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Indian Institute of Management Ahmedabad A00358
Institute of Management Technology Ghaziabad September 1, 2020

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Razorpay: Providing Payment Convenience to Disruptors
It was December 7, 2018. Harshil Mathur—chief executive officer and co-founder, Razorpay—
was giving a product launch presentation at Razorpay FTX, a fintech conference in Bengaluru.
Concluding the presentation, he declared, “Our mission statement now is ‘to power the financial
ecosystem for disruptors’. So, go ahead and disrupt. We have got your back”. Razorpay launched
four new products called Flash Checkout, Razorpay Capital, RazorpayX and X Club at the

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conference. Flash Checkout focused on the end user’s payment experience through
personalisation enabled by more than four million saved cards and the user’s payment history.
By integrating the Flash Checkout form into their websites or apps, merchants could reduce their
checkout time by 24 seconds and increase the checkout success rate by 15%. Razorpay Capital
allowed small and medium enterprises (SMEs) to avail collateral-free loans from bank and
nonbanking financial company (NBFC) partners on the basis of a credit score assigned by
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Razorpay’s Alternative Credit Decisioning System. At the time of the official launch, loans worth
USD 30 million had already been disbursed through the Razorpay Capital platform, with a target
to reach USD 100 million by March 2019. RazorpayX was a unified banking product for
businesses to manage payments and refunds as well as make disbursals across multiple
online/mobile payment methods and multiple bank accounts. X Club was a networking platform
for start-ups, meant to provide access to learning, mentoring, networking and raising money.
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In 2014, Shashank Kumar and Mathur, Indian Institute of Technology (IIT) Roorkee alumni,
founded Razorpay from Mathur’s family home in Jaipur. What started as a payment gateway for
e-commerce was now a portfolio of payment-related solutions. The next stage of this start-up’s
journey depended on how well Razorpay transitioned into a platform serving the high-growth
markets of digital payments and lending.
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The products launched at Razorpay FTX were an important milestone in Razorpay’s growth
journey as it expanded into new product lines such as digital lending and unified digital banking
operations. Thus far, Razorpay had positioned itself as a premium, hassle-free and
technologically superior digital payment solution provider for online payment acceptance and
disbursal for businesses. The co-founders wondered whether they needed to review the existing
strategy and modify it for the next phase of the firm’s growth. They wondered what they should
do to create value for their customers so that Razorpay could continue to command a premium
for its products and services.
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Prepared by Divya Ganjoo, PGPX 2017, Indian Institute of Management Ahmedabad; Professor Saral
Mukherjee, Indian Institute of Management Ahmedabad and Professor Sandip Mukhopadhyay, Institute
of Management Technology Ghaziabad.
Cases of the Indian Institute of Management Ahmedabad are prepared as a basis for classroom discussion.
They are not designed to present illustrations of either correct or incorrect handling of administrative
problems.
© 2019 by the Indian Institute of Management Ahmedabad and Institute of Management Technology
Ghaziabad.
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 2 of 19 A00358

THE DIGITAL PAYMENT ECOSYSTEM

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Payments in India had historically been cash based because of multiple reasons such as the
unavailability of appropriate digital payment options, Indians’ cultural preference for cash and
the fear of being tracked by the tax authorities. Although more and more Indians were opting for
digital shopping, their preferred payment mode remained cash on delivery (COD). Digital
payments could advance the government’s financial inclusion agenda, reduce the leakage in cash-

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based government subsidy schemes and make India the preferred hub for innovative digital
technologies.

Several factors were helping India’s march towards a less-cash society. 1 Access to mobile internet
had improved and the mobile data cost had decreased significantly after Reliance Jio launched
its 4G mobile services in 2016. Governments and other relevant institutions were promoting the
development of digital payment infrastructure by enabling regulations. They had provided

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multiple incentives for digital payments while restricting or penalising cash-based transactions.
The demonetisation of high-value banknotes in India on November 8, 2016, increased digital
payment adoption and usage. The government-promoted National Payments Corporation of
India (NPCI) had developed technical infrastructure for digital payments such as the Aadhaar
Enabled Payment System (AEPS), National Unified USSD Platform (NUUP), Unified Payment
Interface (UPI) and the Bharat Interface for Money (BHIM) application. The government actions
and market attractiveness were successful in stimulating the market’s supply side. Multiple
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categories of players had entered the Indian payment landscape: device manufacturers such as
Samsung; large internet companies such as Google and WhatsApp; banks such as the State Bank
of India, HDFC Bank and ICICI Bank; telecom operators such as Airtel, Vodafone and Reliance
Jio; online retailers such as Flipkart and Amazon; digital wallet providers such as Paytm and
MobiKwik; global payment gateways such as PayPal and PayU; and home-grown payment
gateways such as Razorpay, CCAvenue and BillDesk. Innovation in the digital payment space
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was expected to increase further with the easy access to capital and the availability of talented
resources.

Users had several technologies and services available for making digital payments; the popular
ones were mobile or electronic wallets, UPI, debit and credit cards, USSD-based services (for
feature phone users) and online banking. Because of the various digital payment methods and
many providers within each digital payment category, a new type of payment aggregator or
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payment service providers (PSPs) had emerged. PSPs such as Razorpay, PayU and Paytm
intended to manage the payment and collection processes of merchants and organisations. These
PSPs offered their customers a wide range of preintegrated choices of different digital payment
methods, saving time, masking technical complexities and handling regulatory hurdles in
integrating with a wide variety of payment products.

Unfortunately, the expansion in supply did not stimulate Indian’s demand for digital payments.
The Indian economy continued to remain cash intensive despite many options and service
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providers. The currency notes in circulation had grown even after demonetisation, showing the
limited effectiveness of demonetisation in pushing digital payments. This situation also raised
doubts about the feasibility of achieving the government’s target of 30 billion digital transactions

1 Retrieved December 14, 2021, from [Link]

market/

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during FY 2018–19. Digital payment providers needed to move beyond providing only payment

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solutions; they could provide comprehensive financial solutions for individuals and corporates.

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They had access to consumer consumption data, providing them with a unique opportunity to
offer relevant deals, coupons and offers to consumers and influence their consumption patterns.

