly, e-commerce transactions are being routed through mobile phones and tablets, as well as social networking sites such as Facebook and Twitter. Payments gateways need to make adjustments to cater to these, and the new ones have been quick off the mark doing so. Zaakpay, for instance, has a specific solution for mobile phone transactions called Mpay. Mobikwik, a mobile recharge site which works with Zaakpay, Citrus and TechProcess, developed an Android app in August 2012 to facilitate purchases through mobiles. "We have been having better success rates with Zaakpay's mobile solution," says Bipin Preet Singh, Founder and CEO, Mobikwik.

What is also helping the start-ups is the rapidly expanding e-commerce market. E-commerce is expected to grow from Rs 47,349 crore in December 2012 to Rs 62,967 crore in December this year, according to a report by the Internet and Mobile Association of India. The largest and most lucrative part of e-commerce is, of course, utility bill payments, but since the established players dominate this section, the start-ups are concentrating on newcomers in online retail and the small and medium businesses (SMBs). "Less than 10,000 of the 26 million odd SMBs accept payments online at present," says Nitin Gupta, CEO, PayU.

The potential for growth is enormous, more so because the established gateways do not find it worth their while to woo SMBs. "We only deal with large companies," says M.N. Srinivas, Founder-Director, BillDesk. Government bodies and educational institutions, many of which have only recently begun accepting online payments, are two more segments with potential. "We see fastest growth in these two areas," says Satyen Kothari, Founder and Managing Director, Citrus. "Even local bodies are thinking of moving online." He counts a number of such agencies, like the National Institute of Fashion Technology and the Ahmedabad Municipal Corporation, among his clients.

One advantage of focusing on online purchases rather than bill payments is that the former usually comprise larger amounts. Since e-commerce sites pay gateways a percentage of the transaction size, there is more to be earned per transaction. "If you are focusing on 'pay transactions' rather than 'buy transactions', you cannot make much money unless you handle hundreds of thousands of them daily," says Rahul Khanna, Managing Director at venture capital firm Canaan Partners. The exact percentage gateways get varies - a newcomer e-tailing site is usually charged an installation fee between Rs 5000 and Rs 35,000, plus anything between two to five per cent of the value of each transaction. Established sites, with heavy traffic, pay less.

But competition is only going to heat up from now on. The big boys too are responding to the new trends -CCAvenue, for instance, has launched 'Social Network In-stream Payments', a facility which enables e-tailers to accept payments through social networking sites. Some e-tailers have chosen to stick to bigger players - Flipkart with CCAvenue, for instance - while integrating directly with bank servers for credit and debit card transactions. They are also investing in-house to improve collections. "We are trying to plug payment loopholes using big data analytics," says Mekin Maheshwari, Head, Digital Media and Payments, Flipkart. Snapdeal has already launched its own payment service TrustPay, similar to PayU Paisa.

Finally, none of the payment gateways, not even the established players, have so far become brands in their own right, such as global auction site eBay's Paypal or the China based Alibaba's Alipay. "But the next step could be consumer payment brands," says Sequoia's Bhatnagar. Gupta of PayU hopes so. "The revenue potential is much bigger in such cases as you are targeting a much bigger base of customers," he says.