Razorpay replaced their entire onboarding with AI Agents | Harshil Mathur | Intelligent Indians

And we had a choice: do we pay out our largest customers, like the top 10 largest customers, or do we pay out the rest thousand small customers? These large guys can manage without the money. The small guys were going to die tomorrow. And it was very simple. I didn't have to think five minutes. Let's just pay out the small guys. Right. And the business teams were very unhappy because the large guys are the ones that make money. Right. There is one learning for all founders: they have a DNA and they stick to that, their values, and they say if small businesses matter, the decision is very easy.

Yeah. Vikram knows the entire story, like he's been with us from day one. So yeah, I think the early story is fairly simple. I was born and raised in Jaipur. Average middle-class family. Went schooling in Jaipur, went to IIT, and was always interested in coding. I was coding since, I don't know, sixth standard. But unfortunately didn't make the JEE rank for CS, so got into mechanical. So I used to spend my weekends and evenings coding even through college. I had no interest in mechanical. So there I met Shashank. We started doing stuff on the side while going for lectures and mostly sleeping through lectures.

And Shashank had a better rank. He's in computer science. Because a lot of times people ask us, you know, should I choose a co-founder? Found out: choose one with a higher rank.

And he was a senior to me in college.

Yeah. So the way it started is both me and Shashank met each other. A bunch of people like me came together and we started chatting that hey, we want to code in our evenings and weekends. We don't want to do anything else. But we're not getting it. Even Shashank was in CS, most of the lectures are very theoretical. So where do you really do coding, right? And you don't learn coding by just reading lectures. So we got together a bunch of us and we started a college group called SDS Labs where we would build projects together. So we built, for example, a project where we would stream the cricket matches inside college. This was before Hotstar, before all of that. We would pick up the cricket matches from this TV and stream it inside college so people would watch it.

It's inside college. Like it's their TV rooms. We were legal. So you said TV rooms are legal. Like you have one TV room, everyone watches.

Yeah.

I mean, you just build stuff because it's cool and inside college who cares, right? Like just build it and deploy. So we were doing...

Yeah, inspired by that. But I think it was just simple: hey, we have to watch a World Cup. It was coming up and we said, hey, we have to go down to our TV room and watch the World Cup. How do we watch on our laptop? The internet speed wasn't good enough to stream anything online. But local speed is decent enough. So then we said, hey, we can just hook this TV to a computer, stream it in the campus, and everyone can watch it. And that's how that started. So we created this SDS Labs. The group survives today and it continues to bring in young...

The new generation is not like that. We cared about money after it. But during college, it's a cool thing to do. You're building on weekends. Let's just build it. We built a bunch of stuff. We built a software to download software easily and all of that. And that's how we got to work together with a bunch of folks like Shashank and a lot of us started working together. So when we were graduating from college, we said, okay, now this is ending. Now what next? And Shashank was graduating and he got placed in Microsoft in the US. And we spoke to each other and he was like, hey, we should keep chatting on the side. Maybe there's something we can do, something else.

Yeah, both of us, coincidentally, both of our dads work in State Bank of India. Used to work in State Bank of India.

I don't think I've ever thought of entrepreneurship or doing my own business. I mean, I come from an average background where people like my dad expected me to get a job. That's the mindset: the best thing would be to get a job in a great tech company. But I was not in CS, so I thought even that is going to be hard. But I think business was never on the cards.

Six months. Yeah. So for mechanical, the highest paying companies that come on day zero was Schlumberger. It was a first day company. Sat in it, got placed in it, excited and celebrated. Of course my dad celebrated and everyone congratulated and all of that. Went to the job on day one and this is not what I really want to do.

Yeah. And it was a life-changing amount of money, not just for me but for the entire family, right? So I got into Abu Dhabi, right? So it's offshore. There's great pay packages, great everything. And essentially the company takes care of your life. There's no money you have to spend. They give you five-star accommodation, they give you food, they give you travel, they give you everything. But the actual job, I did it and nothing against it, but it was not for me. I am a guy who wants to sit and code. I don't want to step on the field. And being in an oil field is its own kind of job and there are people who like it. And I was very clear this is not for me. So I told Shashank, spoke to me that we should try something of our own. But I thought, he's a guy going to the US. He's saying it once. Once he lands in the US, I'm sure he's going to forget all about me. But he kept in touch. So we kept chatting. And the good thing about oil field jobs is you have a lot of free time. You're offshore for a week, then you're free for two weeks, and then you're offshore for a week. So I would have a lot of free time. Most of my friends would go out and party doing that. I was not one who enjoyed that a lot. So I'd again speak to Shashank, build stuff on the side, code stuff. And that's when we ran into this problem. We were building some side project, similar to SDS Labs. We were building a social crowdfunding platform and we wanted to accept payments. And we thought, payments, this should be the easiest part of it. It turned out to be the hardest part of building it. So we reached out to all the largest banks and the largest payment companies and we saw it was very, very painful to get started with payments. We went to Facebook groups like Bangalore Startups, Pune Startups and asked how does everyone solve it? And realized every startup founder had the same challenge. We were not even doing a startup, we were doing a side project, but everyone had the same challenge. And everyone said, just start accepting cash. It's easier to accept cash in India than to accept digital payments. And that urged my tech side. The point of technology has generally been democratization. Like the internet just allows everyone to start something. Social media gives everyone a voice. E-commerce gives anyone the ability to sell something without setting up an office. How could digital payments be less accessible than physical payments? It didn't make any sense. So in our standard techy mindset, you're like, how hard could this be? Why is nobody solving it?