THE FIRM

Razorpay’s foundation was laid at IIT Roorkee’s Hobbies Club. The two co-founders of Razorpay,

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along with a group of other students, formed the Software Development Section—an initiative
focused on developing software solutions for the institute or students’ problems. Their early
products were a media player that worked on limited internet bandwidth and a direct connect
solution that decreased the institute’s internet usage costs. Razorpay, incorporated by Mathur
and Kumar in 2014, initially focused on developing a Kickstarter-like crowdfunding platform and
automating the fee collection process of educational institutes. While working on these initiatives,

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they faced several challenges with the existing payment gateway systems, such as significant
onboarding and integration efforts, low success rate and nonintuitive reporting. Businesses that
wanted to accept online payments had to deal with high onboarding turnaround time (TAT)
because of manual KYC (know your customer) and document collection, high payment failure
rates, difficulties in integrating various kinds of payment technologies and tedious reconciliation
processes.
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Meanwhile, the Indian e-commerce industry was booming, driven by changing consumer
behaviour, increased internet and smartphone penetration and increased foreign investments. As
per a report, 2,3 e-commerce was growing at a compound annual growth rate of 43.8% from 2008
to 2013, fuelled by a foreign direct investment of USD 1.3 billion from 2010 to 2013. Seeing these
trends, the co-founders decided to focus on solving online money movement problems for e-
commerce companies. This idea formed the basis for the launch of Razorpay as a payment
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solution provider.

In 2014, Mathur and Kumar left their jobs at Schlumberger and Microsoft, respectively, to be full-
time entrepreneurs. Startup Oasis—an incubator of RIICO (Rajasthan State Industrial
Development and Investment Corporation)—and Indian Institute of Management Ahmedabad’s
CIIE (Centre for Innovation Incubation and Entrepreneurship) supported Razorpay. The
company became the second India-focused start-up to be selected in the Silicon Valley-based tech
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accelerator Y Combinator’s (YC) programme, raising USD 2.6 million in the seed funding round
from YC and other investors. Between 2015 and 2018, Razorpay raised USD 31.6 million over four
rounds of series A and B funding from investors such as Tiger Global, Matrix Partners, YC and
Mastercard.

Razorpay was growing at a sustained rate (see Exhibit 1 for revenue and profit/loss details). By
December 2018, its merchant base had grown to more than 170,000 businesses. It had processed
a cumulative USD 1 billion worth of payments. It had more than four million saved cards, had
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support for 92 currencies and allowed net banking through more than 50 banks and nine payment
wallets. Razorpay also moved its headquarters to Bengaluru, operating in a two-floor office, and
had branch offices in Delhi and Mumbai. The employee strength had grown to 350, and the

3 Retrieved May 3, 2019, from [Link]

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average employee age was 26 years. Employee perks comprised MacBooks for everyone, free

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food and snacks, generous insurance coverage and flexible working hours.

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Sales and Marketing

Razorpay customers could be broadly divided into two segments: (i) start-ups and SMEs, which
formed a majority of the customer base and were key to acquisition and growth targets, and (ii)
established businesses, which contributed significantly to the transaction volume. Clients

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included large online players such as Flipkart, Swiggy and Yatra, as well as more conventional
businesses such as Aditya Birla Capital, Indian Railways Catering and Tourism Corporation
(IRCTC) and Airtel. For the large-volume customers, error-free robust technological solutions
were key, as a difference of even one basis point in the error rate could directly impact their top
line. However, the smaller customers valued affordable rates, customer support and technical
guidance.

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Razorpay saw technology as a way to simplify money transactions for various stakeholders. For
developers, it focused on the ease of integration via APIs (application programming interfaces)
and extensive documentation in such a way that even a junior developer could integrate that API
on their own. For end consumers, Razorpay ensured that the user experience was seamless, with
a checkout experience optimised for slow internet connections. It also offered convenient
customer support via tools such as “Track Refunds”. Finance and business teams of merchants
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benefited from the dashboard that simplified generating reports and getting visibility into how
money and information were moving.

Razorpay primarily operated on a service fee model; it charged a fixed percentage on the
transaction amount for every payment transaction made through it. Although transaction-
processing costs varied—depending on the payment mode, such as the credit card network, net
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banking and wallets (see Exhibit 2)—Razorpay charged a 2–3% transaction fee for SMEs. It also
had an option to negotiate rates for enterprises that had a large volume of payment transactions
or special customisation requests based on customer servicing requirements.

Razorpay’s sales and marketing teams spent time to understand how money flowed in the target
customer’s business and how Razorpay products could help simplify those flows. The sales pitch
varied between tech and nontech companies. In tech companies, the product arm of the chief
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technology officer (CTO) office mostly owned digital financial transactions. In nontech
companies, the buying unit could comprise the information systems team, the finance team or a
separate digital arm of the company. The key influencers of digital payment integrations varied
on the basis of the maturity of the business. In early-stage start-ups (approximately 10% of the
market), software developers could drive the purchasing decision, while it was usually the
product team in mid- or late-stage start-ups. In more mature businesses, decision-making
processes were complex and varied from company to company. The deeper a client was on the
maturity curve, the more complex were its money flows, and Razorpay could uncover more
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opportunities to provide higher value through new product features or a combination of services.

Razorpay’s marketing team was divided into SME Marketing and Enterprise Marketing and was
responsible for growth and volumes. The SME Marketing team used mass-scale targeting to
increase awareness among SMEs and ran campaigns primarily on digital media channels in order
to drive traffic to Razorpay’s website and encourage self-registrations. The Enterprise Marketing

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 5 of 19 A00358

team focused on more-established firms, applied different go-to-market techniques on the basis

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of the specific problems of the target customers and varied the sales pitch on the basis of the

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product bouquet that catered to that customer. A separate Client Success team focused on
retaining marquee customers through dedicated managers assigned to address customers’ needs
and manage ongoing relationships. The Banking Alliances team—part of Razorpay’s business
operations organisation—focused on growing, maintaining and deepening relationships with
banks and NBFCs.

