Payment Gateways in India

One of the key parts of an Ecommerce store is a Payment Gateway. In the west, payment solutions have made it very simple for vendors to integrate a gateway to their stores - for e.g integrating with a paypal is a breeze. However, it is extremely painful to onboard a payment gateway especially if you are a small player. This is primarily because of two reasons :

1) Paperwork - For enabling payments, each bank has its own set of procedures and it takes upwards of two months to get your netbanking, debit and credit card payments approved by the leading banks. The usual reason is regulation and RBI guidelines but the moot point is it all takes quite a bit of time.

2) Charges based on size - Typically Indian payment gateways charge an initial fee and annual maintenance fee. If you pay a higher amount, you get a lower commission charge and so on - typically if you a very small vendor, the charges are very high - mostly 5% and annual AMC separately. The question is why cant they take a one time charge for the paperwork and have a 2% commission for all transactions ?

We have had a good experience with our payment gateways so far but the charges are still extremely high. Flipkart has recently started its own service called Payzippy and they seem to have gotten rid of all the strange charges and made it more democratic - Hopefully this will shake the market a bit and things will become a bit more reasonable. Fingers crossed.

Inventory vs MarketPlace

'Inventory or Marketplace ?', this is one of the pertinent questions of our times in the context of ecommerce. While the inventory model means that the ecommerce site has to carry inventory of all products it sells, the marketplace model requires the ecommerce site to act as a exchange platform between buyers and sellers and it charges a commission. The upside of a inventory model is faster delivery times and a consistent customer experience while this also means higher inventory and supply chain costs. The marketplace model shift most of the inventory risks and costs to the sellers but it becomes a continuous challenge to manage seller and buyer expectation in a consistent and fair manner.

Though both models look like chalk and cheese, it is important to remember that that the basics are the same from a business model perspective :

1) Efficient Inventory Management - For a great customer experience, having just the right amount of inventory is very important. Nothing is as annoying as telling a customer after two weeks that his or her order cannot be serviced. For websites that carry inventory, this means 'sell what you have' while for marketplaces, it is manage sellers to create a structure where sellers who manage their inventory well are incentivised (this can be done using feedback systems)

2) Efficient Delivery - Getting orders delivered in reasonable time is important for ecommerce. While for inventory based models, this is about managing inventory efficiently, for marketplaces, this is about not overdoing checkpoints and reducing unnecessary logistics costs.

3) Customer Management - Though customer service is paramount, it is worthwhile to remember that there are segments of customers that are still not ready for Ecommerce. 

At KraftInn, we have had some experience in both models - We use the inventory model for our website -www.kraftinn.com while we participate in the marketplace model in marketplaces like Ebay as a seller.

As a seller, we feel it is important to get the right balance between seller satisfaction and customer satisfaction and there are certain things that marketplaces should not do. Here is a small list :

  There are three key stakeholders in a marketplace model and it is important to get the right balance between the three.

 No matter whether its the inventory model or the marketplace model, the ecommerce space is hyper competitive and the ones which get the right mix are the ones that will work. We are a very small player and this is just the beginning of an exciting journey :) 

Will the internet kill all large traditional businesses ?

The other day, I dropped by Coffee Day(indian coffee chain - startbucks equivalent). Adjacent to it was the well loved Crossword store and I clearly remember that there was a connecting glass door somewhere which let people who had come for coffee to stroll by and look up books and dvds and vice versa. I could see some books lying about but the place looked empty and the glass door seem to have vanished. So, I casually asked the Coffee day guy and he told me something to the effect that the place was shutting down. It was kind of a gentle shock for me and though I could hardly remember buying a book from Crossword, hanging about in bookshops has been one of the idle pleasures of urban life.Then it struck me, that though I dont read a lot these days, there was a time I spent a couple of thousand rupees on books every month and most of it was at Crosswords. In the last six months, that spend had got diverted to online stores like flipkart and in many cases I could just read for free - flipboard etc. I have no idea whether the store actually closed down due to business reasons or whether it was just a phase of temporary shutdown due to renovation etc but like in the US, book businesses everywhere seem to be facing major challenges and most if not all is due to the internet.

The internet is quite puzzling. Consider this :

1) Email is free - only a decade or so ago, people used to send telegrams and pay per word. Its weird that a service that is many many times faster and reliable is actually cheaper - well not just cheaper, free.

2) There was a time only 15 years ago, when we used to attend book festivals to buy editions of Enclyclopedia for thousands of rupees. Now you just get a million times of that content for free. Also, searching this mammoth knowledge base again is free.

