Indian banks that have their white-label payment processing offerings have also seen a rise in merchant signups, industry executives told ET.
Sources said CCAvenue has seen an 18% jump in new online merchant signups on its platform in the October-December quarter soon after the RBI barred top PAs from onboarding newer merchants.
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Pine Labs, which entered the payment gateway space in October 2020 with Plural, has been a strong beneficiary from the pause by rivals, chief executive Amrish Rau told ET.
“Plural’s total monthly onboarding of new merchants has risen three-fold than what we were doing six months back. We are now processing over $1 billion in monthly TPV (total payment value), again a three-fold increase,” Rau told ET. “This is owing to ease of integration through our API-stack with the Setu acquisition and value-services such as invoicing through Qfix.”
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There has also been increased demand from merchants wanting to add another payment processing partner to mitigate risk, improve (payment) success rates and ensure that they are working with entities that are compliant with regulatory requirements, he added. Similarly, Infibeam Avenues, the parent entity of CCAvenue, said as part of its third quarter results that it had benefited from a shortage of payment gateway providers in the country.
“Very few payment companies are currently able to onboard new merchants, Infibeam Avenues being one of them. The short supply of payment gateway providers in the market, from the second half of December, versus continuing merchant demand for digital payments, also led to strong merchant (onboarding) growth, which continued in the month of January as well,” it said earlier this month.
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According to industry estimates, before the ban, Razorpay, PayU, Paytm and Cashfree constituted 70%-80% of new online merchant onboardings monthly. However, in terms of total payment value (TPV) BillDesk continued to be the leader, followed by the affected gateways.
The impact of this pause has been felt on new age D2C and online brands, which lack access to the usual options in the market, executives of two new-age D2C brands told ET. These brands are also worried about factors such as consumer experience and scalability, they added.
Also read: RBI to Paytm: Reapply for payment aggregator licence within 120 days
It has also led to a significant loss of opportunity for these affected payment gateways.
Existing partners of these affected payment gateways are also onboarding newer partners (which have received in-principle PA licences from the RBI) as backup, in a bid to mitigate any future risks, and ensure that they are working with fully compliant partners, several industry executives told ET.
To be sure, RBI’s pause on new customer onboarding does not have any material impact on existing customers of the affected payment gateways.
Also read: Cashfree receives RBI nod for payment aggregator license
Recently, Cashfree laid off 100 employees in a bid to reduce its monthly burn, ET first reported on January 12. However, some of the affected employees were also from its payment gateway onboarding team, sources said.
Cashfree and PayU did not respond to ET’s queries until press time Monday.
Sources said some existing PA applicants whose applications are under process have also been leveraging in-principle licenced gateways to ensure business continuity.
“Unfortunately, in the PG industry, the regulator is trying to regulate practices of an already scaled industry, which is leading to speed bumps. The RBI seems to have not fully factored the impact of pausing new onboarding for the top four PGs. Today, the net alternatives in the market haven’t displayed a strong history of scalability and robustness,” said a payment industry executive.
Also read: RBI gives fresh ray of hope to payment aggregator license aspirants
Impact
Multiple industry executives told ET that the PG market, at a bare minimum, onboards 10,000 new to online merchants monthly (or 120,000 annually), which are first-time sign-ups for the industry.
These industry sign-ups can go up to 40,000 if brands migrating to different PGs or onboarding a second payment partner are also counted in the mix.
If offline merchant onboarding and touchpoints are factored in, then the total new onboardings by PGs can run into millions for the industry.
These numbers are also subject to factors of seasonality and demand.
According to another industry executive in the payments space, onboarding of large customers which contribute Rs 1 crore of TPV (to PG partners) remains in the 50-100 range for the industry, monthly.
“In the short term, there is little material impact, as new merchants don’t add immediate value. However, in the mid to long-term some of these startups signing up PG partners also tend to hyper-grow which will lead to opportunity cost loss for these gateways,” said a third industry executive.
According to sources, existing merchants are also migrating to newer payment gateways from Paytm, which in its recent earnings call said that it “purged literally hundreds of various different kinds of merchants if they were not profitable”, as rates offered to them (merchants) overtime did not change in line with rate changes of issuer banks.
“We are focused on driving revenue growth from existing merchants which is reflected in our recent business and financial updates. In Q3 FY23, our net payments margin was $55 million, increasing 120% YoY. This has been achieved due to our commitment to building our business with a focus on net revenue profit generating merchants,” said a spokesperson for Paytm.
Both Paytm and PayU have said in the past that they are in process of reapplying for the PA licence.
According to another industry executive, RBI’s move has made it clear to new-age brands that they cannot just rely on the top five payment gateways in the country.
“RBI ban on new onboarding will cost perception, trust and valuation for some of these companies,” an executive working with D2C brands said. “Hard data is still unavailable, but some merchants are likely to face challenges (in the short term) on different payment options they can provide consumers (since integrations are tailored).”
RBI’s move to pause onboarding for payment gateways came after the Directorate of Enforcement raided the premises of some online payment gateways in connection with its ongoing probe against illegal Chinese apps.
“Razorpay has always been fully compliant with regulatory requirements. We would not like to comment on unfounded rumours. All our checks and balances are in alignment with necessary requirements, and we are in active conversations with the regulators,” said a Razorpay spokesperson.
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