While e-commerce arrived in India in mid 90s, it led to a need of a system that could enable transactions over the internet. ICICI Bank pioneered in starting the internet banking service for customers in 1996. In 1999, the first payment gateway was set up in India. Such payment gateways allowed the e-commerce merchants to accept online payments that the customers made to the merchant’s bank account. Over the next decade the fintech sector evolved, all thanks to innovative technology based solutions.
Payment gateways have come a full circle as they started with a mechanism to use Credit cards and now has journeyed to include cards of all types including debit, pre-paid and more. Gateways then integrated net banking access for authentication and payments from accounts directly. The inclusion of payment gateways in the workflow of any online business has also evolved with multiple options. So, starting with credit cards, moving to debit cards, mobile wallets, netbanking and now accepting UPI payment as well among various other modes of digital payment, the fintech ecosystem has truly delivered. Payment buttons, gateway APIs, customizable gateway pages, and payment link push options are some of the other options available.
Introduction of UPI payment ushered in a new era in the payment gateway system as it involves QR codes, UPI Id, link push, etc. They made payment convenient, quick and easy through smartphones. This has not just benefitted consumers, but the businesses as well. Payment Gateways have grown rapidly majorly due to technological advancements, especially evolving with the needs of businesses. Businesses are now able to carry out faster and secure transactions at minimum set up costs. It saves time and reduces declined transactions, thereby helping retain customers. Being up to date with technology has become more of a necessity today for the businesses.
To make the payment process easier, there are more options available through the gateways, such as splitting payments, buy now pay later, and recurrent payments. The auto-recurrent payment option enables the businesses to pay weekly, fortnightly, monthly, quarterly and yearly bills automatically. Through this one can pay vendors, bills, and also salaries to employees. This enables the businesses to save time and resources on deploying dedicated personnel for these payments, as it is auto debited at fixed intervals. Moreover, it saves money on late payment charges as well, thus it is a win win for the business. Another recent development is to convert payments into EMI options payable directly from the payer's bank account through the ACH gateway option, which is impacting buyers immensely as it increases their purchasing power.
The Payment gateways have become table stakes, or the bare minimum required for any business to enter the online retail transactions. As we have seen, they have advanced significantly vis a vis technology and options it offers. Payment gateways have a major role to play in the B2B space. A few challenges must be dealt with before the penetration of payment gateways to an even deeper level. Scenarios where multiple signatories for authorization, authentication of corporates, etc is needed, an intelligent system needs to be created and the roadblocks ironed out. The regulatory framework also needs to be established for such scenarios typical to B2B payments.
A big problem bugging the payment gateways is the rise of fraudulent activities. The security framework available for payment gateways is pretty strong today, compared to what we had a decade ago. Introduction of two and three-factor authentication mechanism, and location-based deduction of legitimate vs illegitimate transaction have made payment gateways quite safe. However, educating the user constantly about what information is safe to share and what information is not safe to share over the internet or phone goes a long way and will need special focus in today’s time. Most online fraud involves convincing the consumer over the phone, WhatsApp, or other 3rd party mediums that the payment seeker is genuine. Usage of Machine Learning to identify the suspected fraudulent transaction, even when authorized by the user, seems inevitable.
In the near future, I foresee that ML based bots will be guiding users in real time when they make or authorise payments with crucial questions and advises to minimise their chances of falling pray to fraudulent transactions. When this happens, the fintech ecosystem would have truly evolved to provide a comprehensive solution to the biggest problem it faces today.