What is Online Payment? Types, Modes, Process & Meaning

India’s online payment landscape is experiencing unprecedented growth, driven by the surge in internet and smartphone users—over 870 million internet users and 600 million smartphone users are fueling this transformation. UPI (Unified Payments Interface) has become the dominant force in retail payments, with monthly transactions surpassing 7 billion. Digital wallets, contributing around 30% of total payments, continue to expand their share in the market.

In 2024, UPI transactions reached a staggering ₹172 billion, with a total value of ₹247 trillion—marking a sharp rise from 2023, which saw 118 billion transactions valued at ₹182 trillion. Meanwhile, emerging technologies such as blockchain and tokenized transactions are steadily gaining ground, with growth projections of 20% and 50%, respectively.

For businesses to succeed in this dynamic landscape, offering a wide range of payment options—including UPI, mobile wallets, net banking, and cards—is essential. Embracing cutting-edge technologies and collaborating with trusted payment gateways like Easebuzz help businesses stay ahead in India’s rapidly evolving digital economy.

Online payments Meaning & Process

Online Payments refer to the electronic exchange of currency through the internet, enabling the transfer of funds directly between buyers and sellers. Buyers can use bank accounts, debit cards, or credit cards to purchase goods or services, with the money seamlessly transferred to the seller’s account.

Online Payments Process:

Online payments involve the electronic transfer of funds between a buyer and a seller through the internet. This process typically involves the following steps:

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  Initiation: The buyer selects goods or services and proceeds to the checkout page.

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  Selection of Payment Method: The buyer chooses their preferred payment method, such as credit card, debit card, net banking, digital wallets, or UPI.

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  Payment Gateway: The payment information is securely transmitted to the payment gateway, a third-party service that processes online transactions.

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  Authorization: The payment gateway verifies the payment information with the buyer’s bank.

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  Settlement: If the transaction is authorized, the funds are transferred from the buyer’s account to the seller’s account.

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  Confirmation: The buyer and seller receive confirmation of the successful transaction.

Online payment processes are facilitated by various technologies, including encryption, tokenisation, and secure sockets layer (SSL) protocols, ensuring the security and integrity of financial transactions.

Understanding Online Payments:

Online payments enable consumers to pay for goods and services via the internet using methods like debit/credit cards, wire transfers, net banking, and digital wallets. These payments can be made for items like clothing, subscriptions, and recharges.

The process involves four main entities: the consumer, the merchant, the consumer’s bank, and the merchant’s bank. Though multiple entities are involved, the transaction is completed electronically and instantly.

Online payments save time and offer convenience, as buyers can make cashless purchases securely. Payment confirmation ensures a safe transaction.

Why Do Online Payments Have Fees?

Online payments involve a complex network of entities: the customer, the merchant, the customer’s bank, and the card networks (like Visa, Mastercard, RuPay, and American Express). Each player in this network incurs costs to facilitate these transactions, and these costs are ultimately reflected in the fees charged to the merchant.

Here’s a breakdown of the key factors contributing to these fees:

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  Risk of Fraud: Online transactions are inherently more susceptible to fraud compared to in-person payments. This increased risk requires robust security measures and fraud prevention systems, which add to the cost.

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  Chargebacks: Customers can dispute transactions, leading to chargebacks for the merchant. These chargebacks incur significant costs for the merchant, including potential fines and the loss of revenue.

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  Processing Costs:

  1. Interchange Fees: These are fees paid to the customer’s bank for processing the transaction. Factors like card type (rewards cards often have higher fees), transaction type (international transactions usually have higher fees), and merchant category (some industries have higher fees) influence these fees.
  2. Card Network Fees: Companies like American Express, Visa, Mastercard, and RuPay charge fees for using their payment processing networks.

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  Other Costs:

  1. Security Measures: Merchants invest in security systems (like encryption) to protect customer data, adding to their operational costs.
  2. Customer Support: Providing customer support for payment-related issues also incurs costs.

Key Takeaways:

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  Fees are an inherent part of the online payment ecosystem. They cover the costs associated with processing transactions securely and efficiently.

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  Transparency is crucial. Merchants should clearly disclose all applicable fees to customers upfront to avoid any surprises.

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  Businesses should compare options: Explore different payment processors and their fee structures to find the most cost-effective solution.

