In a candid chat with businessline, Shashank Kumar, Founder & Managing Director, Razorpay, spoke at length about how the industry has gained from tightening regulations and what the future holds for the company. Ruling out a public offering in the near-term, Kumar is clear that growth won’t be contingent to obtaining an NBFC licence. Excerpts:
From treading in unregulated spaces to now working in a regulated terrain, as founder and investor of Razorpay, how do see this?
We are building products and compliance has come in because we’ve scaled up. Like every financial service in the world, banks were providing payments (services) as well. But as the internet and mobile have exploded, and more start-ups and SMEs are coming up digitally, accepting payments should be easier for these businesses. Digital payment is a huge growth focus for the government and the regulator. It’s mostly payment companies like us and fintechs, in partnership with banks, which drove most of this growth. But it’s (digital payments) come to a scale where everything makes senses. To influence the industry, and reduce risk in the ecosystem, being regulated is important, especially at this scale. Even from investors’ perspective, I look at it very positively because regulations give you a formal definition of being part of the system.
Has it not hurt your innovation at all…?
Earlier, we were indirectly regulated because banks used to enforce their norms and now it is directly coming from the central bank. The regulator is always looking at balancing convenience versus security. The job of a start-up is to bring new innovations to market. But the regulator has certain framework. So, you can have entrepreneurs crib about it say, how can I leverage this and benefit from it.
You have everything to offer as a bank without being a bank. Is this an important ingredient in the path of growing profits?
We have completely been focused on business to business and even today, that’s our right to win. We are focused beyond payments, like building a smarter bank account for businesses. A basic bank is just a store of money, and a place for you to do transactions. But if you look at modern tech products like Google or WhatsApp, or Instagram, they’re highly personalised and super relevant to the person that you are. Therefore, the banking experience is very similar whether it’s for a corporate, a homepreneur or a start-up. Banks provide huge infrastructure (for these businesses) but that last mile personalised connectivity and delivery of banking services for business is where we come in. How can we work with existing banks and do that last mile connectivity and build a banking product that is a lot more intelligent, software-driven and utilitarian for the businesses... Personalisation (for businesses) is going to be a theme for the next 10 years and we want to be the pioneer in the field. We want to take our banking partners along that journey because ultimately, we are not the bank and we don’t want to be a bank in that sense.
Would you look at on-book lending through an NBFC licence or become a digital bank?
In order to scale up our lending business, a lending licence is not going to be critical. If we want to bring new lending models to the market, today, we work with lending partners. At best what a lending licence can do is quicker experimentation. But whether you are an NBFC or not, you still need to raise significant capital to lend and that capital is anyway coming from banks. If you’ve got to scale as a lender, you must work with banks or larger NBFC with corporate balance sheet. Whether you become a lender or not, is not the critical thing as like becoming a large financial services company.
Five per cent cap on FLDG, did that move business for you?
Definitely there were operational challenges for a few weeks because whenever you shift from one place to another, that transition is going to be there. We were prepared for it, obviously, but there are still challenges. I think 5 per cent is an introduction point, where the message from the regulator is that if you are not doing anything on your balance sheet, the risk of other players needs to be contained. That thought process is fair; it may cost certain issues in the industry, but from a long -term lens, it is healthy for the ecosystem. It allows scope for you to experiment. But if you scale up, you can become an NBFC or partner with a bank if we can verify your lending model; like co-lending.
Are you IPO ready?
Not really. We have no IPO plans in the next two years. Being a regulated entity in the financial space, internally we operate in a way that puts us to that stick. At some point if we have to do that (IPO), we don’t need to build or do things from the scratch.