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IRCTC, Payments companies and OTAs : Five takeaways

What our story about IRCTC's relationship with payment aggregators and OTAs tells us about the power structures and changing dynamics between India's largest e-commerce company and a slew of partners, who are also its competitors.

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India’s largest e-commerce company isn’t Flipkart, Amazon or MakeMyTrip. It’s Indian Railway Catering and Tourism Corporation (IRCTC), a partner to the Indian Railways which handles its online ticketing operations.

A few months back, we wrote a story about how the e-commerce market in India is much smaller than what people think. Of the 500+ million people who have an internet connection in India, only 50 million shop online.

However, train tickets are a different story. Today, 66% of it is booked online. And IRCTC sells 284 million tickets a year.

This makes IRCTC a lucrative partner for anybody who wants to gain access to newer consumers. For payment companies, OTAs and everyone else, if these millions of users are the destination, IRCTC is the bridge to help them get there.

For a long time, IRCTC was viewed as a gentle, pliant giant. Not anymore. Our story is about the relationship between IRCTC and its partners, and the delicate love-hate relationship they have. At one level, they need each other. At another, each is wary of the other. One has all the users. The other all the convenience. How will it pan out?

Arundhati’s story is nearly 3000 words long, has some amazing infographics, and is based on multiple interviews with executives in payment companies, OTAs and officials at IRCTC itself. It’s behind a paywall, so you’ll need to subscribe to read it.

Here are the top five takeaways from the story.

IRCTC didn’t really need the OTAs.

“We don’t need them as much as they need us,” said a senior IRCTC executive rather bluntly, over the phone, talking about the OTAs and the payment apps. It’s a reality that’s agreed on both sides.

Right now, OTAs such as MakeMyTrip, Cleartrip, ixigo, GoIbibo, RailYatri and payment apps such as Paytm*, PhonePe, and most recently, Google Pay (and soon, Amazon Pay) allow their users to make train bookings.

All put together, for the year ending March 2018, they accounted for around 10% of the tickets sold. More importantly, back in 2016, this share was less than 1%. In comparison, over 75% of all online booking transactions take place on IRCTC’s own website and app.

But that changed.

Demonetisation was the straw that broke IRCTC’s back

In 2016—after demonetisation, when the government banned 86% of India’s currency—the government, in its enthusiasm to promote digital transactions, also ruled that IRCTC could no longer levy a service charge from users. This diktat burnt a Rs 500-crore ($72.1 million) hole in IRCTC’s pocket and left it desperately in search of other revenue streams.

This not just eliminated around 14% of IRCTC’s revenue. It halved the growth rate in profits as well. As a result, IRCTC was forced to improvise, search for new revenue streams, and squeeze its current partners more.

IRCTC then changed the pricing from fixed…to variable

Up till 2018, if companies wanted to have train bookings as a category in their app alongside recharges, movie tickets etc, they had to pay a one-time fee of about Rs 20 lakh ($28,887) and an annual maintenance fee of Rs 10 lakh.

That changed in 2018. IRCTC introduced variable pricing and made companies pay a commission on every ticket sold. For a company selling 5,000 tickets a day, this increases the annual cost by 24x on a per ticket basis, besides the one-time fee. If companies sold more tickets, they had to pay more, increasing their costs.

OTAs had to adjust to IRCTC’s onerous terms

Since about 800,000 train tickets are booked online daily, OTAs are forced to agree to IRCTC’s terms. Here are some of them:

  1. If a company wishes to offer cashback to users, they need to pay Rs 15 per ticket sale to IRCTC.
  2. If a company wishes to cross-sell, this goes up to Rs. 25 per ticket sale.
  3. If payment companies want to be shown under wallets, they need to pay a fee of Rs 20 lakh.
  4. If they want to be shown under UPI, they need to pay another Rs 50 lakh.

At last count, there are about 65 partners integrated on IRCTC’s payment page.

OTAs are losing money hand over fist

The reasons aren’t necessarily due to the terms of the contract. There are product reasons as well.

For instance, IRCTC forces users to login to make a purchase. This leads to nearly a third of transactions to fail. Failed transactions mean support costs go up. And that cuts profit margins.

“Compared to other partners, it is at least more than 2x of other categories,” said a payment app executive.

Despite this, the love-hate relationship continues. For now.

You can read our story here.

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