Fintech is making global payments its business

Synopsis

Razorpay, Cashfree, PayGlocal, and new entrants rush for RBI’s PA-CB licence to tap into lucrative B2B cross-border payments market. Fintechs eye big share of $250B SME exports, focusing on high margins and expanding services.

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Domestic payment aggregator majors such as Razorpay and Cashfree, as well as newer fintech firms like PayGlocal and Skydo, are rushing to procure a licence for offering international payment services, multiple people aware of the matter told ET.

Both new entrants and companies already in the business must apply to the Reserve Bank of India (RBI) for a payment aggregator-cross border (PA-CB) licence, the deadline for which is April 30.


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Industry watchers peg margins at 2.5-4% per card transaction internationally, in contrast to 1% in India. Apart from the intense competition, the move will help justify such local startups’ sky-high valuations. The average ticket size for B2B cross-border payments is estimated around $5,000.

There is thus a huge opportunity in big-ticket cross-border merchant payments, though the volume of international consumer payments too is growing at a steady trot.

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“Razorpay is building a solution for cross-border business payments,” a senior industry executive said.


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Smaller Companies also in Fray

“They (Razorpay) eventually want to expand from cross-border consumer payments to large ticket vendor payments for account-based fund transfers,” the executive cited said. The Bengaluru-based startup, backed by the likes of Peak XV Partners and Tiger Global, is one of the largest online merchant payment processors in the country.

Also read | NPCI arm, banks and fintechs in talks for net banking synergies

Cashfree has applied for a PA-CB licence. Cofounder Akash Sinha said the focus will be on business to consumer (B2C) transactions initially. “We already have a domestic payments business, we can bundle international payments as an offering for our existing merchants,” he told ET.

Razorpay and Cashfree did not respond to specific queries around business-to-business cross-border payments.

The industry estimates fintechs currently process approximately $10 billion of transactions, part of over $250 billion of exports by India’s small and medium businesses.

Apart from the biggies, new-generation startups Skydo and PayGlocal are also trying to grab a share of this market.

“We have applied to RBI for the cross-border licence. We are focused on the software and services export segment majorly, but we have some goods exporters among our clientele too,” said Movin Jain, cofounder of Skydo. The startup typically manages all formalities of international payments, with settlement within one day of the transaction.

PayGlocal, which has an in-principle licence from RBI for the domestic merchant payments business, will soon apply for the PA-CB licence.

Rules of the Game

Previously, fintech firms were given an online payment gateway service provider licence, which identified them as a technology service provider to banks. In October 2023, RBI came out with PA-CB guidelines to formalise the emerging international payments business and bring such fintech operators directly under its ambit.

Also read | On KYC compliance front, payment aggregators may be second to some

US payment companies Payoneer and PayPal are major players in the cross-border payments market. Since 2021, when PayPal shut down its India payments business, it has focused on cross-border transactions for Indian merchants’ goods and services exports.

“Global players operate on a massive scale. They also charge higher margins to Indian businesses. With the right product and pricing strategy, there is a major disruption opportunity present here,” said a senior executive at one of the large payment firms.

Cross-border transactions are, however, far more complex than local ones, and require many layers of formalities such as mandatory video know-your-client (KYC) compliance and remittance limitations.

Roy Walsh

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