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Support and Operations

The Support and Operations team handled queries and complaints from merchants and
customers. It comprised 65 people across 11 teams. The Customer Support team handled queries
and complaints from end consumers. The Merchant Support team handled issues from the
merchants, and the Enterprise Support team provided premium support for key accounts. The

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Tech and Integration Support team supported queries from developers on Razorpay APIs or
technical documentation. When a new merchant signed up, the Activations team would perform
all the compliance checks before a merchant could start transacting on the platform. To manage
the waiting time for activating new merchants, Razorpay separated ongoing compliance or
checks related to new requests from existing merchants into a different BizOps (business
operations) team to handle. The Disputes and Chargebacks team coordinated disputes (a
customer complaint to Razorpay against a merchant) and chargebacks (a customer complaint to
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the issuing bank directly) with the customer, merchant and acquiring bank. The Merchant Risk
team would investigate suspicious trends and activities, such as refund rates, disputes and
chargeback activities from a merchant account. If needed, it would suspend the merchant’s
account from the Razorpay platform and hold onto the merchant’s funds for 180 days, the time
within which consumers could raise a dispute or chargeback. Similarly, the Buyer Risk team
would watch for patterns suggesting fraud from customer accounts and take necessary actions
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ranging from blocking those accounts to reporting them to the state’s cybercrime cell.

For support and operations, Razorpay hired fresh graduates and trained them in-house. Almost
all hires would start off in customer support and spend at least a month there before they could
move to another team. Early on, Razorpay had a rotation programme where everyone in the
company, from founders to developers, was mandated to spend six hours per month in support.
As the company grew, controlling the quality of interactions was a challenge and the policy had
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to be dropped. Instead, processes and regular meetings between different departments and the
support team were instituted to capture and cascade the end customer’s voice.

With increasing transaction volumes, merchant base and product launches, the Support and
Operations team was now handling more monthly service requests (see Exhibit 3). However, as
a philosophy, the company did not want to house a bulky support team but use automation to
reduce activity times or encourage zero-touch support by developing self-service tools for
customers. For example, to reduce the time a ticket might spend waiting in the queue before being
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categorised correctly and routed to the correct team, the team developed a self-serve form on the
website where the customer could preselect a complaint category. Similarly, when the support
team started seeing that the customer queries on refunds were increasing, it reached out to
product development and created a self-service portal to let the customer track the status of their
refunds directly from the form online. More than 90% of the merchants never needed to interact

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with a sales or customer support person in the process of going live because of the self-service

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tools and knowledge base on Razorpay’s website.

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Customers could reach out to the Razorpay support team by submitting a form on its website or
via email. In addition, merchants could chat with a customer support agent online via an option
on the merchant dashboard. Enterprise customers could call the support team via a “click to call”
option on the dashboard. They also had a dedicated client success manager, aligned with the sales

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organisation, who maintained a close relationship with the client and was usually the first point
of contact for enterprise customers.

In addition to using automation, Razorpay introduced gamification to enhance the engagement

and performance of the support teams. Support team members would earn points to compete
across four categories on the leader board, which was visible to everyone in the organisation.
Customer satisfaction was measured through a quarterly NPS (net promoter score) survey and

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CSAT (Customer SATisfaction) survey for every ticket resolved. CSAT was measured on a binary
scale (satisfied/not satisfied), with the option to add free-text feedback the team would review
monthly.

Razorpay’s responsiveness to queries and ability to empathise with the customers had helped it
gain huge momentum early on. The support quality became a unique selling proposition in
Razorpay’s sales pitch. However, as more and more products were launched, the urge to address
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client requests for complex features was accorded higher priority than the support team’s
concerns. Without proper tools and systems to keep up with growing customer queries with
every new product, the support function started to crumble, with a corresponding decrease in
NPS. Concerned with this issue, Razorpay introduced controls and key performance indicators
to ensure the post-launch maintainability of the products and incorporated support feedback
early on into the product development process.
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Product Development

Passionate about software development and having faced challenges with the existing
complexities of integrating online payments, the founding team consciously focused on
technological superiority and simplicity of integration for developers. With one-line integration
code, well-documented software development kits (SDKs), APIs and plug-ins across technology
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platforms, and developer support, the team strived to establish a superior brand image among
the developer community, which highly valued peer recommendations and support when using
new products or technologies.

Razorpay formalised its product development process to handle rapid expansion in the product
portfolio. Each product had a dedicated product manager—who led the development team—and
a product marketing manager aligned with the marketing organisation. Moreover, the core
product API platform had a separate product manager. Razorpay’s strategy team defined
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company goals and metrics that trickled down to the individual product level. The product
managers were the custodians of their products. They would gather and prioritise inputs on new
features, customer pain points and product improvements from various sources, including
customers, the sales and marketing team, the strategy team, support teams and colleagues. They
also conducted analyses of product metrics and NPS studies. Once the team and various
stakeholders reached a consensus on what to build first, the detailed product, design and

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technical specifications needed to be written and circulated for approvals before the real

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development began. The development team worked on features in time-bound two-week periods

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called sprints on the basis of the iterative agile scrum 4 methodology. Finally, the developed and
tested features would be rolled out in phases to certain cohorts or merchants in order to receive
market validation in a risk-controlled manner.

Products

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Payment Gateway

The very first product of Razorpay and its biggest revenue generator (see Exhibit 4) tackled the
core online payment acceptance challenges for merchants. The payment process included several
steps involving different firms, as explained in Exhibit 5. Payment failure rates were estimated to
reach as high as 25% for some payment methods. Payment mode options, quality of internet

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connectivity, processing time, efforts to pay, wrong or invalid payment information and user
interface nuances were some factors that impacted dropouts at the payment stage of an e-
commerce transaction. Handling returns, refunds, frauds and hundreds of edge cases 5 for each
payment mode was technologically complex and effort intensive. Payment gateways would ease
some of these issues for merchants, but integrating with a payment gateway itself was
cumbersome as onboarding could take as long as two to three months. Little technical support
was available, leaving the merchant’s already overstretched tech teams struggling for days or
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weeks trying to overcome integration issues.

Razorpay’s pitch to merchants was a seamless payment experience for end customers that would
not only make it convenient for merchants to offer different digital payment options but also help
realise higher conversions and control development and reconciliation costs. Razorpay promised
the easiest integration, completely online onboarding, a feature-filled checkout, PCI DSS
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compliance 6 and best-in-class performance.

