Arpit Chug, CFO, Razorpay
The startup, valued at over $7 billion, is ramping up efforts to achieve profitability across its businesses and shift its domicile to India as it plans an initial public offering (IPO) in 2-3 years.
Fintech giant Payment for knife aims to capture a significant portion of India’s P2M (person-to-merchant) digital payments market and expects its payments volume to grow to approximately $750 billion by that time. The Bengaluru-based firm estimates that the country’s P2M payments market will likely reach $4 trillion by 2030.
“We believe Razorpay could easily capture 15-20 percent of that market. We expect our payments volume to grow to $750 billion by 2030,” said Arpit Chug, CFO, Razorpay.
Razorpay is an omnichannel banking and payments platform for businesses. Founded in 2014, the company offers technology-enabled payment solutions to millions of businesses, from a Kirana store in Kashmir collecting payments on its POS device to a textile exporter in Kanyakumari accepting dollars through its cross-border payments product. Razorpay has already achieved an annualized Total Payment Volume (TPV) of $150 billion.
Razorpay reported consolidated revenue of Rs 2,279 crore in FY23, up nearly 53 per cent year-on-year (YoY) from Rs 1,481 crore in FY22. This was primarily due to an increase in enterprise and small and medium business customers. It reported a net profit of Rs 7.3 crore for FY23. This was similar compared to Rs 7.2 crore recorded in the previous financial year.
Its total expenses increased 54.6 per cent year-on-year to Rs 2,283 crore in FY23. Employee benefit expenses contributed around 28 per cent of the total expenses at Rs 6.38 crore in FY23.
Profitability
Asked about the profitability strategy, Chug said Razorpay’s online payments business is already profitable. But the firm is also making investments in new areas such as expansion into international markets and scaling up neobanking. The firm is investing in new businesses such as RazorpayPOS and commercial banking platform RazorpayX.
“We believe that over the next few years these businesses will organically move toward profitability,” said Chug, a former American Express executive.
In 2022, Razorpay acquired Ezetap, a leading offline point-of-sale (POS) company, in a transaction valued at around $200 million.
In terms of improving operational efficiency and keeping burn rate to a minimum, Chug said the company has implemented several strategies. The firm has taken a measured approach to increasing its workforce.
“We’ve never had to cut costs or lay off staff,” Chug said. “We’ve generally been conservative and haven’t hired ahead of time or overstaffed and then worried about it.”
Chug said the company has also been very proactive in leveraging many artificial intelligence tools to improve productivity.
It is also deploying AI-related tools to improve customer experience. This year, the company introduced Ray, an AI assistant for e-commerce businesses that solves problems related to payments, payrolls and vendor payments. It answers questions in English and Hindi and will soon be available in regional languages as well.
Razorpay is also using AI against fraud. It has launched AI-based products that will reduce chargebacks and protect businesses from potential fraud and RTO (return to origin), when the product does not reach the customer.
IPO
The company’s payments business is currently profitable. It is stepping up its efforts to achieve profitability across all its businesses as it is planning an initial public offering (IPO) in 2-3 years. As part of those efforts, it has also started the process to move its parent entity to India from the US.
“We have enough cash in the bank and very patient investors. We are approaching the IPO in a very thoughtful manner and without rushing,” Chug said. “Before thinking about an IPO, we are focusing on consolidated profitability and re-domicile.”
Founded by IIT Roorkee alumni Shashank Kumar and Harshil Mathur, Razorpay has raised a total funding of around $742 million from prominent investors such as TCV, GIC, Tiger Global, and Peak XV. The startup was last valued at around $7.1 billion. Overall, it competes with players such as Pine Labs, PayU, JusPay, and BillDesk.
The company is also ramping up its international expansion efforts. India’s complex payments market and a strict regulatory ecosystem have emboldened Razorpay and are aiding the fintech firm’s planned expansions in Southeast Asia and West Asia. Razorpay made its foray into Malaysia in 2022 and is already seeing major momentum there.
“The entire Southeast Asian market is at a point where India was seven or eight years ago. Experience in one market has given us a lot of confidence. In the coming years, you will hear talk of us going deeper into Southeast Asia,” Chug said. “Another area of growth for us is supporting our India-based merchants operating in these markets.”
Last year in December, the Reserve Bank of India (RBI) lifted the ban that prevented Razorpay from onboarding new merchants into its payment aggregator business. After the embargo was lifted, the company onboarded 150,000 merchants in just a month and a half.
“We’ve had tremendous growth in the last few quarters since then,” Chug said.
First published: July 28, 2024 | 19:23 IS
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