The payment aggregator (PA) space in India has recently become as bustling as a Mumbai street market. With the Reserve Bank of India (RBI) opening the floodgates for aggregator licenses, the landscape has transformed dramatically. While merchants are thrilled, the rest of the industry is experiencing a different kind of rush—one driven by intense competition. Let’s dive into the evolution of payment aggregators in India, the impact of regulatory changes, and the challenges and opportunities that lie ahead, all with a sprinkle of humor to keep things lively.
The Early Days: Making Online Payments Less of a Nightmare
In the early 2010s, accepting online payments was a nightmare for merchants. Imagine trying to set up a food stall, but having to negotiate with every vegetable vendor, spice merchant, and gas cylinder supplier individually—exhausting, right? Similarly, merchants had to navigate a labyrinth of banks, card issuers, payment gateways, and merchant accounts.
Enter payment aggregators, the superheroes of the financial world, who swooped in to simplify the process. By handling all the dirty work, they allowed merchants to focus on what they do best—running their businesses. Before 2010, PAs weren’t crucial for small merchants as online transactions were a tiny slice of the pie. But for large merchants, PAs like BillDesk and CCAvenue were essential.
Things started to change post-2010 with the internet boom. New players like PayU (2011), Paytm (2012), Instamojo (2012), Razorpay (2014), and Cashfree (2015) joined the party, targeting smaller merchants.
The Changing Landscape: 2016 and Beyond
The payment aggregator industry remained relatively stable until 2016. Think of it as a well-organized cricket league, with each team knowing its strengths. BillDesk and CCAvenue dominated the large merchant segment, while smaller merchants rallied around Razorpay, Cashfree, and Instamojo. PayU played in both leagues, catering to small, medium, and large enterprises.
However, several macro events in subsequent years turned this orderly league into a high-stakes game:
- Reduction in Margins: The launch of UPI in 2016 was like introducing a game-changing all-rounder. By 2018, the government promoted UPI with zero Merchant Discount Rate (MDR), hitting PA revenues hard. PAs then started targeting larger merchants to offset revenue losses from UPI transactions.
- Division of Business Volumes: As online transactions grew, major e-commerce platforms diversified their risks by onboarding multiple aggregators. This reduced business for stalwarts like PayU, BillDesk, and CCAvenue, while opening the gates for new stars like Razorpay and Cashfree.
- Emergence of New Business Models: New business needs arose with the growth of online commerce. For instance, very small merchants needed payment links for WhatsApp transactions, a service provided by Instamojo. Aggregators like Swiggy and Zomato required instant payout features, developed by Razorpay and Cashfree.
Razorpay, Paytm, PayU, and Cashfree continued to grow, often at the expense of BillDesk and CCAvenue. Just as the market seemed to settle, the regulatory landscape shifted again.
The Regulatory Shift: A Flood of New Licenses
Between November 2022 and March 2023, the RBI played referee, blowing the whistle on major PAs like Paytm, Cashfree, Razorpay, and PayU for onboarding irregularities. Simultaneously, it granted in-principle approval to 32 new PA license applicants. The influx of new licenses continues, with 61 PAs now operating in India, 59 of which can onboard new merchants.
Interestingly, many new entrants aren’t traditional PAs. E-commerce giants like Amazon, Zomato, and Udaan; payment super apps like Cred, GPay, Mobikwik, PhonePe, and Freecharge; SaaS providers like Zoho and Rewards360; wealth management companies like Groww; and IT services firms like GVP, Finlogic, and Futuretek are all getting into the game.
The Jio Financial Juggernaut
Now, let’s talk about the elephant in the room—Mukesh Ambani’s Jio. Jio has a reputation for shaking up industries, whether it’s telecom or retail. In the financial space, Jio is making waves with its entry into payment aggregation. Think of Jio as the team that’s always playing to win, and winning big.
Jio Financial Services is leveraging its massive telecom customer base to offer seamless financial services. From digital payments to lending, Jio is creating a financial ecosystem that could potentially outshine existing players. Their strategy? Offer competitive pricing, superior technology, and a vast network, much like they did in telecom. The result? A potential game-changer that could rewrite the rules of the payment aggregator industry.
The Future: Intense Competition and Innovation
The influx of new PAs will inevitably lead to intense competition and significant changes in the market:
- Race to the Bottom: Payment aggregation is like selling pani puri—everyone’s offering the same thing. The primary way to disrupt such a market is through pricing. As new PAs enter, they’ll likely reduce prices, squeezing already thin margins. This could drive many businesses into the red, as even small reductions in margins can have a substantial impact.
- Shift in Revenue Streams: With core offerings becoming loss leaders, PAs will need to diversify their revenue streams. Many are already offering financing options, such as loans to merchants and end consumers, instant settlement services, and advertising on checkout screens.
- Value-Added Services for Small Merchants: To differentiate themselves, PAs will offer additional services to small merchants. These might include software for invoicing, payroll management, inventory planning, reconciliation, HRMS, website development, and loyalty management. Razorpay, for example, has acquired Payroll’s universal HRMS and PoshVine to enhance its offerings.
- Payment Orchestration for Large Merchants: Large merchants will focus on payment orchestration to manage multiple PAs. High gross merchandise value businesses like Cred, Amazon, and Groww have acquired PA licenses but may eventually rely on external PAs to reduce costs and improve efficiency. International partners like Stripe, Adyen, Boku, and Unlimit, along with Indian players like Razorpay and PayU, will play crucial roles.
- Rise of Payment Orchestrators: With multiple PAs involved, payment orchestrators—entities that route payments based on predefined rules—will become vital. Players like JusPay, Razorpay (Optimizer), Paytm, and Cashfree (floWise) are already prominent in this space, with more likely to join.
- Niche Positioning: As competition intensifies, PAs will position themselves around specific payment modes or industries. For example, PhonePe focuses on UPI success rates, while GPay might do the same. Industry-specific PAs will also emerge, offering tailored solutions for sectors like e-commerce, SaaS, and retail.
The Ultimate Winner: The Merchant
Amidst all these changes, the clear winner is the merchant. With increased competition, merchants benefit from lower costs and a broader range of services. Whether through improved payment solutions, value-added services, or enhanced financing options, merchants stand to gain the most from the evolving payment aggregator landscape.
Paytm: A Worthy Investment?
Now, let’s address the burning question: Is Paytm a good investment? Paytm has been a rollercoaster ride for investors, much like a Bollywood blockbuster with its highs and lows. After a shaky IPO and fluctuating stock prices, Paytm has managed to stabilize and show signs of growth.
Here’s the scoop: Paytm has a strong brand presence and a diverse portfolio, ranging from digital payments to financial services. Its user base is massive, and the company is continually innovating. However, competition is fierce, and regulatory challenges persist.
Analysts have mixed views. Some believe Paytm’s diversification strategy and strong market presence make it a good long-term investment. Others caution that the company needs to demonstrate consistent profitability and navigate the competitive landscape effectively.
In a nutshell, investing in Paytm is akin to betting on a horse in a race with many contenders. It has the potential to win big, but there are risks involved. As always, do your homework and consult with a financial advisor before making any investment decisions.
In conclusion, the payment aggregator industry in India is entering a new era of competition and innovation. As new players enter the market and regulatory frameworks evolve, PAs will need to adapt quickly to stay relevant. While the journey ahead may be challenging, the ultimate beneficiary will be the merchants who drive the digital economy forward.