How Razorpay Became India’s Largest Payments Company

Harshil Mathur initially encountered the extreme difficulty of accepting digital payments in India while building a side project. The process was not designed for techies or small businesses, making it harder than accepting cash and hindering the democratization of online commerce.

He realized it was 'fairly complicated to accept payments in India. First, it was very hard to get just get started and even if you could get started like the experience was very like really really poor.' He notes, 'it was easier to accept cash in India than to accept digital payments.'

Razorpay initially targeted educational institutes for fee collection, believing it was a large, untapped market. However, direct customer interaction revealed that these institutions didn't value digital convenience, as students would pay fees regardless. A parallel effort selling to startups, who desperately needed digital payment solutions, showed clear traction, leading to a crucial pivot.

After trying to convince universities to accept digital fees, a representative asked, 'if they've paid digitally they're going to pay you 1% extra I said yes so he said then why don't I charge just 1% more fees right so uh and that's when you realize that your customer doesn't really care about digital collections.' They 'quickly pivoted our way and said that this is a sector that is going even though it's small it's growing for us.'

The payments industry in India is heavily regulated, requiring extensive approvals and licenses, which meant Razorpay couldn't process a single live transaction for a year after YC. While challenging, this lengthy and complex process became a significant barrier to entry, limiting competition and creating a deep moat for established players.

He states, 'everyone coming after us will also face the same hurdles. So it's the hurdles become a moat over time because unlike most spaces in India which get funded... there's still much lesser number of companies in competition because it's not very easy to just bring build a payment gateway get an approval started.'

Despite constant doubts and the allure of easier markets, Razorpay's founders maintained conviction by deeply connecting with potential customers. The consistent feedback that their problem was real and unsolved provided the energy to persevere through regulatory delays and operational difficulties.

He explains, 'we connected with the problem so much because we spoke to so many founders so many people who could be our customers and I That gave the highest form of energy. Every single customer we started meeting, everyone said yes, we have a problem. Yes, nobody's solving it.'

After a bank abruptly pulled their services, shutting down all live merchants, Razorpay faced a 'near-death' moment. Instead of avoiding customers, they committed to calling every single one, explaining the situation transparently, and enduring abuse. This dedication to human connection rebuilt trust and retained many merchants, proving that in B2B, especially finance, human touch is irreplaceable for trust.

He recounts, 'we'll call every single customer and tell what is happening exactly why it is happening and what we are doing about it.' He adds, 'just having somebody a human on other side saying that yes I am with you and I'm going to I am managing it gives a lot of trust.'

During a period when investors expected high burn rates for growth, Razorpay maintained exceptional capital efficiency, with interest from their fixed deposits exceeding their monthly burn. Mathur argues that B2B is a logical business where value addition directly translates to revenue, making excessive burn unnecessary and illogical.

He states, 'the interest on the deposits was more than our burn. So we became profitable and uh our investor was very unhappy with that because he was like we've given you this money to burn and grow.' He contrasts this with B2C, saying 'in B2B it's very simple you add a value to a business the business pays you for it.'

Razorpay made an early, risky bet by being the first payment gateway to integrate India's UPI system in 2016, even when major banks were skeptical and hadn't adopted it. This foresight positioned them perfectly when demonetization occurred, creating a surge in demand for UPI and allowing Razorpay to onboard major companies like Zomato and Swiggy, gaining a six-month lead on competitors.

He explains, 'in September October 2016, we became the first payment gateway in the country to go live on UPI much before the largest banks of the country had gone live.' This allowed them to 'enter spaces that we couldn't have entered uh if there was no differentiator for us to play on.'

To avoid becoming complacent like the incumbents they disrupted, Razorpay proactively 'reinvented' its entire platform with AI, asking how they would build it if starting today. This aggressive, forward-looking approach, even with evolving AI tech, is seen as essential for survival in a world where AI will rapidly compress building time, making speed and vision the only true differentiators.

He describes asking, 'if I were to start razor it today how would I build it' and deciding 'we are going to bring these changes before a new startup brings those in.' He warns, 'any company who takes that call that we're going to respond to the market is already dead.'

Mathur admits to making the mistake of shifting into 'manager mode' by delegating too much to leaders. He learned that founders must remain deeply involved in the core aspects that define the company, such as product vision and direction, because no one else will care as much or possess the same conviction.

He states, 'I myself shifted to manager mode for a couple of years where I said, I have the best leaders... and that's the worst mistake you can do.' He emphasizes, 'nobody's going to care about your company as much as you do. And that that is never going to change.'