Harshil Mathur, CEO, Razorpay

The payment gateways in India are likely to benefit the most even as the Central government has announced a slew of reforms to boost digital payments in the country.

Finance Minister Nirmala Sitharaman, while presenting her maiden speech for Union Budget for fiscal 2020, has announced the removal of Merchant Discount Rates (MDR) on digital transactions made at big establishments with an annual turnover of more than INR 50 crore and further asking them to offer low cost digital modes of payments like BHIM UPI, UPI-QR Code, Aadhaar Pay, Debit cards, NEFT and RTGS to their customers.

The MDR cost will not be imposed on customers or merchants but will be absorbed by the Reserve Bank of India and banks in the country from the savings that will accrue to them on account of handling less cash, Sitharaman added.

This move, will in turn, boost for the requirement of payment gateways.

“Almost 60-70 per cent of the businesses in India have an annual turnover of more than INR 50 crore. I believe the steps announced on MDR will discourage businesses from making cash transactions and encourage them to make payments through digital channels. It will also expand the market for payment gateways,” Harshil Mathur, CEO and Co-founder of payment gateway firm Razorpay told IBS Intelligence.

Another important measure, taken by the government to boost digital payments, was the move to levy two per cent TDS ( tax deduction at source) on cash withdrawal exceeding INR  1 crore annually from a bank account to discourage businesses in making cash payments. This move is likely to increase B2B (business to business) payments digitally and thus again benefit the payment gateways.

Mathur of Razorpay further forecast that the payment gateway industry will comfortably grow at a rate of 70-80 per cent annually as more and more customers and businesses shift to making payments digitally.

“Digital payments and FinTechs are a high growth area and with right policies and support can work towards common goals. Considering digital payment penetration in the retail of just 10-12% we need to grow opportunities to digitize and earn so more and more players can join in this less cash challenge. 2% TDS above INR 1 crore cash withdrawal is penalizing high usage of cash…,” said Naveen Surya, Chairman Emeritus, Payment Council of India.

The role of a payment gateway is to enable the merchants to accept payments online by linking the merchant website to its processing network and merchant account in a safe, secure and swift manner. The major players in India are Paytm, PayU, Razorpay, Paypal, CCAvenue, Instamojo and BillDesk amongst dozen others.

The initiatives taken by the Indian government to create a less-cash economy, in the last few years, has helped the payment gateways grow from USD 446.9 million in 2017 to USD 1,708 million by 2025 at a CAGR of 19.3 per cent. However, the segment is likely to grow at a much faster rate after the new measures are implemented.

Alibaba-backed Paytm had recently said that they dominate the payment gateway industry with over 50 percent standalone market share with over 400 million monthly transactions each month, claiming that the number was 5 times higher than the next biggest player in the PG market.

It further said that its offerings also include software-development kits, developer APIs and secure checkout solutions, has helped strengthen businesses, large and small, to address their niche payment requirements.

 

 

by Priyanka Pani
Senior Regional Correspondent, Middle East and Asia
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