Mouth-watering opportunity

Electronic payment systems account for 41% of the total volume of transactions in the online commerce space and 90% of the total value

In this era of globalisation, the sector which has revolutionised the way portage of information as well as consumer goods takes place is e-tail. Rapid infrastructure development has significantly contributed to its growth. The sector was valued around $13 billion in 2013 (according to a joint report of KPMG and the Internet and Mobile Association of India (IAMAI)), and is increasingly becoming a catalyst for economic development.

The convenience and flexibility attached to the e-commerce sector has allowed the population to become more audacious, as a result of which an exodus of e-commerce portals have made their way online. The banking sector, an integral part of e-tail, facilitates swift transactions online and makes the process hindrance-free. One reason people venture into the online commerce space is it is hassle-free and has brisk payment methods. Hence, the banking sector has witnessed a significant thrust in the recent past, owing to the e-commerce boom.

Electronic payment systems account for 41 per cent of the total volume of transactions and 90 per cent of their total value (statistics shared by the Reserve Bank of India). Electronic banking has experienced explosive growth and transformed traditional banking practices. E-commerce has paved the way for increased use of plastic money (debit/credit cards) which has in turn helped banks earn higher levels of commissions.

Banks further leverage from the e-commerce sector by providing a payment gateway service that authorise credit card payments for e-businesses. This supplements the traffic the bank receives from traditional usage of a credit card. A payment gateway is similar to physical point of sale (PoS) terminals. At virtual retail outlets the merchant uses a PoS of any particular bank, while the customer might be using a credit card of any other bank. This service allows the bank providing the PoS service to earn a certain amount of commission for providing the gateway.

The new-age convention to use online channels as a mode of transaction also helps reduce the load on bank branches and the cost involved in the usage of ATMs. It also reduces chances of fraud caused due to counterfeit paper money in a physical transaction of money. The upsurge in the e-commerce sector, thus, has allowed banks to design products exclusively for the sector. In offering e-commerce products, banks have some key advantages over potential competitors. E-commerce allows banks to strengthen their relationship with customers and sell them additional services in the future.

Many banks have already put in place a cost-efficient electronic access channel for traditional banking products, to sustain in tandem with the e-commerce sector. The banking industry gone through some profound changes in the past decade, owing to the upheaval created by the e-sector and is only expected to grow severalfolds in the electronic arena.

The author is founder and managing director, Jabong.com