Daybreak - RBI dug a pit for Razorpay. Razorpay just built a ladder.

Episode Date: August 6, 2024

Last year, the central bank banned Razorpay and a bunch of its competitors, like PayTM, Cashfree and PayU, from onboarding new merchants until they were able to secure a payment aggregator license. Till then, they all had in principal approvals for the license. But the RBI stepped in and said they had to stop onboarding merchants until they actually got the license. It was only in December that the RBI lifted the ban after Razorpay finally received the license. Obviously, it was a big day for Razorpay. All of the employees who had already left for the day came straight back to office. They all knew exactly what they had to do because they had been planning for this day for months now. Razorpay had a big opportunity to gain marketshare. In the last seven months since the RBI lifted the embargo, it has been in recovery mode. And in the process, it has fundamentally changed as a company. Tune in. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio recording, episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. One fine Tuesday evening last December, the employees at one of India's most prominent fintechs, Razor Pay, had just about called it a date. Most of them had left for home already, and the few who hadn't were very quickly wrapping things up so they could log out too.

It was pretty much your average Tuesday. Until it wasn't. That evening, the Reserve Bank of India or RBI made an announcement that would change everything for razor pay. It was an announcement that they were all waiting for. The RBI announced that it was lifting the embargo on the payment aggregator after close to a year. Now, what that meant was that the company could now go back to onboarding merchants. Here's a quick recap for those of you who don't remember what had happened. Last year, the central bank banned Razor Pay and a bunch of its competitors like Ptm, cash-free and pay you,

from onboarding new merchants until they were able to secure a payment aggregator license. Till then, they all had in-principle approvals for the license. So the RBI stepped in and said they had to stop onboarding merchants until they actually got the license. And that's exactly what happened in December. when the RBI lifted the ban on razor pay. Obviously, it was a big day for the company. All of the employees who had already left for the day came straight back to office.

They all knew exactly what they had to do because they had been planning for this day for months now. Immediately, war rooms were set up. They were tasked with onboarding hundreds of thousands of merchants and dealing with the outpour of customer tickets. In the week after the RBI lifted its ban on razor pay, These employees were dealing with 10 times the normal value of onboarding inquiries. So they really had their hands full.

In a single month, they onboarded close to 150,000 merchants, including the likes of Uber and Lenskart. The company was also able to scale up its business with existing merchants, like Make My Trip, Flipkart and Amazon. And all of their efforts seemed to have been paying off. Someone who's close to the company told the Ken's Anjali Jain that the last quarter was the best Razor Pay has had in the last two years. But to get to that point, the company had to tweak a lot of its existing processes,

especially as more and more merchants lined up to get on board. But Razor Pay recognized that it had a huge opportunity here, an opportunity to gain more market share. In the last seven months since the RBI lifted the embargo, it has been in recovery mode. And in the process, Razor Pay has fundamentally changed as a company. Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahil Philippos,

and I'll be joining my colleagues Nika Sharma every week to bring you one business story that is worth understanding and worth your time. Today is Tuesday, the 6th of August. If someone were to make a documentary about the Razor Bay story, there would be three very distinct chapters. First would be the good old pre-embago days. Then the post-embargo days when everything was riddled with uncertainty and insecurity.

And finally, present day, after the embargo was lifted, where everything feels like hits on fast forward. The Ken reporter Anjali Jain wanted to get a first-hand account of the Razorpe Stod. So she spoke to several employees, some of whom had stuck around for all three phases. And they all attest to the fact that it has been far from easy. The combined effects of the embargo, coupled with a slowdown within the industry, meant salary hikes were capped at 7 to 8% in the 2023. appraisal cycle. Things were slightly better the next year. The hikes went up to about 15%. But they were still a far cry from the 20 to 25% hikes employees were getting free embargo.

