Monday, May 6, 2013

Set up Online Retail Business: Learn How to Collect Payment Online

Did you ever Dreamed of Starting your own Retail Store in India? Did you ever dreamed of moving out of your current boring job and starting your own Retail business instead? Did you ever think of running your own business from home? I am sure that after making all the cost calculations, you must have burned those Business Plan Documents and cancelled the plan of dreaming anything like that in future. Am I right?

Given the very high cost of real estate, human resource, inventory and stringent local rules, regulations & taxation; thinking of retail in India is really a nightmare. No wonder why India ranks 132nd on the ease of doing business^1. And after making all these efforts how much customers can you expect per day, 10? 15? 20? Are these numbers enough to cover your big real-estate cost?

What if, I tell you that you can open your retail store on the Internet with less than 1/10th of the cost of your physical retail store? What if, I tell you that you can open your store without having a single inventory in your warehouse? What if, I tell you that you can run your retail business from home?

ONLINE BUSINESS is the answer to all your problems.

More than Rs.46,000/- crores is the size of E-commerce market in India^2. With more than 130 million Internet users, India is ranked 3rd in the country wise total number of internet users. Not only that, this number is growing at the average rate of around 25%. ^3

 Now, you will say that, I have read many articles about online retail business opportunities so I know better than you hence just cut the crap and come to the point and tell me “How can I collect payment online? How can I manage payments coming from various bank accounts? How can I manage payments comings from various instruments such as Credit card, Debit card, Cash Cards? Do I need to tie-up with each and every individual bank/institution? How can I tie-up with so many banks in India? Who will take responsibility of security of complete transaction? Who will ensure that the payments are properly credited to my accounts? What if, my customer doesn’t have Credit cards? What if, my customer doesn’t have account with particular bank? And How will I manage fluctuating different currency in different country?

Is there any single solution to all these questions?
Answer is Yes. ‘Online Payment Gateway’ is the solution to all your questions.

 ‘Online Payment Gateway’ is the Third Party Collector for your website. If you have a website and if you want to sale your goods online through online order booking & payment collection method, then there are professional companies who do all the payment collection activities for all types of Credit Card, Debit Card, Net Banking, Cash Card and Mobile Payment transaction validation for you.

What is Payment Gateway?
A Payment Gateway is a software program integrated to a Merchant's (Seller’s) website by Third Party Collector i.e. Payment Gateway provider (Say for example by XYZ Ltd.) to transmit transaction data for authorization and settlement. 
When customer places an order online, and goes further to make payment, this Payment Gateway software will ask and collect customer’s bank account details from the customer and securely transmits this transaction data to Third Party Collector (XYZ Ltd.) for authorization and settlement. Third Party Collector’s system further securely transmit payment data such as customer’s bank account & password details to customer’s bank/institution’s system for Validity, Authorization and Settlement. After the confirmation from customer’s Bank/Institution’s online system, the transaction is Approved and the amount is credited to your (Seller’s) account*. Generally this process gets complete in 15-20 seconds.

With the help of this software system and service, Merchant (Seller) gain the ability to perform real-time Credit Card authorizations from a web site over the Internet. 

Hence you need not remain present at the time of transaction. This company and its software system (in your website) will handle complete transaction on your behalf.

What does this Payment collecting companies (Third Party Collector) do?
These companies are link between you and your customer. These Companies provide complete, simple and secure online Payment Gateway service and e-business solutions, with real time Credit Card, Debit Card, Net Banking, Cash Card and Mobile Payment transaction validation. This enables your website to transact and accept payments online and in real time. Generally they accept payments from all major Credit/Debit cards, Cash cards, Net banking, and now a day, even payment through mobile phones. So even if your customer doesn’t have Credit card, he has many other options available for the payment.

So now, you just need to sit back and these companies and their software system will handle the complete transaction for you. You do not have to go to every bank/institution for payment validation. Online Payment Gateway provider’s online system will do the same for you.

Quiet interesting, Right?

So now the question that comes to your mind is ‘What about the Cost, buddy?’

How do these Payment Gateway providers charge?
For their service, ‘Third Party Collector’ companies take Service Charge [often referred as Transaction Discount Rate (TDR)], which is a fixed percentage of your Sales amount depending on the instrument used. Hence for example, if you sale goods worth Rs.1,000/-. You need to pay fixed pre-decided percentage (say for example 2% for credit card and 5% for Debit card) to this company.
Here, this Third Party Collector company (XYZ Ltd.) will collect Rs.1,000/- from your customer on your behalf and remit you the sales amount after deducting his commission. So in our case, he will transfer Rs.1,000 less Rs.20/- [2% x Rs.1,000/- (assuming he pays through Credit card)] i.e. Rs.980/- in your account with XYZ Ltd..

Rate and other charges differ from company to company depending on their various available subscription plans.
Here is one example of Subscription Plans available for setting such system/facility with company XYZ Ltd (Third Party Collector). This will give you a basic idea of how it is calculated/charged.

XYZ Ltd. (Third Party Collector)

Plan A
Plan B
Plan C

Set-up fees [onetime, non refundable]

Transaction Discount Rate (TDR)
MasterCard / Visa / Diners Club
Credit Cards
5.5% *
3.5% *
2.5% *
Debit Card
1.25% *
1.25% *
1.25% *
Net banking
4% *
3% *
2.5% *
American Express / JCB /
Cash Cards
5.5% *
4% *
3.6% *
A.S.U.C. ***
(Annual Software Up gradation Charges)
(Applicable on 1st April, every year)
1200 *
(Waived for 1st Financial Year) *
2400 *
3600 *
Payment through Phone
0.5% over and above the
Credit/Debit/Cash Card TDR charges
across all schemes
0.5% over and above the
Credit/Debit/Cash Card TDR charges
across all schemes
0.5% over and above the
Credit/Debit/Cash Card TDR charges
across all schemes
* Taxes as applicable will be levied extra on set up fees, ASUC and Transaction Discount Rate (TDR)

If your business is new and not price competitive than you may start with Plan A, and as slowly business progresses you can upgrade your plans. Depending on the subscription plan chosen, you need to price your product as Transaction Discount Rate (TDR) will vary from Plan to Plan, and finally it will affect your profitability.

How payment system works in case of foreign transaction? ^4
Generally, you can mention the price of the product in other currency too but at the end of the day your Third Party Collector (XYZ Ltd.) will convert this amount to INR only. You need to check with your Third Party Collector on ‘How foreign currency amount is converted for billing the customer’, as Seller also has to comply with RBI rules, Duty draw back rules and other Income tax rules & regulations.

RBI insists that Merchants in India settle transactions in INR only and the respective banks give a foreign exchange inward remittance certificate (F.I.R.C.), which Third Party Collector (XYZ Ltd.) will provide you. This takes care of the Income Tax part of things, to enable you to claim exports benefits under section 80 HH of the Income Tax Act.

Third Party Collector (XYZ Ltd.) will issue you a FIRC (Foreign Inward Remittance Certificate) for all overseas transactions done. Generally, this will be issued on a quarterly basis. A small documentation fee may be levied depending on Third Party Collector’s policy.

This is how you can now easily run and manage your online business by leaving all your payment collection worries with these Payment Gateway service providers at nominal cost.

Hope this article has given you the basic idea of Online Payment Gateway system and its benefits. Kindly let us know your views and comments on the same.

Thank You.

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* Payment crediting process, time and terms vary from company to company depending on their Business policy, Goods delivery term to final customer, Mode of payment, etc.

1 comment:

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