Global Fintech Fest (GFF) 2022 brought together several fintech founders and business veterans to showcase their contribution towards India’s financial landscape. Cashfree Payments joined the world’s largest fintech summit to share its pathbreaking story of spearheading payments and banking.
We engaged in some key conversations about the fast-evolving digital payments and banking space. Cashfree Payments, which recently turned 7, has been revolutionising the payments ecosystem in the country since 2015.
Akash Sinha, co-founder and CEO of Cashfree Payments indulged in a fireside chat with Mandar Kagade, Founder & Principal at Black Dot Public Policy Advisors to share Cashfree Payments’s story of spearheading payments and banking.
Here’s the round-up of the one-on-one conversation:
Mandar: Walk us through the initial days as to what transpired you and your co-founder, Reeju Datta, to start Cashfree Payments.
Akash: Around 2013-14, there was aggressive growth in mobile penetration, fuelled by excessive data and internet accessibility. This enabled the entrepreneurs to explore new channels in the internet world to acquire new customers. Previously, they could access only local customers by setting up shops in specific regions.
“Although there was a hope for wider reach pan India, payment systems were not ready for this massive digital transformation, as they were primarily serving offline businesses.”
The most common method of payments was COD, and digital payments were not seamless. Many startups and e-commerce businesses were booming but the payments process was time-consuming. Settlement of money in bank accounts would take around 2-3 days.
It went the same way for other markets, like gig economy companies, that paid their workers every 15 days. It could not have been faster then, and even after 15-30 days, the payments were not seamless or automated.
We knew online businesses will become the default mode of business as it has a wider reach. We wanted to build a platform that can handle these issues, not one specific problem but all payment-related ones.
That was the blueprint with which we started! Initially to solve payouts and refunds to gradually grow to a platform where internet companies can find solutions to all payments issues. This way they could focus more on their core product, customisation, branding, etc., and less on payment problems.
That is the Cashfree Payments story of spearheading payments and banking.
Mandar: In the initial days, while solving problems for payouts, COD and the like had immense friction as well as a social cost to cash. It was a structural battle not to reduce the role of cash, but also the cost to minimise the trade-offs. If we consider payments as a utility, what led you to the crowded market and what is the USP or the right to win any investor utility market?
Akash: I will not call payments a utility, but the other companies were solving limited problems of the businesses. We figured we could do a lot more.
If a travel company has 30% cancellations daily, instead of debiting money from the customer’s account each time, one can block the money in their accounts and release it instantly if they cancel. That way the refund could be fast which would otherwise take 7-8 days. Customers often complained jokingly that debit is instant but refunds take 10 days and that didn’t seem fair.
Similarly, there were marketplaces with about 50,000 sellers and it was difficult to disburse commissions on time and accurately. Mistakes occurred because things were manually driven, mostly done on Excel spreadsheets where 10-15 accountants would process disbursements. But legacy companies were not flexible to build solutions faster with the way the market was changing.
We looked for specific problems in larger industries like marketplaces, travel, education, fintech, and others. Also, we have been able to make solutions more personalised. Moreover, we solve more issues than others. We did two things differently:
- Solving more problems for businesses
- Solving one problem for large-scale companies
Earlier, payment failures used to be high, and the scale was about 50,000-80,000 transactions for e-commerce sites in a day. Today, their per-day transaction volume reaches up to 10-15 lac and they cannot scale if we don’t resolve payment issues.
Mandar: What were the opinions of the incumbents when you approached them taking your proposition to bank partners or enterprise players to sell the product? Was any pushback from the industry? Were they enthusiastic or skeptical?
Akash: Some of them were skeptical because they had a set process and people to carry out the payment functions. We told them that by using our system, they will depend less on people. However, some companies were modernising their stack and they knew this will be helpful in the future, as
- This will save cost
- The system will work 24×7 without errors
- This will make things more reliable and stakeholders will stay happy
Some companies revamped their systems to make use of our automated payouts and fraud checks. For one company, which is one of the largest customers of Cashfree Payments, we built a checker and integrated it. It took about a year for them to adapt. One of our success stories!
Some companies came later when they understood that things can’t be kept manually where they have to keep adding people and training them.
Mandar: Just to put things in numbers, is it 1,50,000+ merchants?
Akash: Yes, Cashfree Payments does around 50-55 billion transactions annually and about 100 million transactions on a monthly basis. This year we have witnessed a growth of 15-20% every month. But, the scope is much larger because India is a country of scale, for example, UPI does 6 billion transactions on P2P and P2B combined.