Very good. Nobody has connected it this well. Lived experience is important so that you can empathize and probably stay resilient through the ups and downs also.

Yeah. And I think it's still important in decision making today, right? A lot of times I have to, me and Shashank have to push on that, hey, we can't take this decision because it'll hurt the small guy. Because again, an average small business is generally not the highest revenue driver for the company. Right. So a lot of times we have to, hey, we can't do this. I remember in one of those Yes Bank moratoriums when Yes Bank's funds were frozen and a lot of money got stuck for us as well. And we had a choice: do we pay out our largest customers, like the top 10 largest customers, or do we pay out the rest thousand small customers? And essentially I took that call that these large guys can manage without the money for a week, two weeks, whatever it takes for Yes Bank to clear up. The small guys are going to die tomorrow if they don't get their money. So you have to, unless you have that empathy, it's very hard for you to understand. Everyone will say, I just pay this guy, his 2 crores is stuck, and this guy's 10 lakh is stuck. But this guy is going to die without his 10 lakh. He can manage.

Yeah. And I think I can tell you, for example, the hardest part in building a payments business is you need to get a lot of bank approvals and certifications. And so while the product part honestly was easiest because we imagined that, hey, if I was starting, I'm building an online payment platform and I need payments, how should it look like? And we built it from that. But the bank part was hardest. So what I did was, I had a holiday. I went to a bank branch next to my home and just ran into it and said, 'Hey, I want to start a payment gateway. How do I go about it?' And the guy looked at me and laughed. Nobody comes to a bank branch in Jaipur and says, 'I want to start a payment gateway.' He said, 'Do you want a payment gateway?' I said, 'No, I want to start my own. How do I get your APIs?' And the guy had no idea. So he said, 'Yeah, I can connect you to somebody in the Delhi office.' And I said, 'Sure.' He connected me to somebody. I spoke to them. They understood what I wanted to do and then they rejected us. Right. So then I went to the next bank, did the same thing, and the next bank. Shashank did the same thing on his side. We started figuring out people on LinkedIn, somebody who heads the payment gateway business at this bank and that bank. Most of those folks are based in Mumbai. So we got connected with those people, sent a lot of requests. Some of them just rejected us. But the rejections were good because every time we spoke to some of these guys, they gave us something more. They told us something more. And we pushed them like, why are you rejecting? What is missing? And they said, you don't understand the business that well. You don't understand this part of the business very well. You're not understanding the risk of this and all of that.

We would push them, hey, is there somebody? And he said, hey, maybe you can reach out to the senior in my bank and maybe he can help. And that's how we kept pushing. So I think there's no simple answer to that. Just keep pushing.

Yeah, that's how we kept moving. And I would have met, in that three to six months period, I would have met and mostly been rejected by almost 100-ish bankers in some form.

Yeah, fortunately or unfortunately, I think I had no idea which are there. It is ignorance.

But what I did know is I was in these communities of Bangalore Startups, Pune Startups, and nobody in these communities was happy with what was available.

So that was my easiest signal that maybe there were 100 gateways, but the ecosystem was not happy with what was available. The ecosystem was looking for something else. And that was my signal. I didn't care who else existed. The ecosystem that really matters was not being serviced by them. And what we discovered later was that yes, there were a lot of payment gateways. Everybody was solving for large companies.

Was Stripe already there?

We looked up at Stripe and honestly one of the questions was that why is something like this not in India? And the choice was let's wait for something like that to come to India or we build it our own.

Yeah.

