Industry experts predict new opportunities for digital payment companies in FY17-18

Digital payments companies are tempering their expectations of a bumper growth this financial year. India’s campaign to get more people to transact digitally has boosted transaction volumes for companies such as Billdesk and CCAvenue. But a simultaneous measure to lower the fees that merchants pay banks for debit and credit-card transactions is threatening to undo the gains. Payment gateways get a share of this fee.

Srinivas MN, Co-founder, Billdesk, said, "In the current (fiscal) year, linked to the increases in total payment volumes and scale of business, we would have expected net earnings to grow by over 35%. However, the recent interventions done on (merchant discount rate) are bound to have an impact on margins for payments businesses."

Merchant discount rate, or MDR, is the fee levied on merchants for availing card-payment services. Often, merchants pass on this charge to customers. To encourage more people to transact online as part of the government’s drive, the Reserve Bank of India in December decided to lower the MDR on debit-card transactions from January 1 till March 31.

Vishwas Patel, CEO, CCAvenue, a digital payment gateway, said, "Our profits have been growing 100% every year. This time, we would have expected a little more growth from the push for digital payments, but since the business of several retail merchants was hit (because of demonetisation) and with MDR lowered, we will likely grow at the same rate."

Harshil Mathur, CEO of payment gateway Razorpay, said if MDR is kept low "we will need to start charging other fees since we need to make margins."

Industry experts anticipate that the coming financial year beginning in April will bring a host of new opportunities for digital payments companies as the government persists with its campaign and introduces new tools to make transacting online easier. Among these is Bharat Bill Payment System, an interoperable payments platform that will help migrate utility bill payments from cash to digital. Also, recent consolidations — including PayU’s acquisition of CitrusPay, TechProcess’s acquisition by French e-payments company Ingenico, and CCAvenue’s merger with Infibeam — have raised the bar for the sector.

Billdesk's Srinivasu said, "The recent (mergers and acquisitions) in the space fundamentally recognises that it requires business scale, deep pockets and a long-term focus to build payments businesses in India. These (M&As) are good developments as they highlight the serious intent of the parties and will raise the profile of play going forward."