Tips for Businesses:

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  Consider debit card options: Debit card transactions generally have lower fees than credit card transactions.

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  Explore alternative payment methods: Services like e-wallets (e.g., Mobikwik, PayTM, Phonepe and Google Pay) often offer competitive fees and cashback incentives.

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  Negotiate with payment processors: Larger businesses may have more negotiating power to secure better fee rates.

By understanding these factors, businesses can make informed decisions about their payment processing choices and minimize the impact of fees on their profitability.

How Streamlining Your Online Payment Funnel Boosts Conversions in India

Think of a marketplace where customers leave due to long checkout lines. This reflects online payment funnels in India—complexity often drives shoppers away. Streamlining your funnel can transform this experience, boosting sales. Here’s how:

Payment landscape for Indian customers: Beyond credit cards

In India, 60% of online transactions happen through methods other than credit cards. To maximize your online business potential, it’s essential to cater to local preferences.

Top Payment Methods in India:

1. Digital Wallets: Paytm, PhonePe, Google Pay, and Amazon Pay dominate, allowing users to store money, link bank accounts, and pay with ease.
2. UPI: A popular, instant bank-to-bank payment system, especially among younger users.
3. Netbanking: Trusted by many, allowing payments directly from bank accounts.
4. Cash on Delivery (COD): A go-to for first-time shoppers, offering reassurance for those hesitant about digital payments.
5. Debit Cards: Less common but still relevant, particularly for smaller transactions, especially RuPay and Visa cards.

How to Succeed:

1. Partner with Local Gateways: Collaborate with trusted payment platform providers like Easebuzz for a secure payment experience.
2. Go Mobile-First: With over 600 million smartphones in India, ensure your payment page is mobile-friendly.
3. Localize: Offer payment pages and support in regional languages like Hindi, Tamil, Telugu and English.
4. Be Transparent: Display all costs upfront and use secure checkout features to build trust.
5. Simplify Payments: Use features like one-click payments, auto-fill, and guest checkout to make the process seamless.

Offline vs Online Payments in India

While India’s e-commerce sector is booming, with giants like Amazon and Flipkart dominating the landscape, the majority of transactions still occur offline. However, the lines between online and offline are blurring rapidly. The rise of quick commerce platforms like Zepto, Blinkit, and Swiggy Instamart, offering 10-minute deliveries, has dramatically altered consumer behavior. This “instant gratification” culture has pushed e-commerce towards a hyper-local and hyper-fast model, impacting both consumer expectations and merchant strategies.

Key Trends:

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  The Rise of Quick Commerce: The Indian quick commerce market is projected to reach a staggering $9.95 billion by 2029, up from $3.34 billion in 2024. Players are aggressively expanding, leveraging technologies like AI and data analytics to optimize delivery routes and inventory management.

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  Omnichannel Experiences: Customers expect seamless transitions between online and offline channels. This includes consistent pricing, loyalty programs, and payment options across all touchpoints.

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  Data-Driven Strategies: Businesses are increasingly leveraging data to personalize customer experiences, optimize inventory, and make informed decisions. For instance, Zomato utilizes data to analyze customer preferences and optimize restaurant operations.

Bridging the Gap Between Online and Offline Payments:

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  Unified Payment Platforms: Integrating online and offline payment systems into a single platform streamlines operations, reduces costs, and enhances customer experience.

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  Modern Payment Technologies: Embrace secure payment methods like EMV chip cards and contactless payments.

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  Mobile Wallet Integration: Offer popular mobile wallets like PhonePe, Google Pay, Amazon Pay, Mobikwik, and Paytm to cater to the growing preference for digital payments.

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  Cash on Delivery (COD): While digital payments are increasing, COD remains crucial for many Indian customers, particularly first-time buyers.

Streamlining recurring payments for Indian SaaS & subscription businesses

Running a SaaS or subscription business in India has challenges, especially when managing recurring payments. Whether you’re a seasoned player or just starting, ensuring smooth payment journeys is crucial for keeping your customers happy and boosting your bottom line.

1. Master flexible subscription logic:
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     Pricing freedom: As your Indian user base grows, you’ll likely want to offer varied plans and promotions. Ensure your system handles models like flat-rate, per-user, tiered, freemium, and trials. Remember, Indians often respond well to bundled packages and discounts.

