Razorpay Push To Power SMB Finserv Beyond The Bounds Of Payments

Razorpay Push To Power SMB Finserv Beyond The Bounds Of Payments

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Indian mobile wallet firm Razorpay has announced its latest acquisition: TERA Finlabs, an artificial intelligence (AI)-based risk tech SaaS Platform. TERA, a Bengaluru-based startup, provides technology, risk and capital solutions to enable innovative embedded financing solutions for businesses. The buy marks Razorpay’s third such acquisition to move more deeply into the world of B2B financing following the release of Razorpay Capital in 2019.

“In India, banks are wary of providing business loans to startups and new SMEs due to the risks attached to new revenue models of startups. Through our lending platform, Razorpay Capital, we have been striving to solve these cash flow challenges, making it easier for businesses to get finance and grow,” Razorpay CEO and Co-Founder Harshil Mathur said in a statement, per the Economic Times. “And progressing in that journey, an acquisition such as this fits perfectly with our vision of developing tailor-made affordable credit solutions for the underbanked small businesses across industries so that they can digitally transform and disrupt.”

Small and medium-sized businesses (SMBs) in India have been hit hard by the COVID-19 pandemic, much like SMBs worldwide as forced storefront closures forced high-speed digitization as a must-do for firms looking to come out their other side. But digital upgrades aren’t free, meaning small businesses have been faced with costly upgrades to digitize their offerings for consumers just as their revenue streams were being sliced to ribbons by the pandemic’s economic effects.

While the shutdown and forced repositioning has been a burden on SMBs worldwide, Indian SMBs have been hit harder than most. India has been challenged by lagging vaccination distribution and the more contagious Delta variant of the coronavirus, which raged through the population in early 2021, hitting a peak at the end of May. To date, COVID-19 has killed more than 400,000 Indian citizens — roughly 10 percent of the 4.1 million COVID-19 deaths worldwide.

In a world of entrepreneurs hit hard by the pandemic, Indian entrepreneurs have endured some of the hardest headwinds and face a long road to recovery. Razorpay’s plethora of moves in 2021 are all part of a single strategy — giving those small businesses access to the tools and funding they will need if they hope to weather the storm.

The Deal Just Struck  

TERA’s AI-based risk tech SaaS platform is designed to expand traditional consumer lending models with customized credit products to make consumer loans affordable for customers and simultaneously profitable for lenders. That platform will allow Razorpay to expand the range of products it can extend to SMBs borrowers hit hard by the pandemic, the company’s persistent project for the last 18 months. The FinTech had previously launched products such as Cash Advance and Credit solutions with instant settlements during the lockdown to help small businesses overcome cash flow problems created by the lockdown.

The TERA acquisition, according to a statement, is aligned with Razorpay’s strategy of financially supporting micro, small and medium enterprises (MSMEs) by building core competencies in capital solutions, credit underwriting and data-driven risk management.

“MSMEs were an underserved market for a long time. However, in the last 16 months, they have started to show rapid growth with their adoption of digital. And this has created an opportunity for significant disruptions in the lending sector — Embedded Credit is one such innovation that I’m certain will transform this space,” segment,” said Pradeep Rathnam, co-founder and CEO of TERA Finlabs. “There couldn’t have been a better time than now for us to join hands with Razorpay and its technological capabilities to support the MSME.”

Expanding Out From Payments

The acquisition comes after a year of explosive growth pushed by the pandemic for the Indian FinTech, first launched in 2014 by Mathur and Shashank Kumar with a mission of “making online payments accessible to all companies,” regardless of size.

“Five years ago, when Harshil and I moved to Bangalore to start Razorpay, the startup ecosystem was still nascent and less than a decade old,” said Kumar. “For most businesses, accepting online payments was a major struggle and it was a stumbling block in India’s digitization drive.”

Since its inception, however, Razorpay’s ambition has grown markedly beyond payments acceptance. As of last October, when the firm first hit unicorn status with a $1 billion valuation, it began avidly talking up their ambitions beyond payments, noting while it is a payments firm, its focus has consistently been on offering wider financial solutions for SMBS. The firm also hinted at intentions to further its reach with deeper tech products and solutions.

In February, Razorpay announced a partnership with Mastercard that would allow Indian startups and SMBs to fold technology into their operations and accelerate digitalization while also maintaining business continuity and preparing for alternatives to cash payments. That announcement followed Razorpay’s launch of a platform last December designed to help SMBs connect with third-party firms with tools and capabilities they may need, such as health insurance.

Razorpay saw its valuation triple to $3 billion in April after a $160 million Series E funding round. Those funds were earmarked for expansion of the firm’s business banking platform, RazorpayX, to create a suite of customized product offerings on a new tech stack “to further enhance convenience and security,” in their digital banking offering.

Since its introduction in 2019, Razorpay has expanded rapidly to include over 10,000 businesses. Further, its transaction volume has increased “multifold” in the past 12 months, given the pressures placed on the Indian economy by the pandemic.

“We believe there’s a dire need to develop new banking technologies that meet the rising demand. So we plan to use these funds to further expand our banking and lending product suite so that we not only provide a better experience to businesses and their customers, but significantly contribute to the growth of our partner businesses,” Mathur said.

This latest acquisition is clearly part of that expanding path, as, according to the release, Razorpay Capital using TERA Finlab’s technology capabilities will be able to further advance its offerings to meet the credit needs of over 10,000 businesses in India by the next year.

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