The nearly-a-year-old regulatory ban on payment aggregators like Paytm, Razorpay, Cashfree and PayU to onboard new merchants and businesses has forced these venture capital-backed firms to scout for alternative revenue sources.
The continuing restriction on these companies has also opened up the online payments market for players like Plural from Pine Labs, PhonePe, Innoviti Payments (an offline player which ventured into the online space recently), Billdesk and CCAvenue, which are now signing up merchants aggressively.
The embargo, when the Reserve Bank of India imposed it around December last year, was expected to last for only six months or so. It has now made the companies anxious.
For startups like Razorpay and Cashfree, an embargo is always synonymous with slower growth, stagnating revenue and, in turn, stress on valuations.
To offset the opportunity lost, these payment aggregators are focusing on international markets, offline payments and remittances.
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Razorpay has started operations in Malaysia, Paytm is focused on offline payments and Cashfree is building a bunch of value-added services on top of payments.
Razorpay declined to comment on ET’s queries.
“At Cashfree Payments, we ensure merchants using the platform are in adherence with the onboarding and monitoring policies,” said a spokesperson.
Tough Times
At the time of applying for the payment aggregator licence, none of these companies were prepared for a prolonged embargo.
A senior executive at one of the impacted companies said internally the thinking was that the embargo would lift by mid of this year and the final approval (for payment aggregator licence) would come too. Since neither has happened, it is getting the leadership worried, he added.
Given these startups were on hyper growth, the absence of a similar pace of revenue expansion this year may make it tough for them to justify their valuations.
What has made matters more difficult is the government scrutiny. Razorpay, Paytm and Cashfree got linked to the Chinese loan app case, bringing the Enforcement Directorate to their doorsteps.
Last week, the government conducted a meeting with senior bankers and payment industry representatives to look into issues around fraud management in payments and KYC of merchants among others.
“Out of the leads we get, we take only 20% or even lower, given we do not want to touch risky businesses like gaming, betting and others, but during the boom years of 2020-22 many players were not sticking to the basic hygiene (of merchant onboarding),” said the chief executive at a major payments company.
Growth Impact
“If you set a 60% growth target for a year, 20-25% can come from your existing base, but the remaining 35-40% will come from new merchant onboarding, that is the business impact,” the CEO of another large payments firm said on the condition of anonymity.
Another impact is that existing clients might also drop off given the competition in the space and their need to start new business lines for which they need other service providers.
“With the uncertainty around the embargo, some larger-scale merchants are looking at diversifying their partnerships and onboarding newer gateways to be on the safer side, ensuring that services aren’t disrupted in the future,” said the founder of a payments startup, who also didn’t want to be named.
The government is focusing on digitising citizen payments and that is where players like Billdesk and CCAvenue are winning.
Listed fintech CCAvenue reported a 79% jump in its total payment value to Rs 1.78 lakh crore in the second quarter of the current fiscal year.
Expanding product base
Razorpay has changed its business strategy to offer new products to its existing merchants, hoping to get more revenue per customer. It has launched new value-added offerings for the direct-to-customer segment and payments ecosystem.
Razorpay’s recently elevated chief operating officer Rahul Kothari had told ET earlier that the share of revenue from new customers has shrunk to 12-15% from 30% earlier.
It has also been leveraging its acquisition of offline payment provider Ezetap to get a share of digital payments made at retail outlets.
Razorpay has doubled down on Ezetap not only from a merchant addition perspective, but also on investments, hoping revenue loss from online can be made up through subscription income from offline merchants, said one of the people cited earlier.
For Paytm, the focus for payments has mostly shifted to the offline space. In the September quarter, the company reported 9.12 billion merchant transactions, settling Rs 4.5 lakh crore worth of payments.
Payment major PayU India reported $211 million in revenue from its core payments business in the first half of the current fiscal year. The year-on-year revenue growth slowed to 15% and was driven mainly by its existing merchant base and subscription products like Wibmo.
“We are also closely working with our regulators to find a resolution soon … While continuing to engage with our regulators, we are ready with a clear strategy for the SME space once the embargo is lifted,” said a PayU spokesperson in response to ET’s queries.
PayU also said it is engaging with existing merchants on all levels and has seen a total payment volume fillip in October.
In a recent interaction with ET, PayU’s head of strategy Vijay Agicha said PayU had reapplied for the payment aggregator licence.
While addition of new business lines makes these players stronger in their own domain, digitising new merchants is the key aspect of any payment business. Till new onboarding gets sorted, it remains a challenging phase for these companies.