They quickly realized that those days were far behind them. They all had to get used to working in somewhat of a hard-nosed company, which Razor Pay wasn't initially. Salaries aside, Razor Pay has always been known for having a good employee culture. Unfortunately, employees say that that has changed to some degree. One employee told Anjali that there's a bit of a disconnect that has formed. They believe it could have to do with mid-management exercising more control. But the silver lining in all of this is that there were no layoffs despite the rough times. What did end up happening, however, was that some teams were shuffled.

But that ended up working out pretty well according to Razor-Pay employees. because in the process, teams were able to acquire new skills and new capabilities were also discovered. And the great thing about the reshuffle is that now most Razor Pay employees can function across verticals, which was pretty useful at the time because Razor Pay was going all out with multiple projects that would give it an edge in the competitive payment aggregation business. More on that in the next segment. During most of the embargo period, Razor Pay was in recovery mode. It knew it had to be lifted at some point,

so until then, the company was refining its existing products and launching new ones. All so that when the time came, it would have an edge over its competitors. Business may have been slow, but innovation was at an all-time high. Razor Pay managed to launch 60 products, double-awadded it in 2023. These included a new tech stack for small and medium businesses to detect fraud and optimize payments, as well as an AI assistant called Ray. And it's showing no signs of slowing down now. The company actually plans to launch an additional 25 to 30 products by the end of the year.

You see, the fact that Razor Pay was not able to onboard new merchants was an obvious disadvantage. But it also had to retain the ones it already had. And the way to do that was through innovation. That's because Merchancy Payment Gateway's as a commodity. business. So the difference between providers may not be too clear. Hence, bringing competitive advantages through such add-ons to the base product is necessary. And in that department, Razor pay really delivered. So much so that in 2023, the company's top line grew about 53% to 2,279 crore compared to the year ago period. Though the company is yet to file its results for

the 2024 fiscal, its operating revenue is expected to have climbed another 40% all thanks to its existing merchants that were not affected by the ban. Now, Razor Pay has also been paying more attention to cross-border payments. That's because the profit margins are way greater there. Sure, a lion's share of its revenue still comes from its payment gateway vertical, but cross-border payments are now quickly catching up. One employee said that cross-border payments make up for about 15% of Razor Pay's overall net revenue and is expected to fuel the company's next leg of growth. But it doesn't really help that this is an extremely competitive space, both domestically as well as globally. Razor pay is up against the likes of giants

like PayPal and Stripe, which are known to have much higher success rates. But Razor Pay believes getting licensed to become a payment aggregator for cross-border payments will open up a lot of opportunities in that space. The company expects to see growth in the segment mostly in tandem with its payment gateway business, which is pretty telling of its business strategy on the whole. Funnly enough, even in tough times, it doesn't believe in cutting costs. More on that in the next segment. Right now, Razor pay is focused on revenue and not profitability. At least that's what the company's spokesperson had to say. They said that the company is currently focused on growth, which means costs will automatically go up.

Let's unpack that, shall we? Razor pay relies on product and tech development to win deals. Its expenses go towards product, tech and sales teams that work on improving the platform and its product suite, which is cost-intensive but also results in greater revenues. It has a bunch of goals going forward. For one, now that it can onboard merchants once again, the company wants to amp up its marketing spend. It also wants to resume hiring.

Now, this is crucial at a time when Razor Pay seems to be losing the tech edge it once boasted of. In the last few years, many of its competitors have caught up with and some have even surpassed Razer Pay. It's also trying to build capabilities in other divisions, especially offline payments. So it acquired Mumbai-based digital invoicing startup BillMe in September 2023. And a year before that, it also bought a majority stake in EasyTap, an offline payments firm that enables point of sale. The company is now selling Bill Me's invoicing and analysing stack as an add-on to some of its merchants.

And then there is another big to do-do to tick off its list. It needs to shift its domicile back to India from the United States by the end of 2024. It needs this shift to be able to go public in India, which it hopes to do after FY26. Now, the sooner it can navigate this next big regulatory step, the better. After all, who better than the likes of Razor Pay to understand what it takes to navigate India's unpredictable regulatory landscape? Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small. sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos, produced by me Snigdas Sharma and edited by Rajiv Sien.