Impact of online payment technology on ecommerce

Last Updated 12 June 2016, 18:35 IST

Internet in India has been booming. Internet users in India have grown 9-10 times in the last seven years. With smart phones in hand, India’s over 450 million internet users, the second largest in the world, have fuelled growth in ecommerce.

Industry reports forecast India’s ecommerce industry in 2016 to grow 67% over last year and touch $38 billion. To see these numbers in perspective, China’s internet user base, the largest in the world, is over 700 million and its ecommerce spends are expected to grow beyond $1 trillion by 2017. The difference in scale looks similar to the difference between two of the largest man-made walls in the world. The Great Wall of China is over 8,000 kilometres, while the world’s second largest in Kumbhalgarh in India is 38 kilometres.

While the internet user base in India is increasing multi-fold, it is not converting into ecommerce growth rate as what China is witnessing. There could be umpteen reasons for this, from unreliable and poor quality of internet connection, to resource-crunched low end smart phones, to the fear of not knowing about shopping online; unreliable or limited payment options and user preference for cash transaction (cash on delivery), among others. India is also a market where word-of-mouth plays a major role in marketing and influencing. One bad experience could impede adoption by a bunch.

As most countries have faced (including China) in their journey to ecommerce adoption, the most pertinent consideration seems to be the ease and reliability with which users can pay for their online transactions. And, this has everything to do with IT technologies used in processing payments end-to-end.

In India, while we have various payment options available across card payment gateways, mobile and e-wallets, most of them require some amount of technology savviness to appeal to the first time users. Failed transactions and dropped connections can be frustrating and add burden of following up and resolving with the vendor or the bank.

With the increase in use, the abuse and transaction fraud has also gone up. The Reserve Bank of India (RBI) has mandated an additional authentication based on information that is not available on the card. Most payment thresholds in India have resorted to using a two-factor authentication (2FA) method, with a one-time password (OTP) generated and sent to the user mobile. While this adds a layer of security, it does not eliminate the threat of man-in-the-middle attack or a spear attack, and may cause the online buying experience to turn into a disaster. For first time users, who are not familiar with technology, complying with these solutions could be a turn off.

While RBI has been proactive about mandating multi-factor authentication, they have stopped short of putting onus and risk of identity theft by phishing, man-in-the-middle and spear attacks, into the hands of the vendor or technology provider. The risk rests completely with the users. At best, the banks and various agencies simply advise users on how not to get phished or not to disclose credentials. Solutions like CryptoPhoto, which offer not only multi-factor authentication along with anti-phishing solution, but also mutual authentication (the client also authenticates the server). It also has pictorial interface that is intuitive, which works offline as well, and requires users to tap just once, making it extremely user-friendly. However, this is yet to become popular and gain adoption in India.

India has some unique demographics and unbanked population in tier- III or IV cities, and rural India. However, this knowledge needs to be ingrained into the thought process while devising solutions. Technologies like what Kenya and Tanzania have used with mPesa, where mobile balance can be easily transacted as cash, have been extremely popular. In Singapore with the regular transportation pass, the EZ Link card, one can shop and pay for purchases too. Singapore banks have also integrated RFID (Radio-Frequency Identification) and use near field communication (NFC) technologies that have eliminated the need to swipe cards. These technologies will find good use in the Indian setup. Some of these non-traditional formats of payments could simplify the online buying experience for the users at bottom of the pyramid.

In the last couple years, India has witnessed mushrooming of e-wallet providers with 8-10 options available today, while the rest of the world works with one, PayPal. Their approach has been to offer discounts with focus to gain market share of users. However, what will fuel adoption sustainably, are not discounts but value-based differentiation.

In an adjacent space, as Peer-to-Peer (p2p) lending is gaining ground in India that will allow individuals to lend money online with ease, RBI has recently announced a guideline for the p2p lending industry. As innovation brings about new ways of doing old things, having a reliable payment network with easy to use technologies will be critical towards adoption by users.

(The author is an independent IT consultant based out of Singapore)

(Published 12 June 2016, 16:40 IST)

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