3) Music is basically free. If you are a music lover with generic tastes like most of us, gaana.com gives you almost everything you need - For free.

In short, the internet has turned most industries on its head :

1) Book industry - Why would you buy a book if you can download it ? Traditional booksellers are just looking one way and that is down.

2) Music industry - It was only ten years ago that you could just walk along Planet M at Brigade Road, Bangalore and sample out music before buying. Now, its difficult to imagine people buying CDs

3) Post Office - The Indian Post office just stopped the telegraph service.

Which ones will be next ? The movie industry, the retail industry , enterprise software products.

All this obviously means that if someone is losing out, someone must be winning. So who should be the winners, obviously the internet companies - but if you look a bit closer at the internet companies, if you leave out the leaders, most are struggling to make money...Giving things free actually costs money, giving discounts actually cost money. The internet can be a democratic force giving the small guy a chance to compete but it has probably made the race so competitive that its a race towards the bottom and may kill a lot of industries in its run and maybe hurt itself on its way. The good part is you dont need a license to join the race.

Customer Segmentation

It's always interesting to analyse your customers. Though there is direct relation between a website's traffic and actual customers, it often throws up results that are quite different from web traffic analysis.

Here are some interesting things we found out(based on last 3 months data) :

1)  67% of our customers are male - Our website traffic indicates that the male:female ratio is almost 50:50 so this may mean two things :
      - Men are more likely to purchase things online
      - In many cases where women make a purchase, the men make the payments.

   Not sure which one is true, but I am sure this statistic has also to do with the fact that we dont do cash on delivery.

2) More than 50% of our customers are from Mumbai, Delhi and Bangalore. I guess this means people in large cities are much more comfortable purchasing online (especially if no COD is involved) and if it is a small niche website like ours.

3) Our top 3 products indicate that there is a curious mix of pricing, value, images of products that make certain products much more appealing. We have some excellent products that look great - touch and feel wise but somehow they get lost in the online world. Another observation is though people look at creative items more, it is usually the simpler items that people tend to buy.

Image : kraftinn.com statistics Source : www.kraftinn.com

Amazon.in

That it would happen was never in doubt, the question was when and how. With the indian government dilly dallying in whether to allow FDI in retail ecommerce (its another story that most of the investment has been FDI anyway considering most ecommerce websites are founded by foreign VCs), Amazon finally seemed to reconcile to the idea of launching as a marketplace instead of an inventory driven store. Like Junglee, it has been a soft launch without too much brouhaha. They intend to start with books, DVDs and TV shows from what we hear.

As you would imagine, they have got most things right from the very beginning :

1) Selling vs fulfillment - Interesting they do both while most other indian marketplaces tend to stick to one. There are some vendors like us who like to do the fulfillment (cost effective both for us and customer) as our stuff is pretty large compared to others and cost of goods,storage and returns are pretty high. However, I am sure there are lots of vendors who would like to pass on the fulfillment part to Amazon especially in categories like books where the size, cost and logistics form a smaller part of price compared to the content or marketing. Looking at the options, both look pretty simple and easy to understand, exactly the way one would imagine. This seems to be a global best practice for them but nonetheless, bringing it to India is important.

2) Pricing - Pricing is extremely simple or so it seems - No listing fees and interestingly, the closure fee and the commissions) seem reasonable

3) Feedback and Guarantee Program - This is pretty lousy in most marketplaces and only Ebay does this well. Amazon will surely bring best practices here from around the world.

4) Goodies for Sellers - The fulfillment prices seem to be very good and this may be a promotional thing for the time being but many vendors will like this.

Overall, it seems like an amazing platform for Manufacturers and Sellers and we can't wait to get onboarded :)

Shopo.in

If you are a handicraft afficionado, you must have surely come across the delightful website shopo.in. Today it announced that it has been acquired by Snapdeal.com. Its not exactly clear what direction it will take, whether the website will completely shut down or whether sellers goods will be made available at the Snapdeal website.

We were one of the early ones to setup a shop in Shopo.in. Unlike many others, they got a lot of things right from the beginning :

1) Respect for Sellers : There are host of websites that will call you and want you to list your products in their website, but most of them treat sellers as if they are not aware of the internet or plain dumb. There are designers and manufacturers that make great products and Shopo showed respect and tried to create an ecosystem rather than act like traders ready to make a killing

2) 15% Commission : India is a very difficult market and it is important that products are priced right. Another important part it should make sense for the whole ecosystem for products to be sold and customers to be happy - this means designers and manufacturers get to sell at a price that is good for them, marketplaces get a sensible commission and customers get a reasonable deal. Many players dont get that and want to charge 30%-40% which simply breaks the system. Shopo went ahead and fixed it at 15% with no listing fees - which was just great for everyone.

