How India Made Cash Obsolete in 10 Years | Razorpay CEO

And today, 50% of all real-time payments in the world happen in India. India was extremely cash-heavy when we came in, though. I carry zero rupees cash in my wallet when I go out. In fact, it's harder to use cash than use digital payments in India.

Out of 120 unicorns in India today, Razorpay powers close to 85% of them. 90% of those we started powering far before they became unicorns. So, we are the de facto payment player for startups in India.

So we reached out to them, submitted a business plan, got rejected because we were two 23-year-olds almost fresh out of college with no finance background, with no background in banking, who wanted to build a payments company.

It became evidently clear to me that the only way to scale is that I can't be the point of failure, right? So the rule of thumb that I had is that if anything takes more than 30% of my time, I need to delegate it.

Yeah, no, I'm glad to be here.

Yeah, no, I grew up in Jaipur, in a small town in India, and then went to IIT, one of the most prestigious colleges in India. When I graduated from IIT, I went into Schlumberger, which is an oilfield company, and worked there in the Middle East for, I think, about 7 to 10 months. But I was always a techie. I was an engineer by background, and I always used to love coding, so I never really enjoyed that job and wanted to do something of my own. So I ran across this problem of payments while I was in my job because I was doing a side project, and I saw it was extremely hard to accept digital payments in India. As a techie, I thought, "How hard could this be? Why is this so complicated?" That gave me the motivation to look deeper into it. The more time I spent into understanding it, the more I got convinced that, hey, this is a big problem to be solved. It's not that there were no payment companies. There were 100-plus payment companies in India, but nobody was really solving for payments for young startups and young teams building—let's say two-people, three-people teams building. There was a trend coming up in 2014–15 in India; a lot of startups were coming up, and I thought, "Hey, if somebody solves for making it easy for these startups to accept payments on day one, there could be a massive opportunity behind that." That's what gave birth to the idea of Razorpay. So, that's how I got full-time into it.

I started coding, I think, in my sixth standard, when I was maybe 12 years old. Actually, I started coding in some shape and form even before that, but I didn't have a computer. I was 12 years old when my dad bought me my first computer, so I was able to do programming and coding at home. Initially, I used to love coding; I didn't really care about what I built, so I built simple tools, fun games, and so on. I started with C++, over time moved to Java, then started moving to web development, moved to PHP, and built a lot of web applications. Then in my college, I, with a bunch of like-minded folks, started a college group called SDSLabs. The idea was that people who wanted to code could sit together and build applications for the institute. There was no purpose; it was just things that people would use. I started with a bunch of four or five friends as a student group. The amazing thing is that the student group survives even today. Every year, a new batch of students join in and run that group. So that's one thing I left behind in the institute which continues today. In that, I think my first popular application that people started using was I built this platform for people to be able to watch cricket matches. Cricket matches are extremely popular in India, and there was no Netflix or Hotstar at that point of time. So I built a platform so that people can watch matches from their dorm rooms, hooking up a satellite TV to a computer and streaming it over the network. That was my first popular application that I built; at least 1,000 students used to use it on a daily basis.

Yeah.

We power millions of businesses, but the interesting stat I love is out of 120 unicorns in India today, Razorpay powers close to 85% of them. It's not that we power 85% of them after they became unicorns; 90% of those we started powering far before they became unicorns. So we are the de facto payment player for startups in India. As these startups started using Razorpay, as they went on to become unicorns, we power a vast majority of them today. I think that's essentially the gist of our journey: we are the de facto choice for startups in India as they scale up to become $100 million companies, billion-dollar companies, $10 billion companies, publicly listed companies. We continue to power payments in their journey, and that's how we grow. We grow when the digital economy of India grows, and that's why we essentially are an index of the digital economy of India.

