Indian payment gateway vendors typically charge on three heads - an initial setup fee, ongoing transaction fee, and AMC charges. I feel this is not correct. What are your views?

While your concern is appropriate, it is invalid. Let me explain by breaking down each of stages. Setup: This is where you acquire the license for using the company's portal. The company provides you with off-the-shelf or customized solution for your business that they spent millions in developing the framework of. Can't argue with this cost, it's a return on investment. They are just recovering their costs. Also, as you would know, the development is an iterative process. The money you give them goes back into further development. AMC: Every system requires maintenance. The company again divides their maintenance costs into packets that are collected from their clients. In return, the companies provide management and troubleshooting solutions for your use. Here too the company is doing little more than recovering the costs. Transaction Fees: This is where the makers earn. This is the real profit. If you are not going profit from your idea and its execution, why spend on it at all. It's Capitalism 101. Or like The Joker would say, "If you are good at something, never do it for free." This transaction fee income, too, does not stay with the company in its entirety. They have to pay the banks, their gateway providers,  feed the employees, operational costs, et al. What's leftover is the profit on which they pay taxes and then what's leftover goes to their pockets only to be redrawn by stakeholders and shareholders. If you were to account for the whole process, these companies earn about 15 cents on the dollar. They deserve it for making your business better and lives of your customers easier.

Building a payment gateway require huge effort, you need an excellent team for development, sales and support. This involves money. Now consider if I am a new playing and have built my platform, I have invested billions in it, I cannot start charging lakhs as setup fee, since then my product will not sell, hence I will have to price my product as per market trend and try acquiring more and more customers. It will take me over 4 to 5yrs or may be more to reach break even, since initial 2 years would be a challenge to build my brand and reputation. Hence it is fair to charge setup fee, the issue that I see that these payment gateway don't highlight their price on their website, they are charge one customer Rs 5000 and Rs 30000 to other for setup fee. Setup FEE depends on lots of factors like : Monthly Sales Volume Company Size & Revenue Deal with Client & Payment Gateway - Like we have an agreement with DirecPay & PayU to offer some promising deals to our customers. Hence if there is huge volume 99% time they would wave off the setup cost. Now lets talk about TDR: Before flipkart and other eCommerce player, if you remember, each time you swiped your credit card on a local retailer he would charge you 2.5% on CC, this was because the bank use to charge them. Similar is the case with online payment gateway, each bank charges them certain percentage for each transaction + their marginal commission on it = TDR - Transaction Discount Rate. Hence in order for them to remove this factor, its the bank who have to remove it first, else they would run in losses and would not be able to support their customers. Now finally lets talk about AMC. Consider this as charges for hosting your application at their end. This includes hosting application, all year support, fixing technical issues during the year etc etc. Again if you have volume AMC charges are waved off. I hope, I was able to answer your concerns and you have better clarity on it now. If you are looking for payment gateway speak to us - http://www.72interactive.in/technology/online-payment-gateway.html

As Amit has detailed in his reply, the setup fee and AMC charges can be negotiated depending upon your deal/volume. However, if you are a startup or an individual/small business looking to grow online then you may not have the leverage of negotiation. But don't worry as PayU India (#1 Payment Gateway in E-commerce) has a product PayUMoney that is aimed at the same market and is designed to help the such businesses and merchants. There is no Setup Fee, No AMC and a flat TDR charges of 2% (till 31st Dec 2014). The Payment Gateway you get is pretty much same as the Enterprise class gateway with all the payment options and reliability and conversion rates. There is an additional step of registration for the customers/buyers in order to make them feel safe and provide them buyer protection and thus helping the merchants by giving a cushion of  trust to the buyers. Do check the features and details at https://www.payumoney.com/whyseller.html