Razorpay's neobank to match payments biz in some years: CEO Harshil Mathur

In a Q&A, Mathur, who is also a co-founder of the firm, dwells on the valuation math for Razorpay, timelines for hitting profitability and the company's plan to join the IPO rush

Razorpay's neobanking platform has been growing at 30 per cent month-on-month in transaction volumes. The fintech unicorn is trying to do all things in the financial space for SMBs, from being a payment gateway, to enabling vendor payouts, salaries, and disbursing loans. In an interview with Deepsekhar Choudhury, Razorpay CEO and co-founder Harshil Mathur, talks about how its neobanking and lending businesses are faring, how the valuation math works for Razorpay, timelines for hitting profitability and the company's plan to join the IPO rush.

There’s a funding rush in neobanking and you too have joined the fray. What is happening on that front?

We launched our neobanking platform, Razorpay X, a year-and-a-half back and have seen really great traction on it. During the past 6-8 months in particular, we have seen a month-on-month growth of 30 per cent in terms of transaction volumes on Razorpay X. In terms of scale, 20,000 internet led small businesses and startups use it today and we aim to scale it up massively in the next couple of years to more than 100,000.

Our goal with it is to create the full stack financial platform for businesses. So if a business joins it, they can manage all of their finances, payment settlements and everything else on one single platform -- right, from banking, to lending to payments, everything happens on one single platform.

Ultimately, all fintech players seem to be veering towards making money on credit disbursal. Is your approach any different?

Lending is a big part of our platforms and we do Rs 1,000 crore of disbursals on average every month. We are scaling by a factor of about 40 to 45 per cent month on month growth in the recently launched corporate credit cards product.

But we think a substantial amount of value can be unlocked by easing financial management needs of small businesses like vendor payouts, salaries and other things. Lending is just an additional revenue line, amongst the different products we offer and the core business of payment processing. Together, they will add up to create a sustainable business in the future.

Fintech for MSMEs has become a popular catchphrase. How much ARPU do you think you can make from an average merchant?

It is still quite early to arrive at an ARPU number. What I can say is that an average business with 50-100 employees spends Rs 5-8 lakh a month on managing finances across different functions. If we can aid them to substantially reduce that spend by cutting down on the number of people in the finance team and make the processes simpler digitally, there is no reason we can’t make money on it.

What kind of revenue projections do you have for the neobank segment as part of the entire business?

It would actually be at the same size as payments processing--both in terms of revenue as well as number of businesses using the platform--in the next few years. We will definitely scale up our revenue by 3-4 times in the next few years as there is a lot more value we will unlock for small businesses through our products.

Do you have a timeline in mind for hitting profitability?

We have always focused on positive unit economics and the payments business is almost breaking even cash-flow wise already. Most of our investment is going into the neobanking and credit businesses, which we are scaling up right now. But even those are positive on a unit economics level and they would break even in 2-3 years.

Our cash burn is low but we're investing a lot in R&D in the new businesses. During Diwali and IPL times, the Razorpay X platform was able to handle 500 transactions per second--higher than almost any other neo-banking platform right now.

BillDesk does $92 billion of annualised total payments volumes (TPV) and was acquired for $4.7 billion. You are reportedly raising funds at $5.5-6 bn with around $60 bn in annualised TPV. How does the math work out?

While we would not like to comment on a new funding round currently, Razorpay operates a much wider business than a pure payments processing company and investors understand that. Also, volume is not the only factor as revenue growth rate is also important and we are quite ahead of our competitors on that front.

Our revenues have grown 100 per cent year-on-year over the last couple of years and I don’t think anyone is growing even close to that rate. All these things add up.

Has your marketing and sales spend gone up a lot with the neobank and credit businesses?

Razorpay has always been a product-led business and so our sales teams even for the new businesses are very small. The focus has been to acquire customers through digital channels and in a worst-case scenario--inbound calls. It's very rare that we will go out and try to do door to door sales. It is not possible to scale 30-40 per cent a month through a traditional sales-led approach.

Are there any plans for an IPO any time soon?

We want to be a full-stack financial services company before going for an IPO. Although we have massively scaled up on the payments side, there's a lot more to do on RazorpayX and Razorpay Capital. So, it would be another 2-3 years away from where we are now.