Why Razorpay has fared better than Paytm

Written by Kapronasia || February 27 2024

Both Razorpay and Paytm are Indian fintech unicorns that have at different times struggled with  mercurial regulators, but that’s about where the similarities end. Razorpay has focused only on the B2B segment, while Paytm has tried to gain a foothold in both retail and non-retail payments. While both companies have relied heavily on venture capital investment, Razorpay has very little, if any exposure, to China in this regard, while Ant Group’s stake in Paytm is coming under increasing scrutiny. With Paytm’s payments bank in mortal danger and Razorpay preparing to move its domicile from the U.S. to India while planning an IPO, the two fintech unicorns are both at inflection points. However, just one of them is ascendant.

Razorpay is a slightly younger company than Paytm, but not by much. The latter was established in 2010, while Razorpay was founded in 2014 by Shashank Kumar and Harshil Mathur. Key investors in Razorpay include Y Combinator, GIC, Sequoia Capital India, Ribbit Capital, Matrix Partners and MasterCard. Overall they have pumped more than $740 million into the company, which is valued at US$7 billion.  

One thing that Razorpay seems to have learned from Paytm’s experience is that going public before being profitable may be unwise – at least in these market conditions. In Paytm’s case, it was arguably ensnared in a common trap into which fintech unicorns serving the retail market fall: heavy dependence on subsidy-fueled growth. When investor pressure started to pile on for an exit, Paytm realized that turning things around financially could take several more years – longer than investors wanted to wait for the IPO. If Razorpay goes forward with its plan for 2026 IPO and has reached profitability by that time, it will have accomplished something that Paytm could not.

Meanwhile, Razorpay initiated the process to move its parent entity to India from the United States in May 2023, ahead of its plans to public in India. Other Indian tech startups that have shifted their respective domiciles to India in recent years due to IPO plans include PhonePe, Groww and Zepto. “We are looking to list on stock exchanges in the next two years. So it makes sense that we incorporate our business in India going forward,” Mathur told India’s Inc42 on Feb. 23.

Razorpay says that its payments business (which accounts for about 65% of revenue) is profitable, but everything else – which includes banking services and lending – is not.

As of Feb. 2024, the company is processing $150 million in total payment volume on an annualized basis as of February 2024, up from $90 million in November 2022.

Compared to Paytm, Razorpay seems to have better managed its relationships with regulators. It endured a two-year ban on the onboarding of new merchants, but ultimately was awarded a payment aggregator license in Dec. 2023 from the Reserve Bank of India (RBI) and has since signed up more than 10,000 new merchants.

Meanwhile, Paytm has not yet found a way to save its payments bank and the clock is ticking on the deadline set by the RBI.