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Making Payment Cashless

May 7, 2020 by Rao Fu
Making Payment Cashless

Night delivery restaurants were Cashfree’s first users. The idea worked well with them because it was difficult to make cash payments at an odd hour during the night.

Cashfree launched a web link payment to replace cash-on-delivery, and it became the foundation of a basic payment model——online, cashless.

Later, Cashfree transformed into an online payment gateway. Unlike Indian online payment giant Paytm and PhonePe, Cashfree only serves business users, so that it maintains a good corporative relationship with e-wallets like Paytm.

In April 2019, after doubling the transaction volume for two consecutive quarters and having good cash flow and profits, Cashfree received another $ 5.5 million in Series A financing led by the investment department of the Korean game company Smilegate.

Recently, we talked with Reeju Datta, the co-founder of Cashfree. Here’s our conversation:

The Passage: Could you start by introducing Cashfree?

Reeju Datta: Cashfree is one of India's leading payment and banking technology companies. One of India’s larger payment aggregators, we started in September 2015. At that time, digital payments were really taking off in India and we have been riding that wave, growing four or five times year on year for the last three or four years. Where we are right now is amongst the third largest payment service providers in India.

As a complete payments platform for businesses, we help more than 50,000 companies collect and disburse money. With solutions such as an easy to integrate payment gateway that supports instant refunds and instant settlements, we have had time to grow with the market, and we have grown very well.

The Passage: How do you guys meet each other? And what did you do before your launch Cashfree?

Reeju Datta: We were introduced by common friends, people with whom I went to college. They were working with Akash and that's how we were introduced to each other. Before Cashfree, I was working at an e-commerce retailer called FabFurnish. I was heading marketing, as I have a digital marketing background. Prior to that, I was at a consulting firm, ZS Associates, advising pharmaceutical companies how to manage their data.

Akash was working at Amazon. He was writing software and leading tech teams there. He has a technical background and also previously worked at a fintech company in India called BankBazaar.

Both of us are graduates from engineering colleges in India, Akash from International Institute of Information Technology – Hyderabad (IIIT-H) and I graduated from Indian Institute of Technology Kharagpur (IIT Kharagpur). Both of us have an engineering background.

The Passage: What are two co-founders' roles?

Reeju Datta: With his experience as a programmer and product owner, Akash Sinha, CEO and Co-Founder of Cashfree, focuses on the intersection of technology and business opportunities. A community builder in the startup and entrepreneur space, he is passionate about cutting-edge tech that can help businesses experiment, scale and innovate faster.

I focus on customer experience, sales & marketing, finance, and hiring at Cashfree. I am enthusiastic about the startup ecosystem and enjoy interacting with businesses that offer innovative solutions.

Over time, we have been fortunate that we can take on each other’s roles when required. Akash has also done a fair number of sales meetings. We both look at hiring the best talent.

The Passage: Who firstly raised the idea of building a new product which turned out to be Cashfree?

Reeju Datta: In the middle of 2015, we were bouncing ideas off each other and also looking for a co-founder for our ideas. Akash had an idea around an AI-based chat. I had an idea around route logistics. So, we were both bouncing around what does and doesn't work at that point of time. Since hyperlocal commerce was very hot, Akash came up with the idea - why don't we figure out a way to make these payments cashless - which up to that point of time were working with cash. Hence, we named our company, Cashfree.

This was in the middle of 2015, around August or September. We initially started off by trying to solve problems for hyperlocal cash-based payments. But in around 6 months, we graduated into a full-fledged online payment service provider that helps businesses process transactions on their websites.

The Passage: What‘s the story behind your transformation from a prototype to digitalise the payment process to a payment gateway?

Reeju Datta: We were making prototypes but they didn’t work out because a lot of hyperlocal commerce companies were using COD and there was no way to pay digitally. That’s how we came up with this idea to use digital payment modes such as credit card, debit card and net banking. We were able to sign up 200-300 offline stores in Bangalore. We started at the right time, tried figuring out online payment pain points and tried to solve them.