I'll take the bank part because that was honestly the hardest part of the journey. As a techie, building the product was the easy part. Both me and Shashank used to love coding, so we built a product, and we built the best experience we thought payments should have in India. But payments is not something that you can just build out of your garage, ship it out, and people start using. You need to partner with banks; you need to get a lot of certifications, approvals. Honestly, as a techie, that was the hardest part for me. So I remember walking into a bank branch next to my home one day and saying, "Hey, I want to start a payment gateway." And the guy looked at me and said, "Do you want a payment gateway?" I said, "No, I want to start my own payment gateway." The guy had no idea, because people don't typically walk into a bank branch to start a payment gateway in India. It was a small town in Jaipur where I started that. Then I went to a different bank, and then I went to a different bank, and then finally understood that, okay, this guy in Delhi or this guy in Mumbai handles this. So we reached out to them, submitted a business plan, and got rejected because we were two 23-year-olds, almost fresh out of college, with no finance background, with no background in banking, who wanted to build a payments company. And they were not wrong. Their view was that, "Hey, you don't understand the risk. You guys know the tech part of it, but you don't understand the finance part of it; you don't understand the risk of it." So they kept rejecting us. Every rejection we faced, we'd find another bank, or if we found somebody senior in the same bank, we started reaching out to them. I think in that journey, we would have seen almost a hundred-ish rejections by bankers. But every rejection I did, because every time we got rejected, we would ask them, "Okay, what is missing? What do you think we should do? Who do you think we should speak to?" We kept refining our pitch. We kept refining our business plan. It took almost a year before we met this relatively younger guy from a bank perspective who understood what we're trying to do, understood what startups are. "Startups" was not a very known term in the Indian context in 2014, right? So he understood what we are trying to do, that we are a startup, that we're trying to do something which is uniquely different. He gave us an in-principle approval that, "Hey, I can give an in-principle approval for you to start building this on top of my bank APIs." I remember that day very, very well, because the next day I went and left my job at Schlumberger and went full-time into starting Razorpay, because that's the only blocker that we had. We didn't know whether we could actually solve it; we were getting rejected so often. But once that blocker was away, we were certain that now we can build this company out, and we went full-time into starting Razorpay. In terms of funding, I think that was equally hard. We went to a lot of investors, and everyone said, "Hey, payments is a commoditized space. There are 100-plus payment players in India; there are at least five, six large players globally. What is the differentiation?" We explained that we are building a product-first payment company. There were payment companies in India, but most of them sold to enterprises; they were not built in a product-led growth fashion, and we felt that there's an opportunity to build that for startups and MSMEs. But it was very hard for anyone to see that. PLG motions, again, were not very common in B2B spaces in India. In fact, even today, very few companies in India have actually built a PLG motion on B2B in India. A PLG motion on consumer is fairly common, but maybe a handful—maybe three companies I can name which have a product-led motion in B2B sales in India. Convincing an investor of that was extremely hard. Fortunately, around that time, we applied for Y Combinator with zero expectations, because YC had not invested in Indian startups a lot before us. So we applied for that, and we got through YC. That was a big turning point for us. We went to YC during Jan to March 2015, and I think post that, and when we got enough traction, it became relatively easier for us to raise funds.

There were a lot of companies in our batch in YC. There was Razorpay, there was Deel; there were multiple strong companies that came out. But YC is known for some of the biggest companies in the world to come out of its batches. The interesting part was that we got to interact with some of the best mentors in the world because we got into YC. Of course, Paul Graham, Paul Buchheit, Sam Altman was the president of YC during that time, so I remember a lot of interactions with him. A lot of those shaped up Razorpay in a very different direction. I can tell one particular incident which happened with Sam when we were getting a lot of these bank rejections, as I spoke about. We had these office hours with Sam where we spoke about that: "Hey, we are getting rejected by banks a lot." He said, "Why?" We said that, "Hey, we are 23 years old, we look very young, we don't look like how people from finance backgrounds look, so it's been hard." So he said, "If that's the problem, why don't you solve it?" We said, "What do you mean?" He said, "If the problem is that you look young, why don't you dress old? Why don't you dress the way bankers do? Why don't you speak the language that they speak?" It was logical: why don't you do that? So I remember after that, I bought my first suit. I started keeping a bigger beard so that I looked older than I was. And it does help, because a lot of people judge a book by its cover. It does work in a lot of those circles, and if you look like them, if you look like you belong, it does better. I don't know if that led to the final approval, but we did change our approach to banks, at least in the way we looked after that.

