Payments today looks like a mad scramble. Companies are falling over each other to find the new best way to pay, and businesses have swallowed the hard truth that they can no longer just accept cash. Demonetisation saw to it that even hole-in-the-wall shops got on the digital payment wagon, whether they liked it or not.

Of the 51 million small and medium businesses, nearly 16 million are online. Those in the payments industry estimate that less than 10% of them accept digital payments as bank transfers still reign supreme. Also, accepting digital payments needs work. And unlike cash, it costs a merchant. In the last three years, as the number of ways to pay digitally has grown, the last thing any merchant wants is to lose a customer because he or she did not find it easy to pay.

Enter payment gateways. It helps a business accept payments in all possible ways – from wallets to net banking to cards. And businesses count on their gateway partners to add more payment solutions as new ones come up. The biggest in this business are home-grown BillDesk and Naspers-owned PayU together processing close to Rs 17,000 crore ($2.6 billion) monthly, according to industry estimates. For small companies getting to a gateway is essential, but it is not easy. Integrating it into the website takes time and one-time costs are high for SMEs. Moreover, large gateways don’t want to waste their sales muscle chasing businesses that will see only about 5-10 transactions a day.

“All gateways we contacted had setting up charges of Rs 10,000 to Rs 15,000 [$153-230],” said Rajesh Borah, co-founder of Goa-based Roadhouse Hostels that operates five hostels for backpackers. “We were of no priority to them. The lowest rung person on the sales team handled us. And we had no leverage to bargain for better rates as our transactions are low,” he said.

Two nimble-footed Bengaluru-based fintech startups saw this is where they could make a difference. Instamojo was targeted at people like tuition teachers, handicraft makers, bakers, soft toy makers who were not digitally savvy. Razorpay aimed at getting businesses that were still an SME but more tech inclined, like startups. Both simplified accepting payments for businesses. In five years, Instamojo has grown to have about 300,000 registered merchants for customers and Razorpay, in three years, has reached 40,000 on the last count. But the way they do it is different.

Instamojo called itself a payment solution company and Razorpay, a payment gateway. And today, both don’t want to be identified by those labels.  

Both their fortunes are inextricably linked to the growth of the businesses they support. There are 80-90 million people who buy online, spending close to $12-14 billion a year. But most of this spending is happening across the large retailers.

AUTHOR

Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

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