The e-commerce revolution has been made possible by the credit card and other online payment mechanisms.

Ecommerce transactions are beginning to spread like wildfire in India. But it wouldn't have been possible if it hadn't been for the widespread use of the credit card. Though credit card use is not as widespread in India as in the West, it's growing at a very fast rate. And it's probably the fastest and most efficient way of paying for transactions over the Internet.

Most Internet users come from a segment of population that is well-educated and tech savvy, and hence most have a credit card. According to a survey of Internet users and their shopping habits done by the Internet & Mobile Association of India (IAMAI) and Cross-Tab Marketing Services in 2005, 81% of respondents owned a credit card. Not surprisingly, most of them (62%) preferred to use credit cards for their online transactions. The figure could have been higher but for the security concerns among the more cautious online shoppers.

To ensure the security of online credit card transactions, online merchants have to rely on the services of payment gateways. Payment gateways provide a secure system to authorize and validate credit card transactions of a user at merchant site. Payment gateway services are offered directly by banks that issue credit cards and by third-party providers who have tie-ups with banks.

According to Satish Menon, Head, Mobile & Wireless, at Citibank, much of the costs involved (which may range between Rs 50,000 and Rs 10 lakh) in setting up a payment gateway are incurred on technology. "A well-tested, stable operating environment ensures that the merchant's web site integrates seamlessly with that of the bank, and that customers never have to face any downtime. Selecting this technology foundation and testing it in real time is a critical step in the process, and the time and effort spent towards faultless integration is the merchant's largest and most vital investment," he says.

According to him, the merchant and the bank have to work closely together in the integration phase, which takes three-four weeks. Whatever the costs, says Menon, the advantages of enabling online payments far outweigh them and it's important for merchants to look at gateway set-up costs over a longer-term horizon of two years or more.

Do the banks have any criteria to evaluate merchants before setting up payment gateways for them? According to Menon, the important parameters for a successful bank-merchant association are:

• The merchant's capability to fulfill ecommerce transactions
• Customer information security and controls
• The partner web site's privacy norms
• Controls and processes to prevent the occurrence of fraud
• The legal and financial nature of the partner web site

Though credit cards are clearly one of the most popular ways of paying online, other payment options such as direct debit and cash cards are becoming increasingly popular. According to Amitabh Pandey, IRCTC Group General Manager (IT Services), credit cards used to account for 100% of transactions earlier, but this figure is now 65%, with direct debit accounting for the rest. "Direct debit have become extremely popular with those who are wary of using their credit cards online."

According to Pandey, cash cards too are catching the fancy of online buyers. "It's barely a year since they were launched and they are already very popular," he adds.

Menon feels that direct debit will pick up as e-transactions become commonplace and people begin to trust the medium more. According to him, even the smaller and regional banks will begin offering such facilities in the short- to mid-term.

So what do the average online spends look like? Pandey says each buyer spends Rs 1,400-1,500 on railway tickets on an average. According to Menon, the biggest spends today are on travel. "However, as more new customers move online and customer comfort with online transactions improves, we expect to see online purchase ticket sizes across categories becoming more significant," he adds.

As online transactions increase, concerns of credit card fraud are bound to increase. How do banks propose to cope with this problem? "With the support of associations like VISA and Master, we hope to drive the adoption of secure payment mechanisms like 3-D Secure in India. Worldwide, 3-D Secure has resulted in online charge-backs or fraudulent transactions coming down to levels comparable to offline," says Menon. According to him, Citibank plans to introduce this facility in India by end-2006.

The market is widening, and as Internet penetration and availability increases across the country, more and more people from non-metros are likely to transact online, if they have wider and safer payment options. Says Amitabh Pandey: "Non-metros account for 22-25% of online ticket sales. Awareness in these places is increasing and more and more people are willing to transact once they see a benefit. Places like Allahabad, Kanpur and Patna, which most people would not associate with modern technology, are showing a significant willingness to transact online. The market is much bigger than we thought," he says.

The message is clear: if consumers can pay securely online, they will buy.