Yeah, definitely. It's the hardest part of scaling as a founder: if you continue to do everything yourself, you can't really scale. But at the same time, letting go is not easy, because so many things are so core, and it's always very hard for a founder to believe that somebody else will do as good of a job as I'm doing on a lot of these things. As the org started scaling, it became evidently clear to me that the only way the org can continue to scale is that I can't be the point of failure, right? So the rule of thumb that I had is that if anything takes more than 30% of my time—and I would evaluate every week—if anything is taking more than 30% of my time, I need to delegate it. Somebody else needs to own that piece on a day-to-day basis. That's a rule of thumb I still apply today. Every week almost, or every couple of weeks, I evaluate: where am I spending most of my bandwidth? Anything that crosses a 30% to 40% threshold, I need to find a way to delegate it. It has multiple outcomes: A, it of course allows scaling; B, it makes the company a lot more resilient, where the founder dependency is lower; C, it also frees me up, right? The company always has fires, and the founder's bandwidth always has to go into those fires. If I'm locked into my day-to-day bandwidth so much, how do I take time out for fires? You can't predict fires, but fires will happen every week. Something or the other will be on fire. If you're locked into your day-to-day, you can't take time out for fires, or if you do take time out for fires, something on the day-to-day will suffer because of it. So it allows me to constantly have enough space on my calendar, and whatever is the fire for that week, I can spend my time on that.

Yeah, I think two aspects to that: one is hiring and second is culture, and both go hand in hand. On hiring, at least for the first 200 people, I interviewed almost every single person that got hired in Razorpay, because the early team essentially sets up your culture, right? Till the first 50 employees, the culture is what the founders say and do, right? People look at you, almost everyone interacts with you, and they see what you do, they see how you act. You don't even need to put up culture values or culture into a book; we didn't even have that, and it doesn't really matter because what founders say and do becomes your culture. When it crosses 50 to 100 people, that's when we realized that not everyone will now interact with me. It's impossible for 100 people to work with the founders every day, so you need to start defining your culture values and you need to set up your hiring process to hire people who match up to those culture values very tightly, right? Because not everyone will also be interviewed by me anymore. Once we crossed 200-ish people, by that time we had set up our hiring funnel very tightly to hire the kind of people that Razorpay needs and to have culture as a very strong question of hiring. At that point, we very clearly defined our culture values as well. A lot of founders come to me and say, "Hey, our culture is bad. How should we change our culture values?" The culture values that you put up on paper honestly don't matter if those are not the ones already being followed. What we put on paper is essentially what is already the culture, because the culture is already decided, right? What we put on paper is just to scale it from 200 people to, let's say, 400 people or 600 people. So you have to spend a lot of time thinking through, "Okay, what do we really believe in? What are we really taking decisions on?" One of the ways I look at culture values is—because when people think of culture values, they think of words on the wall: "Hey, honesty and integrity," and some cool words that you want to put in because other organizations put it, and honestly that is like a disservice. It doesn't really create any value. The real value of culture is when there is a conflict between short-term outcomes and the culture values, what do you choose, right? If the answer is that you're not going to choose the culture value, then it's not really a culture value. So the culture value has to be something that you're going to choose in spite of your short-term gains. The way I define culture values is culture values are essentially long-term success metrics for the company. The short-term success metrics are very clear: revenue, profits, all of those things. The long-term success metrics are your culture values, because you believe that these things, if I do repeatedly, they will compound and create long-term value for me. For example, one of the culture values you have is "Customer First." A lot of companies put Customer First. But the real reason you put Customer First as a B2B company is that if we do well with our customers over time and compound itself over, let's say, 4 years, 5 years, 7 years, 10 years, then those customers will tell other customers to use Razorpay, and that creates more value for me than earning more profit from the customer in the short term. Now, that doesn't mean that you don't make money from your customers—the worst thing you can do for a customer is bankrupt yourself. But it does mean that when there is short-term conflict—for example, a customer is overcharged and you have made revenues on it—now should you return that money back or should you say, "Hey, I can't refund your money back because it's making me short-term revenues"? You refund that money back because you believe Customer First, acting in the right way for your customers long-term, will compound. If you do it a thousand times, maybe a hundred of those times customers will tell other people that, "Hey, use Razorpay because these guys did right by me," right? So I think it was very important to define those culture values and create it in a way that it's scalable, because as a company scales from 200 people to 1,000 people, a lot of these decisions will not come to me. They'll be taken by leaders on the ground; they'll be taken by teams on the ground. If they don't understand what framework to use, they will fall back to short-term goals: "Hey, revenue is my goal, like this objective metric that you've set, the KPI that you've set is my goal." When there is a conflict between KPIs and these culture values, unless it's explicitly clear that you have to optimize for the culture value and not the KPI, the culture is not really set in. Words on the wall mean nothing if you don't set that expectation.

