Shishir Asthana Moneycontrol Research
In a gold rush, the winner is always the company that provides the shovels. This maxim holds for the e-commerce industry as well.
While e-commerce companies are making headlines, it is the payment gateways that are making money. No wonder then that e-commerce companies want to have their own payment gateway.
Amazon has got RBI’s OK for its own digital gateway wallet. This is significant as the prepaid wallet service will not be restricted to Amazon based transactions alone; it will directly compete with Paytm, Freecharge and government’s payment apps.
Incidentally, Amazon’s biggest threat in the Indian market after Flipkart is Alibaba, which has been testing Indian markets through its stake in payment gateway Paytm. The Chinese are coming to India in a big way. Recently Tencent Holdings, one of China’s largest payment gateway company entered India by participating in the latest $1.4 billion round of funding in Flipkart.
What is it about payment gateway companies that has caught the attention of some global majors?
First, from a customers’ point of view is the ease of transaction. Rather than going through the multiple click process of paying through banks, e-wallets (used by payment gateway companies) are not cumbersome.
From an e-commerce company like Alibaba’s point of view it helps them test the Indian market without really wetting their feet. It is also a relatively risk free way of testing the markets as the payment gateway provider like a toll-gate operator earns money on every transaction that happens through its gateway. Payment gateway companies get an idea of the size and volume of business in the market through the transactions taking place on their gateway.
Similar reasoning is also applicable to Tencent Holding’s stake in Flipkart, the largest e-commerce player in India. Flipkart had been struggling with its payment gateway. The company shut down its own payment gateway and picked up a stake in NGPay, a technology provider.
Apart from convenience payment gateways are more secure from the e-commerce company’s point. It also gives the company advance payment before delivering the product. More importantly e-commerce companies have a better control on the flow of funds through their system.
Ebay is a classic example of what an in-house payment gateway can do to an e-commerce company. The company’s fortunes changed after it acquired Paypal. Alibaba too has been successful largely because of its strong payment gateway Alipay.
Customers globally are not very comfortable with transferring money through the internet, especially the older generations. Digital wallets gives them the sense of security by acting as a wall between the bank and the vendor. Since digital wallets have a limit to the cash that they can hold, any loss—in the event of a security breach—is limited. Further, for all the stakeholders a wallet leaves a money trail that helps in solving disputes.
At a time when hacking and data theft is becoming a clear risk, use of wallets will increase going forward. A few mishaps of money not reaching the intended party can wreck a company’s reputation.
No wonder then that e-commerce companies and payment gateway providers want to establish their presence and secure transactions by investing in payment gateways.
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