Episode 15 – Fintech – Payment Gateway opportunities in India and the huge market it can cater to
Payment gateways have become huge. They will only become bigger
The last few weeks have been crazy in terms of Fintech activity. Gramcover, an Insurtech market place focused on rural India raised $7mn from funds such as Inflexor Ventures and Siana Capital. M2P Fintech raised $35mn in from Tiger Global and others in a deal that valued the firm at a staggering $350mn. Niro, a homegrown embedded consumer fintech, has raised US$ 3.5 million in a seed funding round led by Elevar Equity.
Interestingly, what surprised me the most was Neo Bank Open raising $100mn. Temasek led the round with other investors being Google, SBI Investment and others. And then, there’s always CRED, looking to raise funds at $5.5 bn for inorganic expansion.
This week was super interesting in terms of meeting some founders and funds. Met Nikhil from Piggy, who is democratizing investing in India. Ashwin, from Xpresslane is doing some amazing work in enabling one click checkouts across D2C firms. Prashant, who has created an amazing non-payroll expense management suite of products at Antrepriz was an eye-opener. Amit, from Paytail, just raised $1.5mn and gave us a deep dive into their business and future plan. Will do a deep dive on each of these business.
Note – In case you are a fintech founder, looking to raise funds, I might be able to help. Reach out to abhishek@indiafintech.in. In case you are looking to invest in Indian Fintech, reach out. Would be happy to help.
Indian Payment Gateway ecosystem is HUGE!
Indian payment gateway solutions accept payments from more than 150 channels and process $300 bn annualized in transactions. $200bn are processed at online merchants, whereas offline does $100bn. The market is expected to grow ~3-4x in 5yrs. PayU India is now the largest payment gateway in India with $119bn of TPV (FY21), aided by acquisition of BillDesk. Other leading players are Razorpay, CC Avenue (owned by listed firm Infibeam), and Cashfree, among others. M-Swipe is a leading POS provider, which has done really well and has become benchmark in the space.
In terms of market share, PayU has 60% market share post Bill Desk Acquisition, Razorpay has 19%. Cashfree has quickly cornered 9% market share, which CC Avenue is at 8%.
In terms of monetization, While MDR is a well understood aspect on revenue model (take rate in the ecosystem of payments), MCC is also important. It determines the share of 3 key players in the payment ecosystem: (1) issuer bank, (2) network (Mastercard, Visa, etc.) & (3) PG. For example, share of issuer in MDR at grocery store is much lower than share at restaurants. Another evolving, Value added service include invoicing, accounting, taxes and a horde of ancillary services. I also see companies with core proposition as SaaS which enables payments to move into lending/credit (Antrepriz?).
How does the revenue sharing work with Payment Gateways?
Source: Internet, Jefferies, Abhishek Kumar
Further, platforms such as Pine Labs have evolved into one port for payments, lending partners, loyalty & reward programmes, gift cards, and analytics, among others — big value add for offline merchants. Platforms such as JusPay provide a routing mechanism to merchants that utilises gateways based on bandwidth and cost.
Payment Gateways have seen some amazing M&A/ capital mkt. activity. Recently, PayU India acquired Billdesk for US$4.7bn at 19x P/revenue & 112x P/EBITDA, in one of the largest Fintech deals in the country. Earlier, PayU bought Citrus Pay and Wibmo. In 2020, Worldline (associated with ATOS) bought Ingenico, which provides POS with VAS. Razorpay acquired 3 companies across fraud detection & SME lending. Pine Labs, Cashfree, & Razorpay, all raised equity recently.
What is interesting is that I still feel that the surface is being scratched and the sheer opportunities that the space offers is humungous. For e.g., just the retail space is ~$1,000 bn in India and throw in the E-commerce and the space is, well, $1.2tn+.
Let’s take a brief dive in each of the key players.