Honestly, it actually worked well for us. And I'll give you some examples, right? Like most payment gateways at that point of time in India looked very similar because what most payment gateways did was they went to the bank, took their API, built their wrapper on top of it, and then sold to customers. And because bank APIs were the same, the payment gateways looked the same. We didn't get access to banks on day one, right? So we were building a payment gateway without knowing what the bank said. So we assumed the bank set is a black box. It looks in some shape. We have no idea how it will look, but we'll build from a merchant perspective: how would a merchant want to use it? And when we built our product from that perspective, we got banks maybe six months after we had built a product. And then we plugged the bank and did a lot of work to build a scaffolding because the bank looked completely different than what we had put out to our merchants. But it worked well because we were building merchant first and not bank first. Which is the right way to build it. Why should you build it based on your supplier? You should build it based on your customer. So I think being an outsider helped shape the product direction in the right way because we didn't have access to those. And I think a lot of decisions that we took, we were able to take them because we had no idea how the industry works. We had a great idea of how startups work. So we were chatting with these guys. We were in co-working spaces. There were a lot of startups around us. We would sit with them, set up the payment gateway for them, ask them what they like, what they dislike, and we'll keep modifying it. And I think the most important part is you have to be in the ecosystem that you're going to serve, rather than the ecosystem that is going to help you, sir. And I think it worked well for us. Of course, it had its own challenges. The bank approval process alone took us so long. So we started building this properly full-time. We left our jobs in 2014. It took us a year to take it live. 2015 is when we went live. Most tech spaces don't take this long because you're dependent on approvals and all of that. So that was the hard part of being an outsider.

Yeah, success rate was the most. And again, from a merchant perspective, what do they care about? 65% success rate.

85, 90%.

90% plus. 92, 93, yeah.

And what can we do more to improve? At that point, we moved by two, three percentage points. Today, now we move by 0.1 point, 0.2 percentage points. It's still the same effort and trigger that goes in.

And I think it was simple. We were speaking to merchants. What merchants care about in a payment gateway? I tell my team, you are like a utility company. Nobody cares when your electricity is coming. Nobody says, hey, what electricity is coming? But the five minutes that you're down, you're going to get all the abuses in the world, right? So your job is to avoid the five minutes that you can ever go down, right? And that mindset is something that we still drill down in our company. Unlike a consumer company, we don't optimize for time on our platform. We have to actually minimize the time on our platform. We have to actually minimize the time it takes. The quicker we are, the less time people spend on our platform, the better it is for us. And those things are like we have to change a lot of people who come from consumer backgrounds. We have to change this DNA that they don't increase the time on our checkout. You can't add animations on our checkout which take away consumers' time. You're doing a disservice. So we have to do a lot of that mindset change. And it's still the primary metric: how do we improve success rate?

Yeah. I think YC happened completely unexpectedly, honestly. Because we were building this. We had not yet got the bank approval. This is 2014 mid and late. We were building the product. We were speaking to customers, but we were waiting for the bank approval. And the YC application form came up. We were of course always reading Hacker News. So we went and applied with literally zero expectations because not a lot of Indian companies had gone into YC. We thought we are building such an India-focused thing. And we filled the form. But I think we did a lot of diligence in filling the form, right? Because the good part about the YC form is that it asks you the questions that most founders should ask themselves when they are starting a company, but they typically don't. So we spent our time. It asks you like, why would somebody use you over something else? And what are you doing differently? And all that. Spent a lot of time figuring that out. Applied to YC. Got called for the interview in the US. And so we thought we might not make it back to the US again because I don't know if we can afford a ticket. So we said, let's pack this schedule with meetings. Let's use the best of this week because the YC interview is a 10-minute interview. How do we use the entire schedule? So I did, we did like seven meetings a day for the five days that we were there. And then we did the YC interview. It is a 10-minute interview. So it went in a jiffy. And then in the evening, we got a call that we got into YC. So it was honestly completely unexpected. But YC did impact the course of the company significantly. And we had a choice: we want to move completely to the US for these three months, we want to stay one guy here, one guy there, we want to make the best of YC. So we both moved there for three months. I think it was the best exposure we could have to global standards of building, global standards of product, what other teams are doing and how teams are solving their problems, meeting some of the best folks that we could meet in terms of mentors. It was a completely amazing experience. And honestly, it set a lot of... I don't think it was anything specific. It's not like YC told us, hey, build a product this. In fact, they don't even go into execution details. But just the exposure alone was enough to change the course of the company.

Yeah. We pitched. We started pitching. We were in Jaipur. We started pitching to some VCs and stuff. And everybody just said the same thing: there are so many payment gateways. It's a utility product. Why are you guys getting into this? And we just walked out. So after a few of those meetings, we realized it's not going to happen. We went into YC. And while we were going through YC, suddenly we got a ping from somebody on LinkedIn. And he said, hey, I heard you guys are building something in payments. This was Rajat.

No idea. No, nobody knew you were in...

Yeah, we said we don't want to do anything till the YC demo day because it's going to be painful. So we said, but then we saw, hey, Matrix Partners and all of that. And we had read about Matrix Partners. We thought it's a massive VC firm. It seems like we can't miss it. So we set up a meeting just with zero hopes.

Yeah.

Oh.