We started Cashfree in 2015 and initially we were digitising offline COD payments. Then in April of 2016, we got into the online space completely. When we started, it was only Akash and me, along with another member who handled sales.

The idea worked well with night restaurants where it was difficult to make cash payments at an odd hour during the night. As a beta version, we launched a mobile web product wherein once you’ve ordered something, during payment you get a link where you can input your card details or through your wallet and make the online payment. Soon after, the delivery person would get an SMS saying the payment has been received.

A few such businesses started asking us to process the payments for them via their website as well and that's when we started developing into an online payment gateway.

The Passage: When did you get your first group of seed users? and who were they?

Reeju Datta: We started in September 2015 and did our first transaction in October 2015.

Initially, we started out working with small restaurants in Bangalore, and we had focused on night delivery restaurants, because that’s where there was a problem of alternatives to paying in cash. If you don't have cash, you would really want to have a way to pay online. So, night delivery restaurants were where we found our first users.

The Passage: Did you meet obstacles when you try to sell your way? Like you just spend money without cash? As cash is prevalent in India

Reeju Datta: No doubt that we faced obstacles. But in urban areas, almost everyone has a bank account so we didn't really face a challenge there because digital payments adoption was happening rapidly.

People in India accept money in their bank accounts and use their debit cards. While cash is prevalent in certain sectors of the economy, especially in rural areas, Cashfree operates more in urban areas. We do a lot of work with internet businesses, so we haven't run into that problem yet.

The Passage: But now you are turning to a payment gateway. So why did you make the transformation?

Reeju Datta: When we reached out to businesses to partner with for their online cash-on-delivery needs, around 5-6 months down the line they approached us and asked us, why don't you also give us an online payment gateway service, because that is something we need. That's why we built it for them because both the products were kind of similar, though not the same. It was easy for us to transition to an online payment gateway. When we started rolling that out, we gradually realized that the market still had a need for a modern payment gateway that offered services like simple API integration, high transaction success rates, full collection on all the payment modes available. That is how we moved being an online payment aggregator. The customers asked us for it.

The Passage: When did you start to highlight your features like the payroll for on-demand economic workers, and the instant refunds?

Reeju Datta: Payroll for on-demand workers is something that we came up with while we were at Y Combinator. YC came up with all the reasons that someone would not need our product, and our original pitch was not conveying the value proposition. Their questions led us to share an example of how delivery staff were able to withdraw wages to their bank accounts any time of the day by clicking a button on their app. This example clicked and we decided to stick with it. An important takeaway: A real-life example is a great way to pitch a tech product. Explaining a product in a way someone else can tell others is a good pitch. This is also easier said than done.

In September of 2019, Cashfree pioneered Instant Refunds for online payments on ecommerce businesses in India. With our instant refunds feature, ecommerce platforms would be able to immediately return their customers’ money through their original mode of payment, whether it is credit or debit card, bank account, online wallet, or UPI. The instant refund solution can be availed without any changes to the existing Cashfree payment gateway integration. It also integrates with other payment gateways, internal product or Enterprise Resource Planning (ERP) process through a simple API (Application Programming Interface). In India’s ecommerce industry, businesses face the significant challenge of the lack of clear timelines to refund customers’ money. Slow refunds are a significant pain point as the process can take 4 - 5 working days or longer. By introducing instant refunds on online payments for the first time in India, Cashfree makes it possible for businesses to automate the whole refund process, thereby increasing customer trust and satisfaction.

Graduate from Y Combinator

The Passage: A big part of your story about Y combinator, what did you prepare when applying for the incubator? How do you describe Cashfree at that moment?

Reeju Datta: Y Combinator happened to us by chance. We filled up the form around six weeks after the deadline. We opened the website and we saw that the deadline has passed. But we still applied and submitted. Somehow, they called us. We didn't really prepare a lot. It was really, very short notice for us. We went and had a very quick 10-minute in-person interview and after that we were admitted into YC S17.