Cashfree
Cashfree is a leader in bulk payouts, and it claims to have 50% market share in disbursals. Its merchants make over 1m disbursals to beneficiaries daily. It provides a payment gateway to 100k+ Indian and Global businesses to collect and disburse payments via 120+ methods. Cashfree is processing transactions worth US$20bn annually. It has recently introduced instant settlement within 15 minutes to address cash flow issues for merchants. Cashfree has also integrated with PayPal, allowing merchants to accept payments from international customers in 100 currencies using PayPal.
Other solutions offered by Cashfree include (1) Payment links; (2) auto-collect, including reconciliation for UPI, IMPS, NEFT, RTGS payments; (3) subscriptions for accepting recurring payments; (4) 24*7 Payouts directly from the Bank account and Global payouts to India; and (5) bulk bank account verification. Cashfree’s Banking-as-a service offering lets Neo Banks and Fintechs integrate banking services from leading banks into their product and enable the users to open accounts, link accounts, accept deposits, make payouts, check balance, and earn interest.
Atom
Atom Technologies was founded in 2005 by Mr. Dewang Narella. Atom’s offerings include Payment Gateway, POS, IVR, and mobile application. Its solutions allow merchants to accept payments through 265 payment methods; it has a total TPV of ~$5bn. Atom has over 150k merchants onboarded. Atom Technologies was acquired by NTT Data of Japan in 2019 at a reported valuation of US$16m (55% stake acquired for US$9m).
Razorpay
Razorpay’s payment services allow merchants to accept, process, and disburse payments online. RazorPay’s payment gateway lets merchants accept online payments via 100+ methods (debit and credit cards, net banking, UPI, EMIs, Pay later, and mobile wallets). It processes US$40bn in GTV annually. RazorPay’s international payment gateway helps businesses improve conversion with international customers by allowing payments in 92 currencies. Other offered services include (1) payment links to be shared via email/ SMS/ messenger, etc.; (2) subscription plans with automated recurring transactions on various payment modes; and (3) smart-collect, which allows automatic reconciliation of incoming NEFT/ RTGS/ IMPS/ UPI transactions using virtual accounts & UPI IDs.
Razorpay Route allows businesses to split incoming payments to individual accounts, make vendor payouts, manage marketplace money flow, etc., using APIs. It also allows merchants to own a fully functional current account and avail working capital loans through its neo banking arm RazorPayX and RazorPay Capital, respectively. Its instant settlement option is priced 0.18-0.30%, and same-day settlement option is priced at 0.12-0.20%, with nil setup and maintenance fee.
RazorPay recently acquired an AI-based risk analysis platform, Tera Finlabs, for leveraging in the lending business. Other acquisitions include real-time fraud detection platform Thirdwatch in 2018 and payroll management software Opfin in 2019.
PayU India
PayU India is now India's largest payment gateway and is a part of Prosus NV, a global consumer internet group and payment platform. In Aug-21, it announced 100% acquisition of BillDesk for US$4.7bn. PayU’s acquisition of BillDesk would take the cumulative TPV for the entity to US$119bn in India (FY21), the largest player in India and 4x the nextbiggest player. Globally, the acquisition would make PayU the 7th-largest player from top 25 in terms of TPV (US$147bn globally).
PayU India was founded in 2014, when it was demerged from Ibibo (Ibibo launched PayU PG in 2011). PayU acquired Citrus Pay in 2016 for US$130m and forayed into credit in 2017 through the launch of its BNPL offering LazyPay. It also acquired a stake in ZestMoney (BNPL/ EMI platform) and PaySense (digital credit platform). PayU acquired an NBFC licence in 2018 as a key growth initiative, and it acquired Wibmo, an online authentication provider for card payments, in 2019. PayU India provides payment gateway services, with 100+ payment methods (cards, net banking, UPI, wallets, BNPL, and EMI options), to over 450k merchants in India; this can be integrated on websites and mobile apps (on Android/ iOS).
Pine Labs, founded in 1998, is an Indian merchant platform company that provides financing and last-mile retail transaction technology. Its products include hardware - (POS machine, mobile POS) and software-based payment terminals, BNPL/ EMI credit lines from partners, working capital loans to merchants, payment gateway APIs, loyalty and gift card solutions, analytics for business decisions, and other value-added services.
