Processing charges a drag on fast-growing payments startups
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 Mastercard, have skyrocketed in recent times for most of the fast-growing players.
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Offering CollegeCourseWebsiteIndian School of BusinessISB Professional Certificate in Product ManagementVisitIIM KozhikodeIIMK Advanced Data Science For ManagersVisitMITMIT Technology Leadership and InnovationVisitThe 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.
“This 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,” said a top executive at a payment company on the condition of anonymity.
Hollow growth
Take the case of PhonePe whose overall transaction volumes 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 jumped 74% to Rs 2,859 crore.
For BharatPe, transaction processing charges surged 74% in FY23 to Rs 395 crore,
