New Digital Payments Rules may Empty Startup Wallets
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.”