We focused on the fact that we were a payment aggregator that also did disbursals in India. We were the first ones to do that and we had identified this need. The idea was being adopted well, and that was the center point of the application.

The Passage: When you graduated from Y combinator and got the Seed fund, how did you use the funds?

Reeju Datta: In 2017, we raised $120K (INR 83.5 Lakh) in seed funding from Y Combinator. The funding was utilised to ramp up our sales and engineering teams as well as product development, and marketing. We actually didn’t need to use a lot from our funding since 2017 was also the year that we first became profitable, a run that we have maintained ever since.

The Passage: Fintech firms like Mobikwik and Paytm, they are also entering the lending space, do you have the same idea to do lending?

Reeju Datta: India already has more than 10000 registered entities that are lenders.

The market is big enough to handle that kind of scale. Let's say the top hundred or 120 lenders in this market would be really big. There are many publicly listed companies in India which are lenders. So, it's a very big market which can handle quite a few players.

India's Fintech industry is booming, and where will it go?

The Passage: Paytm started in 2009, and Freecharge was founded in 2010. They were far earlier before you started Cashfree. And there were a lot of competitors in this sector. So why did you decide to enter this sector at that time?

Reeju Datta: I'd like to explain a bit about how we're different from players like Freecharge and Paytm.

In India, we have more than a hundred payment modes that are used by consumers, unlike, let's say, China, where you have Alipay and Wechat pay. Freecharge and Paytm would be one of these hundred payment modes that customers prefer. So, there is a need for an aggregator. Let’s say, if you're a business and you want to accept payments via all these hundred payment modes, it is because each one has got, let's say, 5% or 6% market share. You would want an aggregator that offers all of these modes to a business, on a single platform that is very easy to consume. Therefore, there was a need for a company like us. Within this space, we thought there were a lot of gaps in terms of how to integrate with all the payment modes. And to get started, you must talk to a lot of banks, which takes a two-or-three-month long process.

Apart from that, there is also the problem of disbursal. Let's say if you want to pay your vendors, you want to pay salaries. These were not being addressed by Paytm and Freecharge, which were more on P2P transfers, like I would use to transfer money to my friend. That was how they started initially.

There were a lot of other reasons which businesses could use online payments. And that's where we came in.

The Passage: How do you convince other payment modes like Mobikwik and Freecharge to allow their customers to pay via your platform?

Reeju Datta: It's always better for these platforms, because our customers get the option to collect payments via Mobikwik, Freecharge and Paytm, which increases their payment volume and revenue. It's always a win-win situation, because it's just an additional source of traffic for them. So, they are open to partnering with us.

The Passage: WhatsApp just launched its payment service, as WhatsApp reaches 400 million users in India. What do you think of the future of WhatsApp pay?

Reeju Datta: A lot of companies operating in the digital payments space will have to up the ante to stay at par with WhatsApp payment’s offerings and adoption rate. As a business focused payment’s platform which offers merchants 100+ payment mode options, at Cashfree we believe that the payments market for businesses is growing rapidly, with significant scope for innovation. We offer WhatsApp pay to businesses on our platform. In the overall fintech space, WhatsApp’s plan to make money transfer as simple as a message-exchange is likely to boost the number of digital transactions in the country, thereby accelerating India’s fast-growing digital economy.

The Passage: Do you think the online lending scene will change this year? Will small players get harder to survive?

Reeju Datta: I think loan recollection is the hard part, if recollection can be sorted out there is scope. There have been lenders who do not work out because their recollections didn't work out. If the recollections can be sorted, there is a market to be had here. The unit economics workout and so I think the going will be good. So, I don't think the sector will consolidate immediately, but maybe somewhere down the line. For now, I think we still would see a large number of lenders coming up.

Meeting Chinese fintech

The Passage: As you know, Wechat Pay and Alipay have already been the two magnates in China, while in India, there are still lots of fintech players. What will make you a difference? How will it affect the fintech industry, and how will it affect you?