But I can tell you, the first meeting at least from our perspective didn't go very well. I don't think because we were not prepared at all. So we said something. I don't know what it landed to you, but I felt like we did a very unimpressive job. I thought this guy is never going to invest in us.

But for us, it was essentially just this. They said mobile, they said failure rates. And I had just spoken to others who had invested in payments and they said the only thing that mattered in PayPal was frictionless merchant onboarding. And somehow everything that I had learned was exactly what you guys were saying. And so for us, it was a fantastic meeting.

We broke all the rules. I remember meeting you on Skype in those days. And having built it in Bazi myself, I'm like, but here's the problem and here's the problem. And I think it's a very instructive thing. You guys had gone so deep in the banking architecture. You had an answer for everything. You had thought about it. So...

So the best million dollars we have ever invested. And so whenever you know you start your next one, please consider it. But anyway, so taking it forward from there, you guys get started. I know that there are multiple inflection points. Talk about the journey. From the outside, it looks like a raging success. What happened between? What are the big milestones in the company's history? We'll come to the next question as part of that because I know one of which was COVID. But before that, was demonetization? Talk us through and what were the big heart attacks along the way?

Yeah, I mean, the first two, three years were extremely hard. Extremely hard. Not from a perspective we were still very motivated, but a B2B business in payments takes its own inflection curve. You can't fast track it unlike consumer and similar spaces. There's no way to even pour money at the problem. We had raised a significantly large amount of money because of post-YC and 2015. There was a lot of excitement about India. So we got funded from you guys. We got funded from Tiger. We raised a large round for the size of company we were. And then there was so much pressure that, hey, we've raised like $1 million, you need to scale really rapidly. But the unfortunate part, or fortunate part, of a B2B business is there's no way to use that money to grow faster. It's not like you can discount your way through it. You can't cashback your way through it. When business folks buy payments, they don't buy it because you're offering... Price is a factor, but it's not a primary factor. And it's still very less understood. The B2B side is comparatively much lesser price sensitive than the consumer side because the guy cares about utility and value so much more. If I deliver a poor success rate by one percentage point, it doesn't matter what price I'm giving. It doesn't matter at all. The price is not even a discussion in those meetings. So we had to prove our product. We had to prove that we can serve large customers. And honestly, for the first two, three years, we had zero large customers. We were only very, very small startups who were using us, not even midsize customers. I remember a conversation I had with Vikram where we were trying to attack some of these large guys and we were not getting any headroom. And Vikram said, you can... There's a hunting example he gave: you can hunt elephants, you can hunt deer, or you can hunt rabbits. And you can think that you'll hunt one elephant and you'll be chill for your life. It's never going to happen. So generally, you have to hunt rabbits and then maybe try to get one deer. Don't try to go for elephants early. And that landed very well for us because we were trying to do everything. We're trying to support startups. We're trying to do mid companies. We're trying to do elephants. And there is this greed of sort that if we get this one large guy, our life will be sorted. We have to take so much effort to onboard these thousand small guys. And we realized that there's no fast way to fast track it. So the first large customer that went live with Razorpay was Goibibo. And it went live in, I think, 2017, two years after we had started. For one reason, their core payment partner failed for a week and they wanted to try something else. So that was the first win. And we said we need to do this really well. So we had an entire team dedicated to ensuring that that merchant sees the best of Razorpay. We built a lot of features just for them. And by the way, it didn't go so well. They went live with us, they used us, and then after a couple of months, they paused us completely because we were not meeting the standards. We put all our energy to ensure because that was going to be our benchmark merchant. That's going to tell every other merchant that, hey, we can serve enterprises now. It took a lot of effort, almost six to eight months, to stabilize that. And that became our gateway to tell every other merchant, yes, Goibibo uses us. Call them. And B2B takes a lot of time.

I think it was just hustle. We essentially just sat down and said, no matter what happens, we have to give them the best experience they can have. And not just experience in terms of product, but servicing, sales, support. So you can, as a startup, probably go deeper with a customer than a large incumbent.

So the large incumbent had hundreds of customers. They were one of them, right? And they were getting attention. It's not like they were not, but not the attention that we could get. But honestly, none of that mattered if our product couldn't deliver. Even with all the efforts and all the support, we got paused after a month or two because we weren't meeting the standard. So product is first. Everything else is scaffolding on top. And you can use that scaffolding to fight a lot of things. You can't fight a bad product. So having the product right and then having all of that allowed us to really compete and ensure that they get stabilized and they continue to give us the majority of the volumes. Once we had that, then it became our proving point. It was our foot in the door to large customers.

Yeah. No, and I remember that we were building and we had a lot of money in the bank, I think. But we had no way to forcefully spend it because our spend was hiring. And you can't just hire. We were very, very selective in our quality of hire. And I think that was one of the good decisions because there was a lot of pressure at times that, hey, if we hire like 20 more...