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     Proration power: Customers might upgrade or downgrade plans mid-month. Your system should automatically calculate prorated charges to ensure they pay the correct amount.

2. Conquer Invoicing needs:
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     Large amounts & One-off bills: Customers appreciate receiving clear and customizable invoices for larger subscriptions or one-time invoices (common in B2B scenarios).

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     Local compliance: Address local invoicing requirements like sequential numbering and prefixes tailored to India.

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     Automation magic: Streamline the process by automating invoice creation and sending via email, saving you valuable time and effort.

3. Minimize Involuntary churn:
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     Payment hiccups: Around 9% of initial charges in India fail due to expired cards or low funds. Address this by:

     1. Automated reminders: Send timely email notifications about failed payments with clear instructions to update information.
     2. Dunning savvy: Retry failed transactions at strategic intervals (experiment to find the optimal cadence for your audience).
     3. Partner up: Consider payment providers offering automated and customizable dunning solutions.
4. Beyond the basics:
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     Localize for success: Cater to your Indian audience by offering payment methods like Paytm, PhonePe, Google Pay, and UPI alongside credit cards. Additionally, providing support in regional languages like Hindi, Tamil, and Telugu builds trust and encourages wider adoption.

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     Mobile-first mindset: With India’s massive smartphone user base, ensure your payment system is fully optimized for mobile devices, offering a seamless experience on any screen.

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     Cash on delivery (COD): While digital payments are growing, COD remains a popular option, especially for first-time customers. Offering COD as an option builds trust and encourages hesitant buyers.

A smooth and secure payment experience is crucial for any business, but understanding local preferences and offering flexibility is key to winning over Indian customers. By implementing these strategies, you can build a resilient subscription model, minimize churn, and unlock long-term growth for your SaaS business in India.

Easebuzz Recurri: Manage Recurring Billing & Subscriptions

Easebuzz Recurri is designed for SaaS and subscription businesses in India. It streamlines your recurring billing and subscription management, eliminating the complexities of traditional systems.

Key Features:

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  Flexible Pricing Models: Create and manage diverse subscription plans with ease.

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  Automated Invoicing: Generate and send invoices automatically, ensuring timely payments.

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  Dunning Management: Reduce churn by implementing automated reminders and recovery strategies.

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  Local Payment Options: Offer a wide range of payment options to cater to your Indian customer base.

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  Regulatory Compliance: Ensure your billing practices adhere to all relevant Indian regulations.

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  Seamless Integrations: Easily integrate Recurri with your existing systems and workflows.

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  Insightful Reporting: Track key metrics, analyze customer behavior, and make data-driven decisions.

How platforms and marketplaces in India can add online payments

Running a successful platform or marketplace in India requires a seamless and reliable payment experience. This guide explores how to integrate payments effectively, ensuring customer satisfaction and business growth.

Why Payments Matter:

A smooth payment experience is crucial for platform success. It builds trust with customers, reduces cart abandonment, and enhances the overall user experience.

Overcoming Traditional Payment Barriers:

Traditionally, integrating payments for platforms involved complex licensing, high fees, and navigating intricate regulations. However, modern solutions have simplified this process significantly.

Modern Payment Solutions for Your Platform:

Platforms can now leverage innovative solutions to integrate secure payments seamlessly

1. KYC Verification Suite:
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     Streamlined Verification: Simplify KYC procedures for sellers with user-friendly interfaces and minimal data collection.

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     Compliance Focus: Partner with trusted verification providers to ensure adherence to all applicable regulations.

2. Efficient Money Movement:
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     Seamless Payouts: Facilitate smooth and timely payouts to sellers, optimizing cash flow for all parties.

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     Flexible Payout Options: Offer various payout methods and schedules to meet the needs of your sellers.

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     Transparent Fee Management: Clearly define platform fees and ensure transparent and efficient fee collection.

3. Compliance and Security:
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     Regulatory Adherence: Ensure your platform complies with all relevant Indian payment regulations, including licensing requirements.

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     Robust Security Measures: Implement strong security measures to protect sensitive financial data and prevent fraud.

4. Key Payment Features to Consider:
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     One-to-One Payments: Ideal for platforms like ride-sharing where payments are made between individual users.