The Razorpay payment gateway featured a toolkit of payment options, a dashboard, a checkout
button and page, and an array of APIs, plug-ins and libraries with support for major platforms.
It became the first payment gateway in India to offer a fully online onboarding and activation
method, with express activation of one hour in some cases. This feature was enabled via a
customisable checkout button and a form with all the payment methods, in-built with validations,
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error handling and retry processes, effectively trimming down weeks of development effort to
hours. Alternatively, merchants could choose to use their own checkout forms and utilise only
Razorpay’s APIs for payment gateway integration. By integrating with Razorpay’s payment
gateway, the merchant could start accepting payments via all major debit and credit cards, more

4 Agile scrum or scrum agile is a time-boxed iterative software development process to build, inspect and ship

software incrementally. It incorporates mechanisms for iterative feedback to deal with changing or evolving business
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requirements.
5 Edge cases are rarely occurring conditions. In designing products with a universal design (i.e., for extremely diverse

range of situations, users and abilities), edge cases must be handled to achieve a reasonable level of quality. Examples
of edge cases include API designs that can tolerate inputs of malicious nature or at boundary conditions or designing
the checkout experience considering that network connectivity might drop off in the middle of a mobile payment
transaction.
6 PCI DSS refers to Payment Card Industry Data Security Standard. Since Razorpay was PCI DSS certified, merchants

did not need to be individually certified to be compliant with security standards for accepting cards.

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than 50 net banking options, nine mobile wallets, UPI and Bharat QR. The dashboard allowed

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merchants to manage their accounts; configure payment business rules; access and manage

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payments, refunds, invoices, etc.; download reports; and track real-time data on payments,
settlements and refunds.

Developer Hub

Razorpay’s Developer Hub was a self-service portal publicly available to developers for help with

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anything regarding Razorpay APIs or integrations. It featured comprehensive technical
documentation and developer guides, sample code, API references, SDKs, plug-ins and libraries
across all supported platforms and technologies. Developers could also contact Razorpay’s help
desk or access its online knowledge base for further assistance.

Razorpay’s developer resources, responsiveness and product robustness clicked well with the

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developer community. Word of mouth within the community was a major contributor to
inquiries from merchants and large businesses. Razorpay attributed its initial success more to its
organic growth through this channel than to any formal marketing or sales efforts.

Razorpay 2.0 Suite

Operating as a payment gateway for about two and a half years, Razorpay realised that money
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flows varied by businesses and there were upstream and downstream interactions that went
beyond a website’s checkout page. These transactions often led to disbursements or offline
payments that severely impacted merchants’ or their customers’ payment-related experiences.
These issues or peripheral scenarios deterred the scaling up of online payments and represented
an underserved opportunity space ripe for innovation. In 2017, Razorpay launched a suite of
products under the “Razorpay 2.0” theme, rebranding itself as “a converged payment solution”
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that allowed merchants to mix and match from various offerings to match their business
requirements. Razorpay’s dashboard connected all these products together for the merchant and
acted as the online command centre from where merchants could manage and control their
payment operations centrally.

Smart Collect (Razorpay 2.0 Product)

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Using Smart Collect, businesses could automate accounts receivable or campaign-specific

NEFT/RTGS/IMPS 7 collections via virtual account numbers. It provided automatic reconciliation
of accounts receivable and account-level visibility into all incoming payments via the dashboard.

Subscriptions (Razorpay 2.0 Product)

A common business model for many online businesses was subscription payments, where
customers could pay a fee on the basis of a fixed schedule (such as for rentals) or on the basis of
how much they consumed over a billing cycle (such as for content-based services). Razorpay
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Subscriptions automated the recurring payment through credit cards, debit cards, E-mandate or
UPI, doing away with the repeated manual action from the customer and thereby increasing
customer retention rates. The merchant could automate communications related to the

7 National Electronic Funds Transfer (NEFT), Real-Time Gross Settlement (RTGS) and Immediate Payment Service

(IMPS) are electronic payment systems that enable users to transfer funds between bank accounts.

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subscription status and prompt the next steps to customers via webhooks. This product also

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handled edge cases such as declined cards, retries on failed transactions and change of cards. At

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one point, Subscriptions was the second-most revenue-generating product for Razorpay.

Payment Links (Razorpay 2.0 Product)

Payment Links were web addresses that could be generated on demand through the Razorpay
dashboard or APIs. These links could be sent to customers via SMS or email in order to allow

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them to make payments using any of the supported payment methods. This functionality
provided a tactical instrument for businesses to manoeuvre various scenarios such as when a
business did not have a website or online app. In one such example, Treebo—an Indian budget
hotel chain—saw a 30% drop 8 in no-shows by asking customers who booked a hotel room with
the “pay at hotel” option to pay in part or full via a payment link.

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Route (Razorpay 2.0 Product)

In certain online marketplaces, the payment received from an end customer had to be split among
multiple sellers. In other situations, a firm may have to split a customer’s payment among
multiple vendors. For example, a firm may provide an option to end customers to donate a small
amount to a cause while purchasing a product or an option to buy travel insurance while
purchasing a flight ticket. Route allowed splitting the payment at source in real time and
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automated transfers, settlements and refunds. Traditionally, settlement and reconciliation of
multivendor payouts needed manual interventions, such as tracking and approvals, and were a
pain point for the account departments. Using the Razorpay dashboard, a merchant could control
the business logic for splitting and settlement and track the payouts.

Invoices (Razorpay 2.0 Product)

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The roll-out of Goods and Services Tax (GST) in 2016 encouraged online payments but had
several merchants grappling with invoicing issues and customer queries. Razorpay “Invoices”
was a GST-compliant invoice format that merchants could set up from their dashboards and
allowed sending invoices to customers via emails or SMS. It also allowed customers to make full
or partial payments from the digital invoice.
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Responding to Specific and Sudden Requirements of Merchants

The demonetisation of high-value currency notes in November 2016 took out 86% of the currency
by value in circulation 9 and left 12 million mom-and-pop stores unable to handle regular retail
transactions. Most of these retail stores only transacted in cash and did not have point-of-sale
(POS) hardware or websites or apps. The Razorpay team ideated and launched an ePOS app
within three days of demonetisation to help such small merchants overcome this situation. A
merchant could download the ePOS app on their Android device, get it activated in a few hours
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and start transacting with their cash-crunched customers via payment links or wallets in real time,
even for offline purchases.

8 [Link]

9 Chakravorti, B. (2016, December 14). India’s botched war on cash. Harvard Business Review.

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Another such product—eCOD—aimed at disrupting COD, which constituted 60–65% 10 of all e-

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commerce orders in India. Consumers preferred COD because of the general lack of trust in the

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quality of order delivery, hassles related to product returns and patchy internet connectivity,
especially in tier 2 or tier 3 cities. eCOD allowed a merchant’s delivery executives to accept
payments from customers at the time of delivery of goods via noncash methods such as UPI,
wallets and payment links.

