License Withdrawal Makes Online Payment Aggregators Seek Alternative Business Options
The withdrawal of the payment aggregator licence from companies such as Paytm, Razorpay, Cashfree, and PayU has forced them to halt onboarding new merchants. This has compelled these venture capital-backed firms to explore alternative revenue sources.
The continued restrictions on these companies have also opened up opportunities in the online payments market for players like PhonePe, Plural from Pine Labs, Innoviti Payments, CCAvenue, and Billdesk, all of whom are aggressively signing up new merchants.
The embargo, imposed in December of the previous year, was initially intended to last for only six months. However, more than six months have passed, and the prolonged restrictions are causing anxiety among these companies.
For startups like Cashfree and Razorpay, an embargo equates to stagnating revenue, slower growth, and, consequently, stress on valuations. To offset the lost opportunities, these payment aggregators have shifted their focus to offline payments, international markets, and remittances.
Paytm is concentrating on offline payments, Razorpay has initiated operations in Malaysia, and Cashfree is developing a range of value-added services on top of payments.
When these companies applied for a payment aggregator license, none of them anticipated such a protracted embargo. A senior executive mentioned that internally, the impacted companies believed the embargo would be lifted by the middle of this year, along with the final approval. Since neither has occurred, leadership is expressing concern.
These startups were experiencing hyper-growth, and the absence of a similar pace of revenue expansion this year will make it challenging for them to justify their valuations.
Compounding matters, government scrutiny has intensified. Paytm, Razorpay, and Cashfree have been linked to the Chinese loan app case, attracting the attention of the Enforcement Directorate (ED).
Last week, the government held a meeting with representatives from the payment industry and senior bankers to address issues around fraud management in payments and Know Your Customer (KYC) processes for merchants, among other concerns.
The government is prioritising the digitization of citizen payments, an area where players like CCAvenue and Billdesk are excelling. Listed fintech entities like CCAvenue reported a 79 per cent jump in total payment value to Rs 1.78 lakh crore in the second quarter of the current financial year.
Razorpay has introduced new products to its existing merchants in the hope of generating more revenue per customer. Additionally, it has launched new value-added offerings for the payments ecosystem and the direct-to-customer segment.
Paytm has shifted its focus to payments in 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 USD 211 million in revenue from its core payments business in the first half of the current fiscal year. The year-on-year (YoY) revenue growth slowed to 15 per cent and was mainly driven by its existing merchant base and subscription products like Wibmo.