3) From Designer/Manufacturer to Seller - There are a lot of ecommerce stores that neither want to become a pure marketplace nor carry inventory. They get an order, place it to the manufacturer and then  get in their warehouses, package it again and send to customer. This is a bit ridiculous because 1) Higher chances of stock out 2) High delivery times and low customer satisfaction 3) Double the cost of packaging and higher chances of breakage 4) Higher price. However, Shopo did not fall into that trap and instead focused on enabling the seller (pickups from Fedex etc) rather than become an unwanted gateway in between.

4) Great Sense of humour - Shopo has a great sense of humour and it is apparent in their emails to sellers

There are also a few things where we thought Shopo got it wrong :

1) Logistics - If you are a seller, you can either ship it yourself or get Shopo to pick up the order via its courier partners. Though it was great for the seller and customer, I am sure this must be very expensive because it is difficult to estimate the size/volume of each product and probably it is best left for the seller to ship.

2) Marketing - Lately Shopo tried a form or marketing using which Sellers could market their stuff at Shopo's facebook page etc for a price. This is a bit strange for sellers because they are anyway paying 15% as commissions which should include marketing and payment etc.

3) Technology - Though most of what they did in terms of technology - feeds or the iPad app were really cool, the site was a bit slow at times and as a seller, your products kind of got lost as new and new sellers joined - somehow it felt that relevance and popularity lost out a bit to how new your stuff was.

Overall, Shopo was like a breath of fresh air and hopefully, these kind of services/websites dont lose their relevance when acquired by the big boys.

Best of luck to the Shopo team - you guys have been awesome.

Ecommerce Trends

There are various trends that are in vogue currently and as a very small company, it becomes very important to us in being extremely picky when it comes to prioritizing what we want to do. Here are some trends we are looking at very closely :

1) Videos : It is widely accepted that videos play an important role when it comes to search engine optimization. They are crawled and indexed easily though we have not been able to determine how it affects the number of queries. Creating a compelling video is hard work - no video is better than a patchy video. Videos also take significant bandwidth which means two things - 1) higher storage costs and 2) requires a good connection for the end user - it is possible that you may have a wonderful video and 90% of your customer base can't get your page to load properly because they have a slow connection. Our experience with video has been very mixed. There is no significant increase or decrease in product conversions due to videos. So we are taking it a bit slow when it comes to video - about 10% of our products have videos.

2) Mobile : Do we need a iPad add ? Do we need a iPhone or Android app? The answer at this moment for us is no. This is basically because there seems to be a lot of reluctance in india to use credit cards online so extending that, we believe that using them on a mobile app will be a bit more complicated - also payment gateway integration may not be seamless. The app strategy may be good in case of COD, but since we dont do COD, it looks like a lot of investment without returns at this point. Also with HTML5 and other things on the horizon, we believe the app thing may be a pasing fancy and a singular web based UI across device will start taking precedence in the future.

3) Google : Though we dont have a lot of insight into how Google works, it seems with the recent updates, Original content is becoming more and more important and the number of links especially bought links are kind of becoming less valuable. So, we have kind of stopped doing too much SEO jugglery and just put up good content when we have a new product. Traffic wise, our strategy hasnt worked very well, but at the moment we dont know of ingenous ways to build links and traffic from emails etc havent been very productive for us.

4) Social : Pinterest is not working for us in India - we get some repins etc from primarily US users, but dont seem people care much about pinterest much. Twitter brings in lot of instant traffic but cant seem to connect any conversions to twitter. We havent done much with linkedIn.Facebook is where we spend most of our social time. Our audience engagement has been pretty good and people usually respond well to smart and funny posts, pictures - e.g animals have good engagement. Our average is one post a day and anything more than two usually causes engagement rates to go down drastically. Social is great for brand building but from conversion perspective, it seems a bit overrated at this point. We may be wrong, but that has been our experience though getting accurate conversion data from facebook is very difficult.

5) Advertisement - We have an absolutely tiny budget for ads. The ROI is pretty poor but what you gotta do you gotta do. We do a little bit of google ads - only search and video, no banners. The conversion cost are very high and then some of them drop off during the payment. Video is primarily for branding - not sure if it is working - difficult to track. In Facebook, we primarily page post ads and spend about Rs 6-7 per like - Its not too bad but again it is more of a branding thing.

Hmm. Well thats all for today. If you have any ideas, do leave us some comments. Thanks for reading