The role of Indian payment gateways in cross-border e-commerce

The role of Indian payment gateways in cross-border e-commerce

Indian payment gateways play a crucial role in cross-border e-commerce, especially in connecting global merchants with Indian consumers. Here is a detailed analysis of its core role and key features:

1. Addressing localised payment pain points

  • Multiple Payment Habits Coverage::
    The Indian payments ecosystem is highly fragmented (UPI accounts for 40%, wallets 15%, credit/debit cards 20%), and supporting only international cards results in the loss of more than 60% potential customers. For example, social e-commerce platforms such as Meesho saw a 35% increase in conversions by integrating Paytm, PhonePe.
  • Circumventing regulatory barriers::
    The Reserve Bank of India (RBI) requires cross-border transactions to be cleared through a local entity. For example, Amazon India uses ACI Worldwide's local routing to package cross-border transactions as domestic UPI payments for compliance.

2. Technical optimisation to improve conversion rates

  • Intelligent Route Dynamic Switching::
    Top gateways such as Razorpay offer dynamic routing based on success rate optimisation, automatically switching to HDFC or Axis banking channels in case of ICICI banking gateway failures, ensuring availability of 99.51 TP3T or more.
  • One Click Payment Experience::
    With UPI's "VPA virtual address" payment process requiring only 2 steps (international cards require 6 steps including 16-digit card number + OTP), the average checkout time for the Shein app with BHIM UPI integration dropped from 3 minutes to 22 seconds.

3. Wind control and cost-balancing strategies

  • Layered anti-fraud system::
    Case in point: Cashfree uses lightweight AI scoring for <Rs1000 transactions (processing takes 80ms), while enabling multi-factor authentication + manual review for high-priced orders, keeping fraud rates at 0.07% (industry average 0.15%).
  • Low-cost clearing network::
    When bill payments such as utility bills are made through NPCI's BBPS system, the cost of clearing is only 1/10th of that of an international card (approx. 0.21 TP3T handling fee vs. 2.51 TP3T for Visa/Mastercard).

4. Emerging Scenario Enablement

  • BNPLSolution:
    Pine Labs offers EMI instalment services to cross-border e-commerce companies with a customer unit price improvement of up to 300% (e.g. Rs 15,000 for an electronics instalment of 12 monthly payments of Rs 1,250).

5. Tax and compliance automation

  • GST Dynamic Computing Engine::
    India levies 181 TP3T IGST (e.g. apparel) to 281 TP3T (e.g. electronics) on cross-border B2C goods. Payment gateways such as PayU's Smart Tax API recognises HS Code and calculates tax in real-time to avoid customs clearance delays. For example, Lenskart has reduced its customs clearance time from 72 hours to 8 hours with this feature.

  • Automatic TCS withholding::
    Under the Finance Bill 2020, e-commerce platforms are required to withhold 11 TP3T TCS (Taxation at Source).Payment service providers such as Juspay offer automated deduction + statement generation to reduce merchant compliance costs. Data shows that manual processing of TCS has an error rate of 121 TP3T, while automated solutions reduce the error to 0.31 TP3T.

6. Sinking market penetration strategy

  • Voice/dialect payment verification::
    For non-English speaking users (accounting for 671 TP3T of the online shopping population), BharatPe has introduced Hindi/Tamil voice OTP verification, resulting in a 411 TP3T increase in payment success rate for users in Tier II cities.

  • Offline Agent NetworkExtension:
    PayNearby offers a "cash-to-digital" service through 500,000 street-side shops, allowing users to make offline deposits into a virtual account for cross-border purchases. This model has helped fast fashion brands such as Mango reach 120 million unbanked people.

7. Data-driven operational optimisation

  • Real-time liquidation analysis dashboard::
    Razorpay's merchant backend provides hourly updated heatmap of clearing data (below) showing the difference in success rates across states - Kerala has a success rate of only 821 TP3T due to network issues while Delhi NCR region reaches 981 TP3T, guiding merchants to target and adjust their logistics partners.
[Example heat map]    

Delhi ████████ Casino 98% | Mumbai ███████▉95%   

Bangalore ██████▌88% | Bihar ████▎76%
  • Seasonal flow scheduling::
    During Diwali, Instamojo automatically switches 50% transaction traffic to the alternate channel (Yes Bank + NPCI dual routing) to cope with possible peak congestion on the main channel (daily TPS of 2000 times/sec vs 8000 times/sec during the festive season).

8. Future direction of the technology landscape

1️⃣ Bi-directional application of UPI internationalisation: NPCI is interconnecting with systems such as PayNow in Singapore, which will allow Indian consumers to make payments directly to overseas merchants using UPI in the future (with a limit of US$2,000/per transaction in the testing phase). This will disrupt the existing cross-border acquiring model.

2️⃣ CBDC Pilot Integration: The Indian digital rupee (e₹) has been connected to the ICICI banking gateway, with cross-border e-commerce experimenting with instant settlement - traditional SWIFT transfers take 13 days and handling fee 3%5%, while e₹ settlement can be done in 10 seconds at near-zero cost.

[Key recommendations for action]

For cross-border e-commerce companies planning to enter India:
✅ compulsory : Integrate at least three major local methods - UPI, RuPay card, mainstream wallets (PhonePe/Paytm)
✅ testimonials :: Adoption of an aggregation gateway with AI wind control + multi-bank routing (e.g. RazorpayX cross-border solution)
⚠️ dodge a pit : Avoid direct use of international cartoon channels - new RBI regulations require an additional FASTag authentication step to be added for such transactions (increasing the 23% abandonment rate).