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     One-to-Many Payments: Suitable for marketplaces where payments are distributed among multiple sellers.

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     Holding Accounts: Useful for platforms like ticketing where payments are held until an event occurs.

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     Recurring Payments: Enable recurring payments for subscription-based platforms (e.g., Easebuzz Recurri).

By implementing these strategies and partnering with reliable payment providers, Indian platforms and marketplaces can create a seamless and secure payment experience for their users, driving business growth and success.

Trends to watch in India’s payment landscape

1. AI-Powered Fraud Prevention AI tools are revolutionizing fraud detection, improving efficiency by up to 300%. With a 13% rise in online payment fraud in India (RBI 2023), AI will offer predictive fraud detection.
2. Digital Toolkits for SMEs SMEs are key to India’s digital economy. By 2025, digital toolkits will automate processes, enhance marketing, and enable global market access. Online payments by SMEs grew 40% in FY24 (NPCI).
3. Wallet-Card Interoperability Seamless integration of digital wallets with card systems will offer convenience and improve adoption. Digital wallets now account for 25% of payments (RBI 2024), while UPI dominates 80% of retail transactions.
4. Passwordless Authentication Biometrics are replacing passwords, with a 35% increase in adoption in 2023 (IDBI Report), strengthening digital identity and security.
5. Virtual Cards for Corporate Payments Virtual cards are enhancing corporate payment control and efficiency, with a 28% usage increase in FY24 (NPCI). They help mitigate fraud and streamline reconciliation.
6. Contactless Payments for Inclusivity Contactless payments, like “Tap on Phone,” are enabling small merchants to accept digital payments without costly hardware, fostering inclusivity, especially in rural areas.
7. Real-Time Cross-Border Payments UPI’s global reach and plans for CBDCs and stablecoins are expanding India’s payment ecosystem internationally. Cross-border UPI transactions grew 150% in 2024 (NPCI).
8. Collaborative Innovation Partnerships between banks, fintechs, and regulators are driving scalable payment solutions. Fintech collaborations grew 22% in 2024 (FICCI).
9. Blockchain in B2B Transactions Blockchain technology is enhancing security and operational efficiency in B2B payments, with a 18% growth in blockchain-based transactions (EY 2024).
10. Tokenisation for Enhanced Security Tokenisation, paired with biometrics, is improving security by replacing manual card entries, with a 45% rise in tokenized transactions (RBI).

Conclusion

India is leading a payments revolution through AI, blockchain, biometric tech, and global interoperability, boosting financial inclusion and security while driving innovation.

FAQ's

What is online payment?

Online payments are transactions that occur electronically, without the physical exchange of cash. They enable individuals and businesses to send and receive money through the internet or other digital platforms. Online payment provides a convenient, quick, and secure way for businesses to receive payments from customers and for individuals to make online purchases.

Which online payment app is best for cashback?

Online payment apps known for offering competitive cashback in India include PhonePe, Google Pay, Paytm, Amazon Pay, MobiKwik, Freecharge, and CRED.

How to pay online payment?

Online payments can be made through various methods, including debit and credit cards, wire transfers, Electronic Fund Transfers (EFTs), Electronic Clearing House (ECH), net banking, digital wallets like Google Pay and PhonePe, and installment plans (EMIs). These options provide flexibility and convenience for both businesses and consumers, enabling seamless and secure transactions.

Which online payment app is best?

Some of the best payment apps are: Phonepe, Paytm, Amazon Pay, Freecharge, Airtel Money, JIO Money, Google Pay, MobiKwik.

What is VPA in online payment?

VPA (Virtual Payment Address) is a unique digital identifier linked to your bank account. It simplifies fund transfers by replacing the need to enter lengthy bank account details like account number, IFSC code, and branch name.

Which site is best for online payments?

Easebuzz is a best choice for online payments in India, offering tailored solutions for high volume businesses. It ensures seamless integration, supports UPI, cards, net banking, and more, while protecting sensitive data and preventing fraud. Additionally, it provides dedicated support for businesses.

How safe is online payment?

Online payments are generally safe with strong encryption and security measures like SSL certificates, two-factor authentication, and data tokenisation. However, risks like phishing and data breaches still exist. Use strong passwords, avoid suspicious links, and only transact on secure sites to stay safe.