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The 2018 Kerala floods reportedly affected one-sixth of Kerala’s population. 11 Social media and
digital payments played an important role in mobilising people to extend help through
donations. The food delivery service provider Swiggy, a customer of Razorpay, wanted to collect
donations for the Kerala floods on its platform. It asked Razorpay to quickly set up a page.
Although this was a sudden and unplanned activity, the Razorpay team realised that they were
uniquely positioned to help the customer and the community by mobilising the last mile of
payments. However, the task was more complex than just setting up a page as it required

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mandatory segregation of funds, receipt management and compliance with mandates related to
income tax exemptions. The team quickly got in touch with the chief strategist of the Kerala Chief
Minister’s Distress Relief Fund to understand the basic details of how to enable transactions. The
team conceptualised and delivered the page in three hours, creating strong goodwill with Swiggy
while collaborating for a cause and giving back to society.

Reinventing Razorpay: Moving from Products to Platforms

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The four new products unveiled at the Razorpay FTX conference were a mix of incremental
innovations and fundamental shifts. While Flash Checkout refined an existing product,
RazorpayX extended the services to existing customers by offering payment disbursement apart
from the existing service of payment acceptance. In contrast, X Club and Razorpay Capital
involved a fundamental shift towards developing Razorpay as a platform. With fintech
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opportunities in full bloom in India, Razorpay wanted to diversify beyond pure-play payments
into related business lines in the fintech universe where it could use the synergies of being a
payment player to a maximum advantage. Diversification of product lines was also becoming a
common theme in the payment-tech industry; mobile wallet companies, payment gateways,
payment banks, etc., were expanding into adjacent sectors such as lend-tech and insure-tech or
into additional value-added services such as marketing or logistics. Razorpay’s growing
proximity to its clients exposed it to the internal workings of their financial operations and
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allowed it to identify and solve several inefficiencies.

Flash Checkout

Razorpay added several features to its payment gateway over time to enhance end users’
checkout experience. Flash Checkout focused on redesigning microinteractions 12 to reduce the
efforts a user had to make during checkout. Although the Reserve Bank of India relaxed its two-
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10 Retrieved May 3, 2019, from [Link]

[Link]
11 [Link]

[Link]
12 Microinteraction is a specific moment of interaction in a user interface. For example, a user swiping on a slider is a

microinteraction. In UX, microinteraction designs are considered extremely important in communicating with users,
gaining their attention and encouraging positive favourable behaviour from them.

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 11 of 19 A00358

factor authentication rule for transactions of less than INR 2,000, banks mandated it as an

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additional security measure. This meant that a user would receive a one-time password (OTP)

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for every online checkout via SMS. The user would then enter the OTP on the merchant’s checkout
page to complete the payment. However, switching screens back and forth between the checkout
page and the messaging app and entering the OTP needed increased efforts and time and added
distractions to the process, thereby creating problems for the customer. Flash Checkout used a
native OTP feature so that users could enter the OTP within the same payment screen without

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leaving the merchant’s app/website. In addition, it could preselect a user’s preferred payment
method on the basis of their payment behaviour across merchants. Customers could use their
saved cards from the Razorpay network when shopping with a new merchant.

Affordability is a major factor for Indian consumers. Offers and discounts are a popular way for
Indian e-retailers to attract customers. Flash Checkout allowed merchants to show offers and
promotions for popular cards or wallets and incorporate affordability into the checkout process.

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RazorpayX

While working with clients, Razorpay realised that digital innovation in corporate banking was
often ignored and much of the technology and design was outdated. Financial customer
relationship management (CRM) packages used by clients provided fragmented control over
money flows and accounting, and most corporate dashboards did not provide cohesive insights.
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With the increasing variety of payment channels and scenarios, accounting departments were
saddled with significantly higher reconciliation issues and spent much time understanding data
and deriving usable information.

RazorpayX was Razorpay’s version of artificial-intelligence-based digital banking. It aimed at

uplifting the way businesses managed and controlled their financial operations. It had a
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dashboard, APIs and automation to manage multiple bank accounts, set up payments and
refunds, and manage and schedule payouts and integrations with other Razorpay products. By
creating an account with Razorpay, businesses could enable money flows via multiple financial
channels (NEFT/RTGS/IMPS, UPI, wallets, cards, etc.) and automate payouts such as salary
disbursements.

The financial CRM capabilities built into the product could provide actionable insights such as a
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client’s burn rate, cash left, financial ratios and on-time payments, which could be used to
categorise payment defaulters on the basis of income, expenses, payments and other accounting
data. In effect, it could help start-ups answer questions such as “how much longer can we stay
afloat” and “could we arrange more credit”. On the other hand, established businesses could
benefit from the cost and process efficiencies enabled by RazorpayX. By automating payments,
payouts and reconciliation efforts across bank accounts, payment methods and receivers,
RazorpayX removed several pain points for their accounting departments.
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X Club

X Club was a networking platform to help start-ups and entrepreneurs meet investors,
accelerators, potential partners and mentors. It aimed at helping these start-ups solve their money
flow and capital issues. The co-founders had the experience of the advantages of having access
to an entire community of mentors and fellow entrepreneurs at Y Combinator and the difference

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 12 of 19 A00358

it had made to their entrepreneurship journey. Therefore, they wanted to build a similar platform

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for Indian start-ups. They described it as a “safe space where you can ask difficult questions about

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running a business”.

Razorpay Capital

A large portion of Razorpay’s client list comprised inventory-led online businesses. These SMEs
struggled with maintaining enough working capital to fulfil orders and manage demand

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fluctuations. The traditional form of accessing money was bank loans. But without enough
history or substantial collateral, small merchants found it challenging to find lenders. Banks and
NBFCs extensively analysed the creditworthiness of businesses before lending to them and
deciding lending terms. The way traditional models worked, all lenders ended up competing for
the same pool of SMEs that the models deemed worthy of financing, and this pool formed only a
fraction of the overall SME segment.

