New Dig­i­tal Pay­ments Rules may Empty Startup Wal­lets

The Economic Times - - Disruption: Startups & Tech - Mugdha.Vari­yar@ times­

Ben­galuru: Dig­i­tal pay­ments com­pa­nies are tem­per­ing their ex­pec­ta­tions of a bumper growth this fi­nan­cial year. In­dia’s cam­paign to get more peo­ple to trans­act dig­i­tally has boosted trans­ac­tion vol­umes for com­pa­nies such as Billdesk and CCAv­enue. But a si­mul­ta­ne­ous mea­sure to lower the fees that mer­chants pay banks for debit and credit-card trans­ac­tions is threat­en­ing to undo the gains. Pay­ment gate­ways get a share of this fees.

“In the cur­rent (fis­cal) year, linked to the in­creases in to­tal pay­ment vol­umes and scale of busi­ness, we would have ex­pected net earn­ings to grow by over 35%,” said Srini­vasu MN, co­founder of on­line pay­ment gate­way Billdesk.

“How­ever, the re­cent in­ter­ven­tions done on (mer­chant dis­count rate) are bound to have an im­pact on mar­gins for pay­ments busi­nesses.” Mer­chant dis­count rate, or MDR, is the fee levied on mer­chants for avail­ing card-pay­ment ser­vices. Of­ten, mer­chants pass on this charge to cus­tomers. To en­cour­age more peo­ple to trans­act on­line as part of the gov­ern­ment’s drive, the Reserve Bank of In­dia in De­cem­ber de­cided to lower the MDR on debit-card trans­ac­tions from Jan­uary 1 till March 31.

“Our prof­its have been grow­ing 100% every year. This time, we would have ex­pected a lit­tle more growth from the push for dig­i­tal pay­ments, but since the busi­ness of sev­eral re­tail mer­chants was hit (be­cause of de­mon­eti­sa­tion) and with MDR low­ered, we will likely grow at the same rate,” said Vish­was Pa­tel, CEO of CCAv­enue, a dig­i­tal pay­ment gate­way that has regis­tered an­nual prof­its since 2001. Harshil Mathur, CEO of pay­ment gate­way Ra­zor­pay, said if MDR is kept low “we will need to start charg­ing other fees since we need to make mar­gins”. Ra- zor­pay turned prof­itable in 2015-16. Billdesk’s profit that year in­creased 11% to ₹ 76 crore as rev­enue surged 40% to ₹ 520 crore, and CCAv­enue’s profit and rev­enue both nearly dou­bled, ac­cord­ing to reg­u­la­tory fil­ings sourced from re­search plat­form Tofler. At least one com­pany an­tic­i­pates im­me­di­ate gains from the gov­ern­ment’s de­ci­sion to re­duce the fees charged from mer­chants. Vi­mal Ku­mar, founder of on­line pay­ment plat­form Jus­pay, ex­pects the low­er­ing of MDR to in­crease dig­i­tal pay­ment vol­umes. The com­pany had be­come prof­itable in 2014-15 but made a loss of about ₹ 1 crore in the fol­low­ing fi­nan­cial year as it ex­panded its team. “This year, we are go­ing to be net prof­itable again,” said Ku­mar.

In­dus­try ex­perts an­tic­i­pate that the com­ing fi­nan­cial year begin­ning in April will bring a host of new op­por­tu­ni­ties for dig­i­tal pay­ments com­pa­nies as the gov­ern­ment per­sists with its cam­paign and in­tro­duces new tools to make trans­act­ing on­line eas­ier. Among these is Bharat Bill Pay­ment Sys­tem, an in­ter­op­er­a­ble pay­ments plat­form that will help mi­grate util­ity bill pay­ments from cash to dig­i­tal. Also, re­cent con­sol­i­da­tions — in­clud­ing PayU’s ac­qui­si­tion of CitrusPay, TechPro­cess’s ac­qui­si­tion by French e-pay­ments com­pany In­genico, and CCAv­enue’s merger with In­fibeam — have raised the bar for the sec­tor.

“The re­cent (merg­ers and ac­qui­si­tions) in the space fun­da­men­tally recog­nises that it re­quires busi­ness scale, deep pock­ets and a long-term fo­cus to build pay­ments busi­nesses in In­dia,” said Billdesk’s Srini­vasu. “These (M&As) are good de­vel­op­ments as they high­light the se­ri­ous in­tent of the par­ties and will raise the pro­file of play go­ing for­ward.”

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