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Below are Views On Evolving from a Payments Gateway to a full stack Payment Solutions provider By Mr. Shashank Kumar, Co-Founder, Razorpay, - Motilal oswal Financial Services Ltd.

Rapid digital adoption, COVID-19 accelerated the process

Every industry is moving towards adoption of digitalization from a traditional paperbased approach, with COVID-19 accelerating the pace of growth. The pace of growth, which was expected to occur over 2-3 years, occurred in 6-8 months. The growth witnessed by Razorpay over the past one year was significantly higher than that seen prior to that. It on boarded ~1m merchants during the pandemic.

Among the largest Payments Gateway players, focuses on providing bundled services

It is the largest Payment Gateway providers for internet-based businesses such as Ola, Swiggy, Zomato, etc. The Payments Gateway market is highly concentrated, with the top 3-4 players constituting ~80% of the total market. Rather than just focusing on the MDR, Razorpay provides a bundle of services, which helps it garner a higher mix of the MDR (10-50bp). Around 60-70% of revenue accrues from platform fees (bundle services), while the balance comes from lending, payroll services, etc.

Merchant base/GMV grew 3x/2.5x over the past one year

Razorpay has exclusive arrangements with its SME customers. Its total merchant base stands ~5m, which grew ~3x over the past one year. Annual GMV stands at USD55-60b (up 2-2.5x in the past one year). Travel, which used to constitute ~30% of total GMV, is yet to reach normalized levels, thus providing scope for significant growth once it reaches normalcy. Tier II and Tier III cities are witnessing higher growth v/s Tier I cities

Focused on scaling the lending business, B2B SME the key focus segment

The bulk of India’s population doesn’t have access to seamless credit, thereby providing significant opportunity for fintechs to scale up their lending business. Razorpay provides a B2B solution and access to credit to SME businesses. It is the largest player in the SME merchant space. The company is onboarding over 10k merchants on a monthly basis and has a total SME base of ~5m, of which ~1m are active users. Disbursements have increased to INR8b per month from INR2b earlier. It also provides corporate credit cards to its customers to meet their payments and credit requirements.

Strong underwriting to keep NPAs in control

Razorpay uses multiple channels and data for underwriting, which is based on information from business undertaken by merchants using its platform. It uses unconventional data like the customer base of the merchant, concentration of the business/customers, seasonality of the business, the pace of recovery post lifting of COVID-related restrictions, customer profile - which tiers does the customer operate from, whether the customer is using a high-end or a low-end device, etc. The management believes that account aggregators would help in building a model to improve and assess the underwriting process. NPAs currently stands below 1%.

Other highlights

i) Innovation in providing solutions to customers would be key to build a sustainable business.

ii) Razorpay is planning to launch its cross border solutions (particularly in southeast markets) to facilitate import and export payments and in providing solutions to overseas businesses.

iii) The lending business would take 2-3 years to scale up. Hence, the company is not looking at a public listing for the next 2-3 years.

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