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Additionally, one single company could not have a direct relationship with the entire SME
market. Thus, lenders’ common strategy was to partner with loan aggregators or agents who
would help source credit takers for a considerable commission. Therefore, though there was
enough credit and lending appetite in the market, traditional lending systems restricted access to
the right audiences. Several start-ups, providing online peer-to-peer lending solutions and small
working capital loans for merchants, were growing well and had raised huge funding. The digital
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lending market was expected to hit USD 1 trillion between 2018 and 2023. 13

Razorpay Capital was a marketplace offering instant settlements and collateral-free loans to
Razorpay’s clients. By having access to a merchant’s transaction history, Razorpay had visibility
into certain trends and business behaviours—e.g., seasonality in sales, financial-year-end
behaviour, refunds and chargebacks/fraud issues—that could be useful as indicators of a
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merchant’s creditworthiness. This information visibility formed the basis for an Alternative
Credit Decisioning System that used transaction history to assign a credit score to a merchant as
an input to aid NBFC partners’ lending decisions. For merchants that qualified for preapproved
or collateral-free loans, instant access to loans was available with a click of a button from the
Razorpay dashboard. With Razorpay being the mediator, merchants could save significant
workforce costs and time spent in chasing lenders, managing relationships with individual
banks/NBFCs, figuring out the best interest rates, etc. The lending partner on the other side of
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the marketplace would benefit from an additional source of loan generators and a quality supply
of prequalified leads at a fixed cost.

The product allowed a flexible repayment model where merchants could opt for Razorpay to
deduct part of their daily settlements towards loan repayments on the basis of their ability to pay
on that day. On the basis of the day’s volume compared to the merchant’s average transaction
volume, the model would automatically know and charge less or more. Another problem
businesses faced was that settlements through a payment gateway happened on a T+2 or T+3
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basis, 14 so it became hard to manage the float, especially during a spike in orders. To help expedite

13 [Link]

[Link]

14 T being the date of capture of the payment, settlement on T+2/T+3 refers to the second/third working day after T.

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 13 of 19 A00358

this cycle, Razorpay Capital provided Instant Settlements and Scheduled Early Settlements

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options where it took some additional risk to provide a cash advance by settling their payments

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on the same day or the next day by 9 a.m.

After merchants had been transacting for at least three months and hit a steady flow of volume
with Razorpay, they would be eligible to apply for Razorpay Capital and would be intimated via
the dashboard or the marketing team. Opting-in would mean that they permitted Razorpay to

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share their credit scores with partner NBFCs. Once onboarded, merchants could apply for
preapproved loans or would be matched with lending partners and use instant settlement
features. To control users’ overall experience of the platform, Razorpay also stipulated minimum
performance criteria, such as the time to settle a loan, for the lending partners. Over time,
Razorpay saw Razorpay Capital as an open market for any NBFC or bank to come onboard as
long as they met the performance criteria. However, Razorpay initially planned to pilot the
programme by partnering with only a few NBFCs and banks who valued its brand and clientele

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and had positive internal references from their teams who had worked with its payments
products. An open marketplace meant that the platform operator needed to handle diverse
lenders and their lending practices. For example, NBFCs typically specialised in sectors
(restaurants, travel, etc.) for lending and had different internal standards for the time required to
disburse sanctioned loans, different loan repayment schedules and different payment
instruments.
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The Choices in Scaling Up

The products launched during Razorpay FTX were an important milestone in Razorpay’s growth
journey as it expanded into new product lines such as digital lending and unified digital banking
operations. So far, Razorpay had positioned itself as a premium, hassle-free and technologically
superior digital payment solution provider for online payment acceptance and disbursal for
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businesses, mostly start-ups. Razorpay delivered value to customers on various parameters such
as ease of integration, developer friendliness, post-implementation support, user experience and
payment conversion rate. The founders wondered whether they needed to review the existing
strategy and modify it for the next phase of the firm’s growth.

Mathur and Kumar wanted Razorpay to be the most technically advanced and comprehensive
platform for digital payments and lending for Indian businesses. However, they sensed that the
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early signs of the payment ecosystem’s commoditisation had started showing and were worried
that as competitors caught up on features, product-based differentiation would not last long (see
Exhibit 6 for a view of how a customer, Rivigo, perceived Razorpay). The founders wondered
what they should do to create value for their customers so that Razorpay could continue to
command a premium for its products and services. The founders also needed to consider whether
Razorpay’s traditional strength of service convenience could be a differentiator in an already
crowded marketplace of digital payments and lending where the low price was usually the key
purchase criterion.
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In the long run, Razorpay wished to become a multisided platform on which third-party service
providers such as banks and NBFCs could provide various services to merchants, taking
advantage of the analytical capabilities that a platform with rich client transaction history
enabled. To attract external complementary service providers, Razorpay needed to grow the
transactions on its platform. Therefore, in the short run, Razorpay needed to choose among

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 14 of 19 A00358

different options for growth. Should it focus on growing the revenue or profitability or usage of

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the platform or something else? This choice was also fundamentally linked to the kind of investor

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base. Venture-capital-based funding could allow longer-term investments in developing the
product suite, while private equity players needed to provide exits to their clients at higher
valuations and hence may have a relatively shorter-term focus. A change in the investor base
composition in terms of the investment horizon during subsequent funding rounds could alter
the metrics used for evaluating growth. Conversely, if the founders believed that Razorpay

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needed to continue its investments in the product suite rather than show quick results, the firm
needed to choose the kind of investors it wanted to attract.

The founders were also deliberating whether growth should come from taking a product-focused
or solution-focused approach. With a product-focused approach, standard products were
developed with many features; most customers might not immediately use a few of those
features. This approach led to a higher initial investment (capex) and ensured limited ongoing

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expenses and customisation efforts. Razorpay also wanted to invest in different types of products
to capture more and varied transactions of customers.