Majority of Pine Labs' payment revenue comes from software subscription, with the balance contributed by MDR. Along with a large Presence in India, Pine Labs is expanding in Southeast Asian markets such as Singapore, Indonesia and Thailand. Pine Labs has deployed over 0.65m POS terminals (0.5m hard POS and 0.15m soft POS).
Pine Labs’ payments terminals have integration with over two dozen banks and financial technology partners. The company has raised +US$1.3bn in funding, and the last deal valued it at about US$3.5bn in Jul-21. Key investors are Sequoia Capital, Mastercard, Kotak Mahindra Bank, Temasek, Fidelity Investments, and Invesco. In 2019, Pine Labs had acquired gift solution provider, QwikCilver Solutions for US$110m. It also acquired Fave, a Fintech platform from Southeast Asia, in a deal worth US$45m in 2021.
Mswipe
Mswipe, founded in 2011 by Mr. Manish Patel, is a mobile POS merchant acquirer and network provider. The company aims at serving smaller merchants in India and at creating India’s largest financial services platform for SMEs. Mswipe enables merchants to transact (Collection and Payments), Manage (sales/ inventory online), & Grow (Lending, BNPL, Micro-ATM, Insurance). It offers a wide range of products, such as hardware-based POS terminals (~0.5mn merchants), QR-based payment solutions (~1.2mn merchants), link-based payment solutions, and more. It also provides POS loans for purchase financing, Money Store for merchants to find software with integrated payments, Mcard for EMV-enabled prepaid cards, etc.
Other interesting payment firms are basically those operating in the payment terminal markets, such as Ezetap, Payswiff, and Bharatpe.
One interesting firm in the space is Juspay, which offers a payment gateway optimisation platform based on traffic assessment and cost. This improves payment success rates for merchants. JusPay’s platform sees 5m+ daily volumes. Its customers include Amazon, Airtel, Flipkart, Vodafone, Swiggy, among others. JusPay has raised US $27m in funding to date from investors such as Vostok Emerging Finance, Wellington Management, and Accel. It was last valued at US$118m in Apr-20.
So what’s next for these payment gateways?
That’s an interesting question. Anecdotally, RazorPay has moved into NoeBanks with RazorPayX. I see someone like a Cashfree moving to credit products for SMEs (that is a market ripe for taking). Someone like BharatPe is already becoming a bank, in partnership with Centrum. See more models like these coming up.
What I also see is, there are firms which started as SaaS players first. So the likes of Khatabook, AntrePriz and others, who will eventually become Fintech by moving to being either a Payment Gateway or a credit player, or most likely, BOTH. Interesting times ahead.
Hirings in the Fintech Industry
Xpresslane is looking to hire a Sales and Marketing Head. Super interesting role with good equity on offer. Reach out to me on Abhishek@indiafintech.in and I will connect with the founders.
Antrepriz is looking to hire a Growth head. Reach out to me and will connect with the right person.
Latest happenings in the Fintech Industry
Niro, an embedded finance start-up raised $3.5mn from Elevar Fund among others. Kunal Shah is an investor in this round as well.
Open, a Neo Bank, raised $100 mn from the likes of Temasek, Google and others. http://www.newsexperts.in/ksum-backed-fintech-startup-raises-100m-from-global-firms/
NFTically, a marketplace for NFT creators, raised an undisclosed amount of seed funding.
Gramcover, an Insurtech startup, focusing on providing insurance in rural India, raised $7mn from Inflexor and Saina Captial.
M2P Fintech , an API provider, raised $35 mn at $350mn valuation. It’s API platform powers some of India’s leading lenders, fintech startups and consumer internet firms across Asia.
Cred is now looking to raise funds at $5.5 bn valuation targeted at inorganic expansion. This is probably fodder for my next article. Was that always the plan?
Please reach out to abhishek@indiafintech.in in case you have any feedback or want to discuss anything! Happy to hope on a quick call.