{"id":14584,"date":"2024-03-31T16:40:02","date_gmt":"2024-03-31T16:40:02","guid":{"rendered":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/03\/31\/processing-charges-a-drag-on-fast-growing-payments-startups\/"},"modified":"2024-03-31T16:40:02","modified_gmt":"2024-03-31T16:40:02","slug":"processing-charges-a-drag-on-fast-growing-payments-startups","status":"publish","type":"post","link":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/03\/31\/processing-charges-a-drag-on-fast-growing-payments-startups\/","title":{"rendered":"Processing charges a drag on fast-growing payments startups"},"content":{"rendered":"
\"Processing<\/div>


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Higher operating cost and inadequate revenue generation<\/a> is weighing on digital payments startups, offsetting surging business volume due to the widespread adoption of digital payments in the country.<\/p>\n

Payment processing charges<\/a>, which fintech<\/a> firms need to pass on to technology providers, banking partners or payment networks like the National Payments Corporation of India, Visa or Mastercard, have skyrocketed in recent times for most of the fast-growing players.<\/p>\n

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The lack of MDR or charges that merchants pay payment service providers on Unified Payments Interface (UPI) transactions has worsened the financial woes of fintech firms.<\/p>\n

\u201cThis is a major cost for payment companies, so no matter how much you grow in terms of total payment volume, your expenses shoot up accordingly which impacts profitability,\u201d said a top executive at a payment company on the condition of anonymity.<\/p>\n

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ETtech<\/span><\/figure>\n<\/div>\n


Hollow growth
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Take the case of PhonePe whose overall transaction volumes<\/a> have soared in recent years but so has its payment processing charges. In FY23, PhonePe spent Rs 638 crore in processing expenditure, a more than threefold rise from Rs 199 crore a year ago. During the year, operational revenue<\/a> jumped 74% to Rs 2,859 crore.<\/p>\n

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Discover the stories of your interest<\/h3>\n<\/div>\n
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For BharatPe, transaction processing charges surged 74% in FY23 to Rs 395 crore, showed financial results sourced from Tofler. Revenue climbed more than twofold to Rs 903 crore from Rs 320 crore in FY22.<\/p>\n

Similarly for Cred, which had a major revenue surge in FY23, payment processing charges rose more than fourfold to Rs 704 crore in FY23 <\/a>from Rs 155 crore a year prior. Cred\u2019s overall revenue jumped more than three times to Rs 1,484 crore from Rs 422 crore a year earlier.<\/p>\n

For growing startups, expenses in supporting business growth are higher, compared to more established peers.<\/p>\n

\u201cOnce you attain a certain scale, your technology backbone becomes capable of supporting higher volumes, so your fixed costs stagnate, but the variable expense in form of charges to be paid to card networks and others grow proportionately,\u201d said the executive cited above.<\/p>\n

Listed fintechs face similar challenges<\/strong><\/p>\n

The challenge is similar for the two major listed fintech firms. Paytm<\/a>, owned by One 97 Communications, reported processing charges of Rs 2,565 crore till December-end<\/a>, up almost 18% from Rs 2,177 crore a year back.<\/p>\n

For CCAvenue, payment processing charges made a major impact on gross revenue. In the third quarter of FY24, gross revenue stood at Rs 912 crore, but net revenue was at Rs 112 crore.<\/p>\n

The company explained that net revenue reflects deduction of direct operating expenses from gross revenue. Payment processing charges majorly contributed to this segment.<\/p>\n

High operation costs<\/strong><\/p>\n

No matter how much a merchant pays or does not pay to a payment processor, every network operator charges a fee for providing settlement service. There is also the cost of system maintenance, which are crucial for transaction settlements. New generation fintechs are mostly processing UPI payments, which are not revenue generating, said industry insiders.<\/p>\n

\u201cOn UPI you do not make money, but you pay a share to your partners out of your own pocket, so this impacts the balance sheet,\u201d said another chief executive of a payment firm.<\/p>\n

The finance ministry offers a subsidy to banks in lieu of the zero MDR regime, but industry insiders said it is not enough to compensate for losses the industry incurs in supporting the ecosystem.<\/p>\n<\/div>\n

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Higher operating cost and inadequate revenue generation is weighing on digital payments startups, offsetting surging business volume due to the widespread adoption of digital payments in the country. Payment processing charges, which fintech firms need to pass on to technology providers, banking partners or payment networks like the National Payments Corporation of India, Visa or […]<\/p>\n","protected":false},"author":2,"featured_media":14585,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"tdm_status":"","tdm_grid_status":"","fifu_image_url":"https:\/\/img.etimg.com\/photo\/msid-42031747\/et-logo.jpg","fifu_image_alt":"","footnotes":""},"categories":[607],"tags":[5808,20265,20269,20270,918,20267,20264,672,665,8153,20266,922,20268],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/14584"}],"collection":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/comments?post=14584"}],"version-history":[{"count":1,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/14584\/revisions"}],"predecessor-version":[{"id":14586,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/14584\/revisions\/14586"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/media\/14585"}],"wp:attachment":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/media?parent=14584"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/categories?post=14584"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/tags?post=14584"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}