With a solution-focused approach as followed by Razorpay’s multiple competitors, custom

solutions were developed for each individual need. This approach also increased the product–
market fit for an increasing diversity of sectors and reduced the necessity of predeveloping many
product features and extensions. With a product-centric approach, Razorpay had all along been
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developing standardised APIs that most customers could use without the need for major tweaks.
While the existing structure of the product marketing team might suffice for a product-focused
approach, a solution-focused approach could call for setting up different strategic business units
(SBUs) for different industry verticals (e.g., online education) or for different product offerings
(e.g., Subscriptions). While an SBU structure could allow better design, delivery, sales promotions
and customer service, it risked fragmenting the seamless integration of data across different
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products as Razorpay grew in size, potentially creating data silos. In contrast, a product-focused
approach ensured that Razorpay could continue to make expensive but long-term investments in
extending the product suite and to capture merchants’ financial transaction history across
different transaction use cases. While an increase in the transaction volume and variety ultimately
increased revenues, the two paths differed in terms of the richness of the merchant transaction
analytics capabilities that could be developed subsequently.
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The choice of the customer segment to serve was also important. While Razorpay was focused on
disruptors, the disruptor could be not just start-ups disrupting the legacy players in an industry
but also progressive legacy players in banking, mutual fund and insurance verticals that had
created small internal teams to redesign and disrupt the traditional financial service industry.
While the needs of these two kinds of disruptors (start-ups and legacy players) were similar to
some extent, there existed a large number of established businesses with a large volume of
financial transactions that were not disruptors. While the established businesses represented a
growth potential for Razorpay, serving this segment would mean working on offering a different
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value proposition than what appealed to the start-up disruptors. The established businesses had
large accounting departments, access to in-house and outsourced information technology service
teams, and better financial stability and cash flows. Such businesses might see little value in
entering into a revenue-sharing pact with firms such as Razorpay for enabling digital financial
transactions.

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 15 of 19 A00358

The final growth frontier was the large cash-based economy in India. According to Atul Mehta,

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head of sales, Razorpay, the true competitor of Razorpay was not any specific payment gateway

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or wallet but the alternative nondigital payment mechanisms including cash. Instead of fighting
with competitors (see Exhibit 7 for a description of major payment gateways) for an increase in
the share of the digital financial transaction market, how could Razorpay be a change agent in
enabling a move away from cash towards digital payments? Could Razorpay not only act as
backend support for disruptors but also present compelling use cases to consumers to wean them

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off cash-based payments? However, such a gambit might require moving away from its
traditional strength in B2B markets towards B2C markets, possibly launching products such as
digital wallets. Such a move might also mean that Razorpay would have to move away from
being agnostic about payment instruments available to consumers on the Razorpay platform and
bring Razorpay into direct competition with some of the existing wallet providers. Instead, would
it be prudent for Razorpay to stick to the B2B market and be the backend PSP? Currently, a
customer on an e-commerce website might not even notice that the payment was processed

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through the Razorpay channel. Growing the Razorpay brand in not only merchants but also end
consumers and investors’ minds could be the most difficult but promising challenge facing the
founders.
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No
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 16 of 19 A00358

Exhibit 1

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Revenue and Profit/Loss (INR million)

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2014–15 2015–16 2016–17 2017–18
Total income 1.07 48.82 258.24 922.22
Revenue from 0.85 7.99 216.37 900.56
operations
Other income 0.22 40.83 41.87 21.66

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Total expenses 1.48 44.43 265.97 956.68
Profit before tax −0.41 4.39 −7.73 −127.51
Profit after tax −0.41 2.87 −5.49 −127.69

Source: Annual reports of the company

Exhibit 2
Comparison of Payment Gateways’ Pricing (INR)

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Razorpay MobiKwik PayUbiz PayUMoney Paytm Instamojo CCAvenue
(various
plans)
0 4,900– 0 0 0 0–30,000
Setup fees
19,900
0 2,400– 0 0 0 1,200
AMC
7,400
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NEFT/RTGS/ 2 1.90 2.25– 2 1.9–9 Free 2
bank transfer 2.95
charges (%)
Debit card 2 1.90 0.75–1 2 1.9–9 2 + INR 3 2
charges (%)
Visa, 2 1.90 2.25– 2 1.9–9 2 + INR 3 2
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MasterCard, 2.95
RuPay
charges (%)
Wallet charges 2 1.90 2.25– 2 0–9 2 + INR 3 2
(%) 2.95
AMEX/Diners/ 3 2.90 3–3.70 3 1.9–9 3
JCB charges
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(%)
International 3 2.90 NA/3– 3
card charges 3.25 +
(%) INR 6
Multicurrency 3 4.99
(%)
Wallets 8 4 5 1 4 8
supported
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Net banking 58 45+ 50+ 50+ 53+

options

Source: Prepared by the authors on the basis of news reports and information from company websites

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 17 of 19 A00358

Exhibit 3

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Number of Service Tickets Handled

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Q1 (Apr–Jun) Q2 (Jul–Sep) Q3 (Oct–Dec) Q4 (Jan–Mar)

2016–17 5,576 8,669 14,884 19,468

2017–18 21,488 24,677 37,830 35,587

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2018–19 35,878 43,300 46,400 70,200

Source: Company data

Exhibit 4
Product-Wise Percentage Share of Revenue

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2016– 2017– 2018– 2019–20
17 18 19 estimate

Payment gateway 100 85 70 55

2.0 products (Payment Links, Subscriptions, Route,

0 15 30 45
Smart Collect)
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Percentage of enterprise accounts using more than
0 25 60 90
one product

Source: Company data

Exhibit 5
Process Flow in Online Checkout
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1. The buyer (consumer) clicks the buy/checkout button, selects the payment mode, enters payment
instrument information (e.g., credit card info) and initiates the payment.
2. The payment gateway/aggregator receives the payment information, encrypts the information and
passes it onto the wallet or issuing bank via the backend network (e.g., card networks or aggregator
partner) as per the selected payment mode.
3. The issuer authorises the payment and sends a success or failure notification to the acquiring bank
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via the network. The acquirer notifies the payment gateway.

4. The payment gateway sends a confirmation to the merchant website.
5. The issuing bank/wallet also sends a confirmation to the customer about the transaction.

Source: Prepared by the authors on the basis of news reports and information from company websites
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 18 of 19 A00358

Exhibit 6

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Customer Perspective—Rivigo

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Rivigo is a logistics company that operates a unique driver relay model where the firm’s truck drivers drive
company-owned trucks over specific sections of a long route. It also offers a separate freight marketplace
service to connect individuals or organisations having trucking needs with fleet operators. Typically, a fleet
owner insists on advance payment before a load is picked up at the client site. The client has to pay the
advance to the fleet owner through Rivigo’s website, which uses several payment gateways. A payment
transaction involves several payment hops such as the client, the client’s bank or card or wallet provider,

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the fleet owner’s bank, any intermediary like NPCI if transactions such as UPI are involved, Rivigo servers
and payment gateway servers. With multiparty involvement, even a 0.5% error rate in one leg of the
payment hops can adversely impact the overall reliability of the entire payment transaction. Given the higher
average ticket size compared to e-commerce transactions, unreliable payment transactions can cause
significant delays in payments, leading to vehicle detention and substantial loss in business for fleet owners.

