The current funding winter has led to multiple layoffs across startups as founders struggle to pay salaries and keep their ventures afloat. But managing payroll has always been tricky for small companies. While large organisations can afford to hire a human resources (HR) team or outsource the job to payment management solution providers, entrepreneurs with a lean set-up often do it themselves to save money.
It is by doubling down on this niche that fintech startup Razorpay* hopes to expand RazorpayX—its neobanking neobanking A neobank provides digital and mobile-first services like payments, debit cards, money transfers, lending, and more. platform that also offers banking, lending, payments, and insurance services.
The US$7.5 billion company, launched in 2014 as a payment gateway, aims to increase the contribution of RazorpayX to its top line from 10% now to 30-35% in a year or so, according to senior company executives. And central to this plan is RazorpayX Payroll, which it launched in December 2019 after acquiring payroll processing company Opfin a month earlier.
The executives requested anonymity as they are not authorised to share sensitive information, while Razorpay did not respond to queries pertaining to this story.
While Razorpay is onboarding its existing payments customers on the neobanking platform, it’s specifically targeting early- and mid-stage startups. Less than 1% of India’s 63 million micro, small, and medium enterprises (MSMEs) currently use payroll management software, according to industry estimates.
Even a small chunk of this pie will help Razorpay—which turned profitable turned profitable Inc42 Fintech Unicorn Razorpay Turns Profitable As Revenue Crosses INR 800 Cr In FY21 Read more in the financial year ended March 2021, with a net profit of Rs 7 crore (US$880,000) on revenue of Rs 841 crore (US$105 million)—reduce its reliance on the low-margin payments business.
There are hardly any payroll management solutions for companies with a headcount in the dozens. Without a payroll service, founders have to either manually transfer the salaries themselves or hire an accountant or a human resources (HR) executive—an additional cost centre.
The Ken spoke to ten founders, who said, on average, they spent six to eight hours monthly executing salaries and payments to vendors and consultants. “When I crossed my 20th employee, payroll became my biggest issue,” said the founder of a small startup company with about 45 employees.
Companies who have more than 20 full-time employees need to provide for a Provident Fund Provident Fund PF is a mandatory social security pension fund, which leads to a lump sum payout at the end of employment.
