The ecommerce market in India is growing at a dynamic pace. Estimated to reach $188 billion by 2025, the sector received $15 billion in investments from private equity and venture capital firms in 2021. At this rate, the Indian ecommerce industry will surpass the US to become the second largest online commerce market by 2034. Xpressbees, Amazon, Flipkart, and Cars 24 are some of the leading ecommerce firms that are making big waves with their investment and expansion plans.
Rising smartphone penetration, evolving customer expectations, and convenient digital payments play a major role in the ecommerce boom. Online transactions in the Indian ecommerce ecosystem are estimated to grow by 96% to touch USD 120 billion by 2025. The growth of digital payment options such as credit cards, debit cards, prepaid cards, UPI, and BNPL added impetus to online shopping transactions.
Payment processing is how businesses complete credit and debit card payments. It includes authorization, funding, and settling of a transaction. For a consumer, an online card transaction is a pretty straightforward process that happens within a few seconds. All they need to do is enter the card details, and authorize the transaction with an OTP.
Key Players in Ecommerce Payments
While the entire transaction may only take seconds, it involves a complex network with multiple steps and players behind the scenes. Here are the players involved in carrying out a transaction.
- Cardholder (customer with the payment card)
- Merchant (ecommerce website)
- Payment Gateway
- Payment Processor
- Card Network
- Issuing Bank
- Acquiring Bank
Payment Gateway
A payment gateway (PG) is a service that authorizes transactions between online businesses and their customers in a secure and convenient way. In simple terms, it acts as a secure tunnel between the merchant’s payment portal and the payment processor.
Role of Payment Gateway
A payment gateway is a central cog in the transaction processing ecosystem for both online and in-store purchases. In a transaction process, PG is the front-end mechanism that collects, authenticates cardholder information, and transfers the details to the merchant’s bank in real-time. Then, the transaction is processed in the merchant’s bank. All payment gateways are PCI-DSS compliant and SSL-certified.
For example, imagine you go to an online store, pile up your cart, and click on check-out for billing. When you enter your payment method and details on the website, a payment gateway helps you transfer money to the merchant.
Payment Processor
A payment processor is a vendor service that acts as a conciliator between the financial institutions and the merchant involved. It facilitates authorization of the transactions and relays the data to clear and settle the transactions for the merchant. Some payment processing services include card acceptance, PCI compliance assistance, security solutions, and customer support.
Role of a Payment Processor
In a transaction, the payment processor acts as a tunnel between the merchant and the customer banks. It takes the information from the payment gateway and connects with the issuer through the card network to authenticate and approve the transaction. The role of the payment processor is summarized below:
- Seek authorization for a transaction
- Connect with the cardholder’s issuing bank
- Transfer funds into a merchant account