Yeah, multiple ones. Generally, the best test of a culture value is when things are really bad, right? So let me talk about one of those situations. As I said, we have to work on top of banks. One of the banks that was our primary partner for one of our core businesses, settlements—it's still a large bank—the Indian regulator shut down one night in February 2020 because the bank went through a liquidity crisis, the way SVB or some banks have gone through generally globally, an insolvency and liquidity crisis. The regulator paused all withdrawals from the bank, and nobody knew when it was going to come back. It took about a couple of months before they came back. A lot of our merchant settlements were stuck, and this is the funds of other merchants. Now we had a call. A lot of those funds were in other banks; a lot of those funds were in this bank. The notification of this pause came in at 6:00 p.m. Everyone rolled into the office at 8:00 or 9:00 p.m. because we knew it was going to be a long night, and we had to work through solving that crisis. One of the key decision points that came in during that time was that we had a choice to either settle the funds to our top 10 largest customers or to settle the funds for our smaller 10,000-plus customers, because it's always a Pareto in most payment businesses: the top 10 customers have a majority of the volume. So you can either settle all their money or you can settle the large long tail, because that's the amount of funds we had in other banks that we had partnerships with. Generally, the push from sales teams or business teams is that: settle to the largest customers because those are the ones who make the most profit, those are the ones who make the most revenue, right? The top 10 guys are the ones that really matter. You can lose a lot of small guys and it doesn't impact the company that significantly. I took that call—and I remember because it was a hard call to convince our executives on it—I took the call that we're going to pay all our smallest customers first, and whatever is left, then we'll pay our largest customers. The reason was fairly simple: the smallest customers, even though their settlements were $1,000 or $5,000, they would die without that settlement because a lot of these customers rely on day-to-day cash flows. The money comes in, they pay their salaries; the money comes in, they pay their vendors; the money comes in, they pay their suppliers. If we didn't pay them out—let's say this pause goes on for a couple of months—they could be out of business. The large guys, yeah, some of the settlements were in million dollars, $15 million, and so on. But even then, they had enough liquidity to keep themselves afloat. They would have access to credit; they would have access to other channels. And that's why, even though it made more business sense to settle the large guys—and we got legal notices from some of these customers who said, "Hey, you paid out all your small guys, you didn't pay me out," and they sent legal notices and they threatened to take us to court—we said, "Hey, we have to do what we can. This is a larger ecosystem problem, but if we don't pay out the small guys, they're going to die." That was a very hard decision to make. The reason that's important is every single person in the org saw when we took that decision, and it made them understand how much these culture values are important to us over short-term KPIs. These are the points where your culture values are really tested. If in that point I said, "Yeah, we have the culture value Customer First, but let's keep that aside because this is a crunch moment and let's pay these top 10 guys because that makes the business impact," from the next day, that's your culture value. Your culture value is not Customer First anymore; your culture value is Business First, and no matter what you put on the wall, nothing is going to change that from that point onwards.

I think we lost one, yeah, in that situation, and we got legal notices from at least four.

Yeah, I think the hard part of a PLG motion in B2B businesses is that the payback period is very long, especially in a payments kind of business because margins are thin, right? The way PLG motions work is that you spend a certain amount of money to acquire the customers, and then you make that money over a period of 6 months, 12 months, 14 months, and in a high-margin business, those payback periods are small. When PLG motions make sense in a low-margin business like payments, the payback period is fairly long. Sometimes it can take two years, three years for the customer to break even at a cohort level, right? But we decided very early on that we are building this company to enable the small startups and MSMEs to accept payments online, and there's no way to do sales to small startups except for PLG. You can't go and sell to them because they're very small when they start up. The only way is that they are able to discover that this is the best way to accept payment. So you had to build a PLG motion. Honestly, we didn't really spend a lot of time doing the math on it. When we started, we didn't really compute the CAC, we hadn't really computed the payback period; I learned those terms over time as we built this motion and people smarter than me on the marketing side joined. We just built it because that was the only way to achieve the objective that we wanted: to become the de facto choice for startups in India. The only way to achieve it is by building a PLG motion so that these people can discover us versus reaching out to them. So we took a lot of calls to build a brand, built our presence in a way like most payment gateways before that didn't really try to build a brand, because it is very hard to build a brand in this space. One of the interesting flips that I remember—the way I measure it today—is there is a Google Trends report which shows you the keyword search. The payment gateway category had no brand, which means the payment gateway category keyword had more search volume than any brand in the payment gateway space. So people didn't really care about the brand. When they wanted a payment gateway, they would search for "payment gateway in India," and they'll click the first or second or third result, compare, and buy. Nobody really cared. It's like saying, "I want a T-shirt, I don't really care which brand it comes from," right? We spent a lot of time and effort on building a brand in that space. And in 2020, we crossed that keyword, where Razorpay had more search volume than the payment gateway category. Every other brand in the payment gateway space is far below the category search. More people search for Razorpay than they search for payment gateway as a category. In fact, we are the category. We call that the Xerox moment for a brand, when the brand name becomes synonymous with the industry to the point where people say, "Hey, just use Razorpay." I think that is one core metric that we tracked over the years, and we continue to still put efforts into that, so that when people think...

