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How did Razorpay Become India’s Most Valued Fintech Startup?

On Thursday, One97 Communication’s Paytm hit a new low in its share prices, 771 INR apiece, amid the markets battering in the wake of the Russia-Ukraine conflict (1). And the decline in its valuation led Razorpay Software Pvt Ltd to become the most-valued Indian fintech company.

As of writing this article, Paytm share price is hovering at about 787 INR (2).

Razorpay is a digital payment and financial services provider that achieved unicorn status in October 2020 after securing 100 million USD in a funding round co-led by Sequoia Capital and GIC.

In December last year, its valuation surged from 3 billion USD to over 7.5 billion USD through its series F funding round co-led by Alkeon Capital, Lone Pine Capital, and TCV. In this funding round, the company raises 375 million USD (3).

A month before that, Paytm had announced an IPO at an issue price of 2,150 INR apiece, commanding a valuation of almost 20 billion USD.

Even though the largest IPO in India so far got oversubscribed, its equity value got corrected to 14.5 billion USD on the day of its listing. However, back then, it was still close to double the size of Razorpay, its closest peer.

It is also worth noting that when Paytm had secured 1 billion USD from T Rowe Price back in 2019, it was valued at over 16 billion USD (4).

However, last week, when Paytm’s stock price hit a new low with its equity valuation plunging to about 6.67 billion USD, it made Razorpay the most valued fintech startup in India (5).

Before we go further into Razorpay’s business model, we wanted to highlight new-age technology startups debuting on the bourses last year. However, they have not yet established their ground and also facing trust issues in terms of their bloated valuations, which the private investors supported before their listings.

In fact, market reports suggest that all new technology startups that went for an IPO last year lost about 50% of their peak equity valuations.

post-IPO valuation of Indian tech firms

However, we believe that it won’t do Razorpay justice if we say that it became the most-valuable fintech startup in India only because Paytm’s share price plummeted. After all, over the past year, the company increased its value sevenfold and pushed Walmart-owned PhonePe to third place in terms of the valuation after its Series F round.

Read Also: How Can Indian Startups Emerge Stronger in 2022?

SnapShot of Razorpay’s Growth:

  • In October 2020, Razorpay’s valuation stood at 1 billion USD, which increased to 3 billion USD in April 2021.
  • Since its inception in 2014, Razorpay has secured a total of 741.5 million USD in funding, including the Series-F fund.
  • PhonePe was valued at 5.5. billion USD when it secured 700 million USD in primary capital from existing Flipkart investors, including Tiger Global, in December 2020.
  • Companies that use Razorpay’s services include Meta, Zomato, Swiggy, Ola, Cred, National Pension System, Muthoot Finance, Indian Oil.
  • It has more than 5 million businesses on board, which is expected to grow to 10 million users by the end of 2022.
  • Razorpay is also a payment solution provider for 34 of the 42 unicorn companies named in 2021.
  • Magic Checkout, Razorpay Rize, RazorpayX Tax Payment Suite were among the new products the company introduced at its flagship event, FTX’21.
  • In December 2021, Razorpay reached a TPV, a Total Payment Volume of 60 billion USD, and it aims to have a TPV of 90 billion USD by the end of 2022.
  • Razorpay witnessed over 300% YOY growth for the second year in a row.

Razorpay’s Latest Funding Round

Reportedly (6), Razorpay would use the new funds to expand its business banking suite Razorpay X and introduce new banking solutions. The company also expects to grow its international presence and invest in new acquisitions. The Bangalore-based startup is also looking to hire about 600 people to support these objectives.

“We have come a long way in the past seven years and even further since 2020,” said Harshil Mathur, CEO, and Co-founder of Razorpay (7). “We believe we will revolutionize the payments and banking in almost every Indian industry going forward.”

“While these newly added funds will be used in multiple areas, the essential one will be towards investing in building intelligent technologies to make the lives of small merchants easier by offering them a fundamentally different experience with reduced complexity. We aim for businesses to spend less time managing operations and compliance and investment more time in building new products, ideas, and thinking scale,” stated Mathur.

He also added that the funds would help Razorpay take financial services up a notch, offer their services to underserved businesses, and keep on building the core of Digital India.

Similarly, Shashank Kumar, Co-founder and CTO of Razorpay (8), said, “We want to build new products and experiences that would impact the lives of millions of customers and businesses.”

