B2B payments gateway Razorpay was set up in 2014 by two IIT-Roorkee alumni, Harshil Mathur and Shashank Kumar. The fintech unicorn counts companies such as Airtel, Oyo, Zomato, Zerodha, FreshTo Home and Licious among its clients. The business has now diversified beyond core payments solutions to include lending platform—Razorpay Capital—for instant loans to businesses. Till date, over five-million businesses have transacted with Razorpay, worth over $45-50 billion annually. Start-ups can also set up fully functional current accounts under its new brand, RazorpayX. The company raised $160 million at a valuation of $3 billion in April this year.
Harshil Mathur (H.M.): Both of us loved coding. After college, Shashank joined Microsoft in Seattle, but we continued to work on side projects. One of them involved a payments application. We realised it was hard for start-ups to accept payments. This was 2013-14. Payments were at the bottom of the layer. If we solve payments for these companies, some of them will grow and become big, and we could grow with them. That was the idea. But the journey from idea to execution was long. Since payments are a highly regulated industry, we needed some bank to allow us to partner, and that was a difficult journey. A lot of them did not take us seriously. We were 24-year-olds, with no finance backgrounds, wanting to start a payments gateway, in a sector dominated by large players. It took us six-eight months to figure it out. Then HDFC Bank agreed to partner with us on the condition that we pay a security deposit. We left our jobs and moved full time into starting Razorpay. Our first live transaction happened in March 2015.
H.M.: We started off at a time when the start-up ecosystem in India was just taking off. We were leaving our jobs to work on something that might not pay us salaries for years. Both of us took that plunge. So we moved to Jaipur, to my parents’ place, and worked out of a co-working space. But convincing banks was a big task. We faced rejection after rejection and it was brutal. There was even a time we felt we should give it up because no bank was ready to partner with us. And even when we received our first in-principle approval, the process after that was very difficult — in terms of documentation and contractual obligations that were needed, the compliance norms etc.
Shashank Kumar (S.K.): We didn’t have a legal team, or a finance team. Most of these norms were made keeping in mind a company with a well-defined organisation, employee structure etc. So when we received our first in-principle approval, the auditor had to check whether we have a well-defined working space, with signage etc. We faced a lot of struggle dealing with the compliance norms, not only facing them, but also just learning about them.
Make Or Break Moment
H.M.: There were a lot of such moments. While there was negative feedback, we received a lot of positive response as well. We saw first-hand, start-ups struggling with payments those days. So, while we were struggling with compliance norms etc, we knew a pot of gold was waiting for us once we crossed the hurdle. In fact, the day we formally launched, 300-400 merchants signed up with us that very day. It was the strongest proof that we were on the right track.
The Business Model
S.K.: Payments is a very simple business. The core thing is how to improve user experience and make it easy for consumers to use our platform. So, we made the onboarding process for companies fairly easy. It was completely digital. We reduced the integration time. Also, India is plagued with slow network connectivity. We ensured our platform was the fastest even on a slow network, with a high success rate. Since most existing payment gateways were targeting large companies, they also had a high upfront cost that one had to pay in order to onboard. But because we were targeting start-ups, we removed these upfront fees totally.
H.M.: We are dependent on banking systems, and a lot of these systems, at least at that point of time, were very unreliable. While we created a lot of beautiful packaging on our side, the moment it hit the banking system, through which the gateway was routed, we could do nothing. Things would fail arbitrarily, we would get a lot of error messages, and so on. Every payment system was facing that. To give numbers, at that time, the average failure rate for payments was 30% — one in three transactions used to fail. It was a tech challenge. To circumvent this, we built a dynamic routing system. It was an early machine learning application that scouted various payment gateways to give us information about which worked well in the last one hour, or two hours and so on, and based on the historical parameters, used that information to route a transaction through that specific banking channel to get a high-success rate.
H.M.: One of our initial thrusts was on building an engineering and products organisation, and not a sales-led one. Around seven top hires were engineering led. Sales came later. Initially, we did most of the sales work ourselves. We would speak with clients and that allowed us to understand the depth of the business. Also, payments is a utility business. If it works well everything is fine, but when it doesn’t, you need support immediately. Customer support and servicing was important. We didn’t have a customer service team then. So, all of us spent a few hours in the day doing customer service. That built a strong culture in our organisation where even if you are an engineer, you will know how exactly customers are using the product, and the issues they are facing, and this would enable us to build a better product.
H.M.: Since we were a B2B organisation, we did not need to burn that much cash. And even now, because of this, it puts us in a position of strength in choosing the right investor. A B2B business needs a baseline, it needs innovation that will attract customers. We have focussed on that.
Marketing & Sales Lessons
H.M.: In the early days, we didn’t have a marketing team. We hung around a lot on these Facebook groups and posted about Razorpay. A lot of leads came from there, and that was where the first word-of-mouth really spread. Even now, we get a lot of business through referrals. Similarly, we didn’t have a good experience in selling the product to large enterprises, but with start-ups, we understood their pain points and they realised Razorpay was offering them a solution.
When Did You Think You Had Arrived?
S.K.: There was a lot of scepticism when UPI was getting launched. We were one of the first to say that we will run with this. We launched UPI acceptance. By the time other players caught on, we were already there in the market, with a seamless system that integrated well with UPI.
Riding Through Toughest Times
H.M.: A lot of the struggle after launch came through sales and marketing. While we did try a lot of non-traditional approaches such as referrals, the impact was not immediate. It came in the long term. But we stuck around, and that worked well for us.
H.M.: Our vision is to create a full-stack financial ecosystem for businesses. While our core business is still payments, we have started doing banking and lending for small businesses as well.