Razorpay became the latest Indian fintech company to enter the unicorn club with its new funding round, and plans to use the money to make acquisitions and add new products to its lending and neo-banking platforms.

Razorpay's co-founder and CEO, Harshil Mathur, says that the company aims to double its merchant base to 10 million small and medium businesses by the end of the year.

Mathur says the six-year-old company, founded by him and fellow Indian Institute of technology (IIT) Roorkee alumni, Shashank Kumar, has seen accelerated growth in the last few months despite the pandemic, as more businesses opt for digital services.

The Bengaluru-headquartered company raised $100 million in a series D financing round, co-led by Singapore’s sovereign wealth fund GIC and Sequoia India. Existing investors Ribbit Capital, Tiger Global, Y Combinator, and Matrix Partners also participated in the round.

Mathur spoke to Fortune India about finding new opportunities during the pandemic, acquisitions plans, and helping small businesses digitise. Edited excerpts:

You said in a statement that the company has seen a 300% growth in its business during the last six months. At a time when businesses across the board are suffering, how has Razorpay managed that, will we see an impact of this growth on the revenue?

The beginning of the lockdown was not good for anyone. We saw a decline of about 30% in our revenue and volume. But we re-focussed our energy on digital payments, and sectors which were doing well during this time. Also, a lot of companies which have never used digital payments, wanted to digitise during this time. We onboarded a large number of merchants— from small schools, to local grocery shops, and small Instagram stores, everyone wanted to go digital. This helped us see rapid growth in the last six months, and we continue to sustain that traction. In terms of payment volume, this year we processed more than $25 billion, a year before this, number was $5 billion.

Have these merchants and new signups stayed even after the unlock?

I don’t think they will go back. These businesses were waiting to be digitised but there wasn’t enough push. Take bill payments as an example, these jumped 250% during the lockdown. People always had an option of paying bills online, but they didn’t necessarily learn how to do it. They have learnt to do only it during Covid. I think most of this growth is sustainable. Our business growth will be about 200-300%, and the revenue growth will be the same, as we charge a fee on transactions.

What is the kind of increase that you have seen in lending as small businesses are suffering from the economic slowdown?

In the last couple of months, we have scaled up our credit business. We have been disbursing about ₹250 crore worth of loans every month. Our lending product is built based on cash flow. We look at the cash flow of the businesses who do transactions for us. And because businesses are very cash starved right now, we have seen a very high traction on it. Everyone we offer a credit to, most likely takes it. We have also extended our corporate credit card which we launched last year, meant for businesses.

Do you see a rise in your credit business going forward as small businesses suffer?

Credit is a very deep problem in the small and medium businesses (SMEs) space, and especially during Covid, SMEs are struggling. In the next few months, we want to expand our credit card across our SME base. Today we have about 5,000-10,000 SMEs who use it, we want to scale it up in the next few months.

On the Razorpay platform, we have five million SMEs. Almost all of them need credit in some shape and form, That is going to be our focus in the next couple of months.

Has Covid also impacted their ability to pay back?

The way we lend is by looking at their payment volume through Razorpay. Now when we lend, we know exactly how Covid has impacted them and how their recovery has been. We have a lot more information on these businesses than traditional lenders, they have to look at last year's balance sheet, which is pointless because they don’t know how Covid has impacted these businesses.

You have said that you will be using the funds to launch products for your neo-banking business Razorpay X and lending business Razorpay Capital, could you give us a little more detail on that?

Yes definitely. Razorpay X is a fairly new business, we have more than 10,000 businesses for whom we manage bank accounts and the entire financial ecosystem. We are building systems which will allow them to manage everything they do with money—collections or disbursing money. We want to focus on services like vendor payments, salary payments, tax payments, and reconciliation. We are building products in these domains. We are also looking at acquisitions and one of the ways we plan to use the funding is to look at acquisitions in the B2B SaaS space that can be plugins on top of RazorPay platform and help us scale.

Are we going to see acquisitions and new products in the next six months?

Yes, definitely. We are already in discussions with a couple of companies.

You had said last year that you expect neo banking services to generate 40-45% of revenue. What is the kind of revenue you expect it to generate this year?

Razorpay X and Razorpay capital put together, we do about 20% of our revenue today from them, and 80% comes from payments. By next year, we expect 35-40% of our revenue to come from Razorpay X and Razorpay Capital.

I also wanted to talk to you about some of the policy challenges in neo banking. Are you able to offer a full stack of financial services yet with your banking partners, or are there still regulatory challenges?

The policy challenges are still not major, we work with partnership with banks. There are a couple of services we might not be able to offer, and the things we can’t, our banking partners can do that for us. But I do agree that we will need some sort of policy guidance on this. As neo banking keeps scaling up and becomes bigger in India, it will be important for policymakers to recognise the space and issue clearer guidelines so that we are all ensured that we work under the framework of the regulators. There are examples of that in countries like Singapore which have launched virtual banking licenses, Europe has launched virtual banking licenses as well.

Talk to me about competition. Everyone in the fintech space wants to offer loans and credit, how do you differentiate your products?

Just having a very strong focus on product innovation and customers is important, and that’s what we have a deep focus on businesses, we build everything for businesses. While there are new players coming in into the wallet space and the UPI space, we have always stayed true to what we do, which is to create finance for businesses, and that has helped us to stay ahead of the curve.

Could you also talk about your revenue and profit targets, and expansion plans for the year?

From a volumes and revenue perspective, we expect to grow by about 250% in the next one year. In terms of businesses (we service), we have about 5 million today, and we expect to grow to about 10 million by next year. In terms of profit, our payments business is almost breaking even. But in Razorpay X and Razorpay Capital, we will continue to invest for the next 2-3 years before we start to break even. From an organisation perspective, we might not break even till X and Capital do, but payments will breakeven very soon.

Coming back to the pandemic, what have some of the learnings been, what are the precautions you wish to take, and what are the opportunities you see?

Initially, there was a lot of flux, but now we see how it is panning out. We don’t know how long the pandemic will last, but we know how the market has changed, and we have refactored that into our business direction and we are trying to find opportunities in that. We see a lot of opportunities right now. All three things we do—payments, banking , and lending, all three are seeing rapid growth, and getting traction during the pandemic. We see this as a huge opportunity to digitise businesses. We are trying to find opportunities on how we can help businesses go digital across the board, not just in payments, but in lending and everything else.

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