After the latest funding round, John Doran, General Partner at TCV (9), remarked, “we are happy to support Harshil, Shashank, and the entire team of Razorpay. We believe they are building India’s next-generation payments and banking platform.”

“Razorpay has been in the vanguard in building creative and resilient products to handle the changing demands of businesses,” said David Craver, Managing Director at Lone Pine Capital (10).

Deepak Ravichandran, General Partner at Alkeon Capital (11), likewise believes that as the leading online payments payer in the growing Indian digital payments market, Razorpay continues to blaze new trails.

Mathur talked about overseas expansion and geographies like SEA, Southeast Asian countries that also face payment issues like India. The company is looking to leverage its leadership in building intelligent payment products and learnings from SEA countries.

“Razorpay is set to build a larger dent in the fintech world, and with the help of new collaborations and acquisitions, we would be able to build an A-class financial service infrastructure for businesses,” noted Mathur.

Read Also: Redefining Merchant Business with Contactless Payments in the COVID-19 era

The Rise of Razorpay

The idea for Razorpay originated when the co-founders were working on a crowdfunding platform. The duo realized how muddled the online payment method was in India during the process.

In addition, the pair also found that the US-based payment systems are not well suited for the Indian market, especially if we look at the credit card penetration rates in India (for those wondering, the number stood at 62 million in March 2021 (12), up from 19 million in 2013 (13)).

Following these, they started to work towards online payments problems in India, where any technology implementation was pretty challenging, and the payment failures rate was considerably high (35 to 40%). Co-founders also found that the previously available prices were quite high and lacked transparency.

“We realized that most online payment gateways were extremely clunky to get started with, especially for SMEs. When we connected with a few payment gateway companies, we were asked for our physical offices’ presence, past operational records, security deposits, and high setup fees. Online reviews of most payment gateways available in India also confirmed bad experiences,” highlighted Mathur (14).

Hence, they started to build a user-friendly online payment gateway that would be easy to use and integrate.

After consulting some market analyses in the initial stages to verify their idea’s feasibility and then accumulating positive responses from potential customers, the pair decided to start working on the idea.

Notably, the earliest differentiators for Razorpay was that businesses were only required to upload a few documents and could start accepting online payments within 30 to 40 minutes.

Today we have Razorpay, India’s most valuable fintech startup, with an aim to make it easier for businesses to accept and receive payments.

Another crucial factor that led to Razorpay’s success was building a check page for users to save a card for hassle-free online transactions. As of 2021, over 95% of its merchant uses Razorpay Checkout, which has also improved the transaction success rate metric by 3 to 6%.

Razorpay generated revenue by levying 0.25 to 0.5% fees on every transaction made via their gateway.

Now with the emergence of Razorpay 2.0, the company is multiplying its revenue streams, contributing about 30% of its total revenue generation.

The new online payment portal aims to increase its average product adoption from one to two. The team expects Razorpay Capital and RazorpayX to contribute about 35% of its total revenues.

Read Also: Financial Inclusion, Government of India, and Fintech Companies

Decoding Different Products of Razorpay

features of Razorpay products

Reportedly, Razorpay specifies whys and how a new feature or product would benefit a customer and tracks which metrics to confirm those hypotheses.

In addition, most companies put efforts to frame their production practices and organize efficient teams to deliver a better customer experience to induce a user to shift from one digital product to another.

However, it is tough for a payment gateway to offer so much differentiation and then convince B2B customers to shift if they are comfortable using another product.

“In payments, Razorpay leapfrogger over its peers because we focused on the API first. Also, we realized that developer experience is important and saw a gap there that we could bridge. Hence, when the UPI and other payment methods emerged, we didn’t change our APIs. Razorpay’s first-generation APIs are still working smoothly. Thinking of our developers as a key customer persona was a principle that we have used previously and will keep on to do so as we design our APIs,” stated Khilan Haria, Vice President and Product Manager of Razorpay (15).

Razorpay also gained the first-mover advantage when the RBI announced its decision to allow autopay for UPI payments back in January 2020. The company was the first payment gateway to allow UPI Autopay on merchant platforms in July 2020 (16).

So far, Razorpay has launched a slew of products like eNaCH and Aadhar based payments, Razorpay Capital, RazorpayX – Neo Banking platform, Payment Pages, Instant Refunds, Commercial Accounts, and Cards, and has turned itself into a super payments platform.

What do you think? What other challenges do you believe Razorpay would have to overcome to emerge as the top payment solution in the space? Let us know your thoughts in the comment below!