of a payment gateway, Razorpay should be the name they think even before they think of the word payment gateway, even before they know the word payment gateway. I think that's the best test of having a strong PLG motion: that you drive on top of the category versus you drive under the category.

Yeah, I think not just Stripe, I'll broaden it to most global payment players have largely been unsuccessful in India. There's a story of almost all global players who tried entering, did some experiment, did a lot of investment, and then exited. It's not like we operate on top of regulations. Regulation is a very simple way to paint a picture, but it's not really the right way to paint it. The thing is India is a very different market and it has made very different choices for that market, and regulation is an outcome of that. I'll maybe take two minutes to explain some of those choices, comparing the US market to India. One of the most fundamental things about the US payment market is that the success rate of payments is extremely high, but the fraud rate of payments is also extremely high. Fraud and chargebacks are part and parcel of the payment industry, so you don't have any OTPs, you don't have any complicated signing procedures. You enter a card number, and you can close the transaction. If you get somebody's card number, you can do a transfer on their behalf, and then you can raise a chargeback or a dispute to get your money back. So fraud rates in the US are somewhere around 2 to 3%, but the success rate holds around 95 to 98%. India took the reverse call because India has what used to be a very illiterate population, which has changed over the years, but you would say still a largely digitally young or digitally new population. We are not as digital natives as the Western market is. A lot of people are getting into technology, but most of them have got into technology in the last 5 to 10 years. What that means is that if you build a system where fraud is acceptable, people will lose trust very quickly. The relationship with money that people have in India is very different than people have in the West. A 1,000 rupees fraud can impact somebody's life to the point that they can't buy next day's food. You don't have enough social security, you don't have enough social net that if you lose that 1,000 rupees today—which is $20 in US terminology—it might be so much for you that you can't afford to put food on your table the next day. In that kind of ecosystem, you can't take that approach that the US did: that some fraud can happen and people can dispute and get their money back after a couple of months. So we took the reverse approach. We said you have to mandatorily have two-factor authentication, which means fraud rates in India came down to less than six basis points from 2 to 3% in the US, but the success rate of transactions also came down from 95 to 98% down to 70 to 80%. We worked on a lot of things to take it up to 90%, but still 90% versus 95 to 98% in the US. That's the choice that we took as a market. While I'm giving an example of OTP as one of the choices, there are so many different choices that India took. For example, one of the choices India took is on recurring payments. In the US, you can sometimes subscribe to a gym membership, and you keep getting charged for it, and a lot of people complain there's no way to cancel it. India didn't allow recurring payments for a long time because they were worried that a largely tech-illiterate population, if they set up a mandate, could keep losing all of their daily savings and essentially, again, not put food on their table.

When they allowed recurring payments, India made a law that 24 hours before you are being charged for a recurring payment, you have to be sent a notification saying, "Hey, you're going to be charged in the next 24 hours for this, and if you want, you can press this button and cancel it." If you don't do anything, you get charged, but if you press a button, you can cancel. So the customer is always in control. You can't have a Comcast-type membership in India where you are getting charged $5 a month and you have no way to cancel it, being stuck on calls. Every time, the customer has control. Looking from the West, a Western company might say, "Hey, India has so tough regulations," but looking from the Indian context, it makes so much sense. In fact, I believe this law should exist everywhere in the world because it's such a strong customer protection law. Those are the things that a lot of global companies have a hard time complying with because it requires them to restructure the way they do payments in the West to comply with the guidelines in India. That's why you hear this terminology that India has hard regulations, but I believe a lot of those regulations are built because India is a very different market. If you are a company that's going to operate in this market, you need to work within the framework of this market because that's what is needed. India has these realities where people can essentially not be able to put food on the table if they lose money, and you can't compare it to the West.