Starting an online business is definitely an exciting task. The number of online businesses over the past few years have grown by leaps and bounds and having an online presence today has become crucial for brick and mortar brands as well. Various business aspects like having an attractive and effective UI for the website, a reliable supply chain, and an effective payments system among others are critical for online success. Online businesses should not only focus on the best ways to sell their products or services, but also work of the best way to collect payments.
Online digital transactions can be accepted by merchants through multiple two ways, each with its own set of advantages and challenges. The key channels through which online payments can be accepted in India are as follows:
1. Integrating with a bank’s payment gateway – A payment gateway provided directly from a bank (also called a second party payment gateway) is one of the ways through which online merchants can accept and process online, digital payments from customers for purchases made. Such integrations allow online businesses to process payments via debit cards, credit cards and net banking and is supported through platforms such as Visa, Mastercard and American Express among others on the backend. From the cost standpoint, merchants will need to pay an initial setup fee and transaction fees or TDR (Transaction Discount Rate), which is a percentage of the transaction value for all transactions processed via the gateway.
While the whole system looks straight forward in principle, integrating with a bank’s payment gateway is often challenging for startups for several reasons like, lengthy paperwork and approval process, long integration period on account of technical issues, complicated user flows and the lack of nifty, online plugins among others.
2. Integrating with a third-party payment gateway – An easy and efficient way to process online payments is through third-party payment gateways. Such payment gateways also collect TDR on transactions while setup costs may or may not be applicable, depending on the solution provider. Similar to banks, these gateways also facilitate payments made through debit cards, credit cards and netbanking. In addition to this, many solution providers also allow merchants to process digital payments through multiple channels like prepaid digital wallets and recently, even UPI. For instance, at Razorpay in addition to regular online channels (debit cards, credit cards etc) we allow merchants to accept payments through not only a single digital wallet but through several digital wallets. This way, online merchants have the agility to accept payments through practically every online digital mode.
While on the face of it, third-party payment gateways seem similar to bank payment gateways, they are in fact far more user friendly, accessible and easy to integrate especially for first time startups.
Now that we know the basics of the two channels, let us see how one compares with the other:
Second Party PG vs Third-party PG
|Second Party PG||Third-party PG|
One time cost to integrate website with the PG
|High setup costs||Low/No setup costs|
Includes documentation and approval time for PG access
|Lengthy process. Average application and approval cycle is around 3 months||Quick approval and online onboarding process. Average time for onboarding is 5-10 days|
Mode of document submission
|Documentation needs to be submitted in hardcopy, making the process cumbersome||Paperless submission of documents making the whole process easy and efficient|
Ease of integration and mode of integration
|Difficult to integrate;requires significant time and effort from the merchant’s tech team||Easy and simple integration with minimum coding efforts. Some gateways allow for integration within a few hours|
User experience and user interface
|Complicated UX with limited or no scope for merchant customization.||User friendly and intuitive UX that also allows for merchant related customisation|
|Issuance of refunds
Handling of customer refunds
|A manual refund and verification process is to be followed to issue refunds to customers||Merchants can easily refund transactions directly from the dashboard through a click of a button|
Cards once used by customers are saved automatically for future use
|Does not facilitate card saving, hence not optimised for superior customer experience||Allows for card saving feature across multiple cards, thus enhancing customer experience that might lead to increased customer loyalty|
System level risk identifiers that aim at curbing fraudulent/risky transactions
|Does not provide inbuilt risk engines that reduce the occurrence of online frauds||Provides system level risk engines that mitigate the chances of online frauds|
The opportunity to use brand name and brand design for the payment checkout process
|Does not allow for any co-branding/brand placement or customization in the payment, checkout process||Allows for various levels of customization and brand placement in the payment, checkout process|
|PCI DSS certification
Official information security standards required for handling online card transactions
|Requires merchants to be certified to PCI DSS in order to access the payment gateway||Merchants can easily access the payment gateway without individually applying for PCI DSS certification (as the PG acquires the risk involved in the payment process)|
Thus, from this comparative analysis, startups looking to accept digital payments should integrate with third-party payment gateway providers given the significant advantages gained at minimum effort.
3. Integrating with a prepaid digital wallet – Another way to accept digital payments are through digital wallets. Prepaid digital wallets are instruments that facilitate purchase of goods or services and transfer of funds against a certain stored value in the wallet. Prepaid wallets usually charge a transaction fee similar to payment gateways, and the setup fees varies with each wallet. While wallets are easy to integrate and convenient to use from the customer standpoint, it lacks one key feature that is integral for online payments – interoperability. A customer will need first sign up and load money in a the specific wallet in order to pay on the merchant website. In other words, the store’s customer has to essentially be a customer of the wallet first. This can be a significant barrier for online businesses.
Processing payments is one of the most integral aspects for online businesses today; it is the critical and final step that ensures the success of a product or service. Thus, in addition to merchant level benefits, payment solutions should be end-customer friendly and provide checkout experiences that are intuitive, efficient and secure. Merchants should see that the checkout experience is an extension of the overall brand experience. In order to ensure this, at Razorpay we provide the entire checkout experience on the merchant page with no external redirects, thus providing not only a quick, cohesive payment experience, but also very low dropoff rates.
In today’s crowded online ecosystem, startups require solutions that are many solutions wrapped into one tight and efficient solution. Third-party payment gateways do exactly that; they not only provide efficient payment solutions but also provide a host of other important tools and features like payment links, invoicing solutions, payment analytics and nifty integrations with e-commerce plugins (like Shopify, Magento and WooCommerce etc)
Thus, evaluating several factors like costs involved, effort required, customer experience and customer adoption, startups should integrate with third-party payment gateways in order to effortlessly and efficiently process online digital payments.