Razorpay Business Model: How Does Razorpay Earn Money?

Razorpay, established in 2014 by Harshil Mathur and Shashank Kumar, has rapidly ascended to become a leading financial technology (fintech) company in India. The company offers a comprehensive suite of payment and financial solutions tailored to meet the diverse needs of businesses, from startups to large enterprises. Razorpay’s business model is multifaceted, encompassing various revenue streams that have contributed to its significant growth and profitability.

Core Business Model

At its core, Razorpay operates as a payment gateway, facilitating seamless transactions between merchants and customers. The platform supports a wide array of payment methods, including credit and debit cards, Unified Payments Interface (UPI), net banking, and digital wallets. This versatility enables businesses to accept payments through multiple channels, enhancing customer convenience and expanding market reach.

Primary Revenue Streams

1. Transaction Fees: The principal source of revenue for Razorpay is the transaction fees charged to merchants for processing payments. Depending on the payment method and the merchant’s plan, these fees typically range from 2% to 3% per transaction. For instance, under the Standard Plan, suitable for small and medium-sized businesses, Razorpay charges a fee of 2-3% per transaction. In contrast, the Enterprise Plan offers customized pricing tailored to the specific needs of large enterprises.
2. Subscription Services: Beyond transaction-based fees, Razorpay offers subscription-based services that provide merchants with advanced features and tools. These premium services include access to enhanced analytics, priority support, and additional payment options. Merchants opting for these services pay a recurring fee, contributing to Razorpay’s steady revenue stream.
3. Value-Added Services: Razorpay has diversified its offerings to include a range of value-added services:
   • RazorpayX: A business banking platform that provides services such as automated payroll, expense management, and corporate credit cards. These services are designed to streamline financial operations for businesses, and Razorpay generates revenue through subscription fees and service charges associated with these offerings.
   • Razorpay Capital: Through this service, Razorpay offers working capital loans to businesses based on their transaction history and performance metrics. The company earns revenue by charging interest on these loans and applying processing fees during loan disbursement. This initiative not only supports businesses in managing cash flow but also creates a significant income stream for Razorpay through interest payments.
4. Commissions from Partnerships: Razorpay has established partnerships with various financial institutions and service providers. The company earns commissions from these partners whenever it refers businesses or processes payments through partner solutions. For example, Razorpay may earn a commission when businesses use third-party logistics or accounting services integrated with the platform. These partnerships help Razorpay expand its offerings while generating additional revenue through affiliate and referral fees.

Financial Performance

Razorpay’s strategic initiatives and diversified revenue streams have translated into impressive financial performance. In the fiscal year 2023-2024 (FY24), the company reported a total income of ₹2,501 crore, marking a 9% increase from ₹2,293 crore in the previous fiscal year. Notably, the payment gateway business contributed ₹2,068 crore to this income, reflecting a 24% year-on-year growth. The company’s profit after tax surged nearly fivefold to ₹34 crore in FY24, up from ₹7 crore in FY23.

Market Position and Future Outlook

Razorpay has solidified its position as a market leader in the digital payments processing sector in India. The company achieved an annualized total payment volume (TPV) of $180 billion, underscoring its extensive reach and the trust it has garnered among businesses across the country.

Looking ahead, Razorpay aims to further expand its product offerings and deepen its market penetration. The company is focusing on enhancing its financial services suite, exploring opportunities in new sectors, and strengthening its technological infrastructure to provide even more seamless and secure payment solutions. Additionally, Razorpay is preparing for an initial public offering (IPO), signaling its readiness to enter the public markets and further solidify its standing in the fintech industry.

Conclusion

Razorpay’s multifaceted business model, encompassing transaction fees, subscription services, value-added offerings, and strategic partnerships, has been instrumental in its rapid growth and profitability. By continually innovating and expanding its suite of services, Razorpay has positioned itself as a pivotal player in India’s fintech landscape, empowering businesses to navigate the digital economy with confidence and efficiency.