Fast-growing online gateways turn darlings of foreign investors

Foreign investors and international payment players are now setting their sights on large fast-growing merchant acquirers in India with niche capabilities as part of their attempts to grab a bigger slice of India’s booming digital payments market.

The recent move of global payments technology company Visa to pick up a minority stake in bill and online payment platform BillDesk (deal reportedly for about $300 million) is a clear pointer to this trend, say payment industry watchers and experts.

An attractive segment

While foreign players continue to show interest in both the issuing side (prepaid wallet players) and the merchant acquirer side (online gateways and retail Point-of-Sale (PoS)), the online gateway segment is emerging as a more attractive segment and those with high growth are certainly catching the attention of the foreign players. BillDesk, mostly focussed on bill payment solutions, is reportedly processing about $60 billion a year.

The focus seems to have shifted to more niche payment gateways (BillDesk being an example) from general online gateways, they said.

Harshil Mathur, Co-founder and CEO, Razorpay, told BusinessLine that foreign companies have so far largely been unsuccessful in payment gateways and merchant acquiring side. They have realised that payments in India is a unique problem that could be better solved by local players than foreign players.

“So they are looking to ride on Indian players (through minority investments). Secondly, volumes are growing rapidly and unit economics are positive on the payments gateway side — it is not a high-end money burn business,” Mathur said.

It is fair to say that lot of foreign investor interest is coming on the merchant acquiring side than the issuing side, where lot of capital is required and large players with deep pockets are already entrenched, he said. ‘It is easier for foreign investors to take a bet on the merchant acquiring side where there are not so many large global players. They clearly realise that competing with biggies like Google, Amazon or WhatsApp is a more difficult challenge,” Mathur said.

Navin Surya, Chairman Emeritus, Payments Council of India and Chairman, Fintech Convergence Council, told BusinessLine that the digital retail payment industry in India has been one of the favourite industries for investments from both domestic and foreign investors, more so by foreign investors.

Retail digital payments

“I personally believe this trend would continue as market penetration in retail digital payments is still about 10-20 per cent with one of the fastest-growing segments. Players with good business model and scalability would continue to attract huge interest from investors,” Surya said.

Praveen Dhabhai, a payments industry expert and CEO of Payworld, said that he sees focus moving to niche solution providers in the merchant acquiring side.

“The foreign players and investors’ focus are moving to niche segments. You will see this trend gaining pace as digital payment volumes continue to show strong growth in India,” he said.

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