All large businesses will eventually move online and many legacy businesses – for instance, several FMCG companies – have come up with D2C (Direct to Consumer) propositions. A lot of big businesses are trying to capitalise on internet growth and reach customers in personalised and direct ways.
All this behavioural change in the consumer and the business worlds will create a big demand for a strong payments ecosystem that we are striving to build to be ready for the future.
Mandar: Moving on to the next phase, from rudimentary use cases to sophisticated use cases, how did you build platforms on top of banks and offer value-added services?
Akash: When we started the journey, a lot of support came from industry regulators. Soon, UPI came around, and demonetisation happened. This gave way to digital payments. Banks also became willing to open their APIs because they wanted to:
- Reduce costs
- Make things more uniform and correct
This helped in building solutions on top of banks faster which led to the growth of the fintech ecosystem. We can start with private APIs and hand them over for a certain contract. They can come to some kind of infrastructure platform and then personalise it for the end use of the customer.
Banks’ APIs are generic and all end businesses cannot spend time customising them for their needs. Fintechs can do that according to the varying needs of each industry.
Mandar: How has Cashfree Payments given value-added services as a BaaS player ? Walk us through some use cases of how you have powered businesses.
Akash: Let me share Why BaaS is so important to us. Cashfree Payments was in the business of payment acquiring and we were able to serve ‘digitally ready customers’ who could come and transact. But after a year, we realised that all companies are sharing the same product and we are not doing anything different to increase the digital method creation, such as –
- How to make people digitally ready to come and transact with our system
- How to create payment methods
It is then the idea of BaaS came where we can use the network of B2C and B2B companies and they can come out with embedded banking. They can give enriched services to partners and customers with easy payments and refunds.
Additionally, they can also buy payroll automation products where people can get commissions directly from the software. This will save them from the hassle of getting the data and then going to the bank to process the payments.
If a marketplace has 1-2 lac sellers, and there is a system with embedded banking, they can sign up and create an account. A single portal to see their expenses and revenue.
Mandar: What drives card Issuance as a service (IaaS)?
Akash: A card as a payment method is relevant even for those who are not digitally ready, however, the card penetration among customers has increased. Also, we can enable card issuers to make the usage of cash more automated and efficient. Let me put forth some use cases:
- It can be helpful in corporate payouts and expense management where corporations can give CC to employees and have control of it. This is better than employees using their own money and then getting reimbursed
- Parents who want their kids to be digitally ready can rather give a card than pocket money in cash. They can monitor the expense and simultaneously make them financially ready
- Universities/college campuses can give cards to students to use in the canteen and stationeries
- Lenders can give loans to the card and track the expense instead of the bank accounts. They may give more credit depending on the track record of the user.
Both the close and open loop systems can use the card service.
Mandar: What would be the legwork the companies might have to do in absence of the card issuance offerings like yours? Also, what are the parties involved in this complex process and the regulatory compliances?
Akash: As a company, if I try to give cards to my customers, we need to:
- Find a processing partner
- Then, find a partner who can run a program on top of it because programs will be different for different use cases
- Be compliant with the regulator, such as by getting a PCI DSS certification, and ensure that tokenisation works properly
- Build layers for the customers to check their balance or change their PIN
- Then, build the card issuance system either in-house or in partnership with other vendors
- Once done, then think about the card getting delivered/shipped, have branding, work with banking partners & credit bureaus, and buy fraud & risk management tools so that the card isn’t misused
These are the reasons that the industry is growing, but not so fast. Corporates are willing to offer co-branded credit cards to increase loyalty but it is often deprioritised because it is a 9-12 months project. If you have a system in place, you can do it in a few weeks.
Mandar: We would like to know about your latest offering of the ‘cross-border payments’ under the Regulatory Sandbox of RBI for which you have been granted permission. What is the product about?
Akash: As a country ecosystem, we have not innovated a lot when it comes to capital transactions. Many customers wanted to invest in capital markets outside India but the process was tedious requiring a lot of paperwork. This was discouraging.
Investing on NSE/BSE is different from investing on NASDAQ. But the RBI opened the Sandbox program last year and we at Cashfree Payments thought of addressing this problem. We proposed a solution doing the sandbox which got accepted and now we have the final approval to roll it out.
Now people can buy shares of Tesla, Google, Amazon, etc. seamlessly right sitting in India, depending on their broker.
