Online Payment Gateways in India
Since my how to register a sole proprietorship and current account article became extremely popular, users requested a follow up post on setting up a merchant account for accepting online payments on their own website. To be honest with you, integrating an online payment gateway for your website/e-commerce store is not easy. I am not talking about the technical part, I am talking about all the time consuming paperwork and bureaucracy.
This article is not a review or a comparison of the various payment gateways in India, we can talk about that in the comments section below. The goal of this article is to inform the reader with the basic requirements and processes of setting up a merchant account with Indian payment gateways.
First of all, you need to first answer who are your customers and where are they located - Are they domestic Indian customers or international customers?
International Customers
If your target market is international customers then you can sign up for Paypal. You will need to open a free business account with Paypal which would allow you to accept payment from credit cards and other Paypal accounts. Setting up a business account under your name or your business/proprietorship name is very easy with Paypal.
Pros and Cons of Paypal for Indian merchants
One major drawback is that your customers would be charged in dollars and not in rupees. Paypal will automatically convert dollars into rupees with the exchange rate prevailing on that date and subtract its own fees. The remaining amount is then transferred to your Indian savings or current bank account in 4-5 days.Another major drawback is that Paypal will immediately block any transactions if a customer uses credit card issued in India. This is as per RBI ruling. If you want to accept payment from Indian customers you will have to go for an Indian Payment Gateway.
Paypal only supports credit cards and other paypal accounts for payments. It does not support Indian debit cards and NetBanking.
One the biggest advantages with Paypal is that you just need a bank account, scanned copy of Passport and PAN card for business account verification. The PAN number which you enter in your Paypal account and the PAN number of your bank account should match. Your first and last name in your Paypal account should match with the name displayed on your PAN card. You don't need service tax or sales tax registration for Paypal.
There are no setup and annual fees with Paypal so you can try out your business idea without any major initial expense.
Domestic Indian Customers
If you want to accept payments from Indian or international customers in rupees with credit/debit card and Netbanking support then you will have to sign up with an Indian payment gateway provider.
There are two types of payment gateways providers in India
Second Party providers like HDFC, ICICI and Axis - They have low Transaction Discount Rate(TDR) in simple words it means transaction fees but their setup costs are very high starting from Rs 30,000. If you are a small business or you are trying to setup an online business for the first time, there is no point in going for second party providers like the banks since it would be very expensive initially.
Third Party providers like EBS, CCAvenue, Payzippy, PayU, Direct Pay - Some of them charge a setup and annual fee, some don't. Most of them would charge around 3% to 5% Transaction Discount Rate (TDR) + service tax. Since this is India, those rates are negotiable. If you have smooth talking skills convince the payment gateway that your business will have high growth very soon so reduce the setup fee or tell them that the other payment gateway is providing me X rate, can you give me a better rate than X.
Now comes the hard part, unfortunately setting up a merchant account with Indian payment gateways is time consuming, bureaucratic and involves lots of paperwork. First of all you will have to talk to their sales person and explain your business model. If your business model is simple like an e-commerce store where you are selling physical products through your online store then you won't face much issues. Since our business model at Craytheon is little different where we provide financial charts and valuation models to stock market investors, we had to convince the payment gateway provider, what exactly do we do. The payment gateways have tie ups with various banks like HDFC, Citibank etc. In a worst case scenario you will have to explain your business model is to those banks as well. Based on your business model some banks might refuse to provide you their services, if the bank refuses then your payment gateway will talk to some other partner bank. Your application would be accepted and a test integration kit would be provided to you if the bank and the payment gateway determine that your business model is not risky.
Documentation
You will need to register your business as sole proprietorship or a company to setup a merchant account with any Indian payment gateway.- Current Account
- Service or Sales Tax Registration
- Certificate of incorporation (in case of company)
- ID Proof
- Address Proof of the merchant and address proof of the business if it is different.
- Your certified current account statement
- Photograph of the merchant
- Your business model on your letterhead.
- Contact Page, About Page, Pricing Page and Terms and Conditions Page on your website
- Payment Gateway agreement which needs to be franked.
All documents should be stamped and signed. If you don't have a current account then follow these steps to open a current account.
Once your application has been accepted and you have integrated the payment gateway with your website, someone from the tech team of the payment gateway might do a test transaction first before making your application live. After your account is live you can finally start accepting payments from customers.
Our own journey to set up a payment gateway for Craytheon was not so smooth but then nobody said that running a business is easy especially in India. I hope this article would clear most of your basic doubts about setting up an e-commerce website. Which is the best payment gateway in India, frankly speaking I don't know but we can discuss that or any other queries in the comments section below.
Sumedh
6-May-2014