To build in high availability, speed and robustness into its systems, Rivigo, therefore, uses multiple payment
gateways for accepting payments from the clients, which are then passed onto the fleet owners via IMPS

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or NEFT. Rivigo uses a dynamic switching algorithm that evaluates the payment gateways’ performances
on the basis of (i) success rate (how many transactions go through successfully in one go), (ii) turnaround
time or TAT (time for the payment gateway to respond with a confirmation of success or failure of a
transaction so that further disbursements or autorefunds can be processed) and (iii) bluff rate (a transaction
earlier termed as a success but later termed as failed or vice versa is called a bluff). The dynamic switching
weighs these parameters in real time and diverts exponentially more traffic to the better-performing
gateway. Rivigo reported that Razorpay received more volume of transactions on average than other
competing payment gateways. To stay competitive, payment gateways needed to continuously improve the
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success rates, speed and reliability of transactions. As Razorpay had a success rate of 75% (including
factors over which payment gateways had no control, e.g., customer’s change of mind at the payment
stage), Rivigo felt there was enough scope for further improvement.

Rahul Lodha, VP Engineering at Rivigo, rated Razorpay’s support and communication as high quality. He
appreciated Razorpay’s proactive participation in planning and communicating downtime to Rivigo,
debugging and identifying root causes for stuck transactions and providing visibility on issue resolution. He
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praised Razorpay’s use of automation, where possible, in order to enable Rivigo to help its customers. For
example, Razorpay had provided Rivigo with an API that informed that a particular bank payment server
might be experiencing high latency or failure rates. Rivigo could then inform its clients of the situation and
suggest they use another payment mode.

Lodha also valued the scalability inherent in using a technologically advanced payment gateway. Since
Rivigo’s freight marketplace vertical was growing in volume, the reconciliation efforts required would have
also grown substantially if the payment gateway was of poor quality. Because of the adoption of Razorpay,
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Rivigo’s finance team did not need to handle payment reconciliations, thereby freeing them up for more
pressing business challenges. Also, the Rivigo technology team’s effort to resolve issues was reduced
because of the debugging facilities such as detailed logs and dashboard provided by Razorpay.

As a technology-based logistics player, Rivigo differentiated itself as a supply chain innovator. It thus valued
collaborative innovation efforts. In Rivigo’s part-truck load business, Razorpay Payment Links helped
remove the use of cash, which needed manual reconciliation. Similarly, Rivigo and Razorpay collaborated
to brainstorm ways to reduce the payment failure rates for payments involving NPCI, which had a higher
failure rate. A potential solution would be to avoid the NPCI network through direct intrabank transfers, but
this would have needed Rivigo to have the same bank as the fleet owners and clients. Given Razorpay’s
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placement as a payment mediator, it made sense for Razorpay to offer this service not just for Rivigo but
also for its other customers. Razorpay decided to build a solution by tying up with five major banks that
carried 85% of digital payments so that customers such as Rivigo could provide better payment reliability
to their clients.

Source: Prepared by the authors on the basis of interviews with Rivigo

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 19 of 19 A00358

Exhibit 7

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Competitor Profiles (Payment Gateways)

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PayU is a global financial service provider headquartered in the Netherlands. It has a presence in different
countries across Asia, Central and Eastern Europe, Latin America, the Middle East and Africa. It is the
fintech and epayments division of Naspers Group, a leading global technology investor. PayU enables
merchants to accept digital payments through more than 300 payment methods. As of 2018, the service
was available in 17 countries, with about 1.2 million daily processed payments. PayU was built by acquiring
multiple payment gateways and was valued at USD 5 billion in 2018. In 2016, PayU acquired Indian

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payment service provider Citrus Pay for USD 130 million.

Paytm was founded in 2010 in Noida, in the state of Uttar Pradesh, India, and initially focused on prepaid
and postpaid mobile, DTH and landline bill payments. It launched Paytm Wallet in 2014 and experienced
exponential growth following the demonetisation exercise in November 2016. It is a pioneer in the use of
QR-based mobile payments in India, and in 2018, more than 7 million merchants all over India used Paytm’s
QR code to accept payments. Valued at more than USD 10 billion, Paytm has expanded into offering
various services such as a payment bank, wealth management, e-commerce and gaming. Paytm is

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available in 10 Indian languages. Major investors include Softbank, SAIF Partners, Alibaba Group and Ant
Group. One97 Communications, Paytm’s parent company, reported a revenue of INR 29,874.1 million and
a net loss of INR 14,904 million for the year ending March 2018.

BillDesk is a Mumbai-based online payment gateway company founded in 2000. It reported revenue of
INR 9,290 million and a profit of INR 1,480 million in 2018. It is valued at USD 1.8 billion, and its investors
included Visa, Temasek Holdings, General Electric, Clearstone Venture Partners and TA Associates. The
platform is mainly a bill payment system that allows customers to use net banking or cards.
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CCAvenue was founded in 2001 and is based in Mumbai. It aims at providing end-to-end e-commerce
solutions and has a base of more than 0.1 million Indian merchants. Its service offerings include payment
gateways, invoice payments, subscriptions, automated disbursements and collections, customisable
shopfronts, sales over social networks and access to business loans. In 2017, CCAvenue merged with
Infibeam, an Ahmedabad-based e-commerce firm, at a valuation of USD 289 million. In Q2 of the FY2018,
CCAvenue processed 26.6 million transactions worth INR 54,140 million.
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PayPal was founded in 1998 and became a wholly owned subsidiary of eBay until it was spun off as a
publicly traded company in 2015. In 2017, PayPal reported a profit of USD 1,795 million on a revenue of
USD 13,094 million. PayPal is available in more than 200 countries with 277 million registered users. It
reported processing of four billion payments in 2014. Initially, merchants in India primarily used PayPal to
receive funds from foreign customers. PayPal started domestic operations in India in November 2017.

Source: Prepared by the authors on the basis of news reports and information from company websites
No
Do

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