Razorpay cofounder and CEO Harshil Mathur believes regulations are good for the fintech industry.

Earlier this year, the Razorpay CEO told Inc42 that RBI’s guidelines in each fintech vertical are better for the overall ecosystem. It seems like an unusual statement by a fintech founder when many of his counterparts are deriding regulators such as SEBI or the RBI for disrupting established startup models.

But Razorpay’s Mathur and co-founder Shashank Kumar don’t have a choice.

For over a decade, the fintech unicorn has operated in a tightly regulated payments business, where the RBI and NPCI are watching its every move. In some ways, Razorpay made its bed when it chose to enter the payments space.

India’s fintech startups are going through a challenging phase with the regulatory eye hovering over all operations, especially because of the maturity of some of these startups. Many of them have built an audience of tens and hundreds of millions over the past decade but, in the process, have arguably strayed from the guidelines set by the regulators.

Regulatory troubles have a real impact — take the case of ZestMoney, which had turned to small-ticket digital loans and BNPL for survival but had to shut down due to RBI’s changes to the risk weights in November 2023.

Others had to completely rewire themselves due to regulatory changes, as we noted in our deep dive into Instamojo’s pivot from payments. Besides this, we have seen the likes of Jupiter, Slice, PayU, and others suffer disruptions.

Throughout this, Razorpay has managed to survive and remain profitable — at least as of March 2024. The fintech company said that its PAT has grown 4.7x in FY24 to INR 34 Cr from INR 7 Cr in FY23.

The startup is looking at a big tax outlay for its redomiciling to India from the US, and several of RBI’s new rules for the payments industry came in after FY24, so the profit growth, while commendable, does come with some caveats.

Either way, one thing is clear, for Razorpay and other fintech giants, profitability involves walking the fintech tightrope set by the regulators. And that’s not always ideal, so can Razorpay balance itself for the long haul?

Razorpay’s Revenue Depth

The company claims to be processing transactions with a total payment volume (TPV) of $150 Bn.

As per industry watchers, this is among the highest in India’s payments gateway and payment aggregator market. “Only CCAvenue and PayU come close to this scale,” a rival fintech startup’s founder claimed.

To put this in context, digital payments transactions saw a 44% CAGR increase from 2,071 Cr in FY18 to 18,592 Cr in FY24 as per government data. The total value of these transactions have grown to INR 3,658 Lakh Cr in FY24.

Today, Razorpay is a full-stack payments solution platform, but it built its reputation in the payments gateway space. In the early days of digital commerce, around 2015 and 2016, payment gateway were vital partners for marketplaces and online stores, but over the past eight years, there has been a rapid evolution.

The first phase of the evolution saw payment aggregators come into the picture, which collected payments from users and settled them en-masse with merchants and marketplaces, rather than processing each payment individually.

Razorpay entered the PA space with in-principle approval from the RBI, but in December 2022, the RBI banned companies from onboarding new users before getting full approval. This threw a spanner in Razorpay’s well-built machine.

In some ways, this could be seen as a blessing, because even the commerce ecosystem — particularly Razorpay’s D2C brand partners — was moving from online-first to omnichannel mode. Today, the payment aggregator (PA) business is the mainstay for Razorpay. Today, Razorpay claims to have 5 Mn businesses on board.

The company has built solutions for the wider ecosystem too, catering to problems such as tracking fraudulent ecommerce orders using customer insights, payroll disbursement, offline payments as well as cross-border payments.

However, any dissection of Razorpay’s business........

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