Reeju Datta: We have already seen a lot of fintech startups coming to India and we work with quite a lot of them. In fact, we've been to China more than a few times and interacted with most fintech startups. What has stood out is the fact that they're very comfortable with very high volume of transactions, because the kind of numbers of transactions that the Chinese company's processes, it's pretty high. So, we've seen that they're very comfortable with that. The product can handle that. And, the execution that we saw was very good. They are very fast and secure. We've worked with a lot of them and have some ideas.

We like to partner with a lot of them and kind of build new fintech innovations that suit them. So that's been our working experience. I think they're competing very well with the existing Indian fintech companies.

Chinese gaming companies and lending companies also have reached us and worked with us.

The Passage: Some years ago, like in China, the aggregators were also popular, like Shouqian, Shouhuoba, this kind of startups, but in the past few years their performance was not that good. When you started Cashfree, have you already done some research on Chinese counterparts?

Reeju Datta: We have observed that, and I think the fundamental difference between the Indian and the Chinese market is the number of payment modes that exist in the two countries. Visa and Mastercard are much more popular in India compared to China. And we know we are more than 500 banks in India. Each bank has their own set of customers who want to pay via those banks. It's very fragmented. That's why you always have the demand for an aggregator in a market like India.

The Passage: How do you think of Chinese capitals & startups go into India? in fintech industry especially? What will be the challenges and opportunities to payment gateways like you?

Reeju Datta: According to The Global Fintech report from CB Insights, a global intelligence platform, the number of fintech deals in Indian start-ups surpassed those in China for the previous quarter, despite a slowdown in lending in India, according to a report. India saw 23 fintech deals during the second quarter of 2019, compared to 15 investments in China during the same period.

There is still tremendous scope for digital payments in India. As per a report by Fintech Asia, citing the Internet and Mobile Association of India (IAMAI) and Payments Council of India (PCI), India was able to bring the unbanked population from about 557 million in 2011 to around 233 million in 2015, a period of 4 years. According to a World Bank report in April 2018, however, 190 million people still remain without a bank account. This puts India second only to China’s unbanked population of 225 million.

With the spectacular growth of digital payments in India, the traditional banking space needs an overhaul to be able to process large volumes of transactions with the utmost security. Most breaches are financially motivated, making banks the victims of financial data leaks. Digital payment frauds make up for a significant portion – up to half – of all bank fraud cases, according to a written reply to the Rajya Sabha by Minister of State for Finance, Anurag Thakur. In FY 2018-2019, there were 1477 data breach cases relating to card, internet and deposits which amounted to ₹220 crore. This is one of the reasons why Cashfree is currently working with leading banks to rebuild and upgrade the payments and banking infrastructure of the country.

We believe that once banks start exposing their APIs and extending additional digital touchpoints to consumers, it has the potential to be misused. Along with creating the pipes for digital payment infrastructure, banks and digital payment platforms must ensure they are well-equipped to handle and eliminate fraud or other criminal breaches. Cashfree is doing its bit by building proprietary AI tech for fraud detection and cyber security within the banking infrastructure.

The Passage: Last year, a bunch of Chinese lenders are entering India. It's a little controversial because you see like P2P (peer to peer) lenders in China has gotten a lot of disruptions in last two years. Have you partnered with some of them and what do you think of their bit in India?

Reeju Datta: In India, companies are not doing P2P (peer to peer) lending, they're doing consumer lending and we have partnered with some of these companies. They're doing really well in terms of the numbers. They have grown very fast. And so, there are various models in which they operate. We do fund process payments, like loan disbursals and loan recollections for them.

I think the numbers are pretty great. We've seen a very large number of companies coming into the lending space.

The Passage: As far as we know, many other payment firms also are working very hard to get more Chinese lenders. So, comparing to those rivals, what's the strength of Cashfree? Will you do something customized to potential Chinese clients?

Reeju Datta: Many of the payment solutions we have built for Chinese partners tend to be first of their kind and a defining differentiator in the category – such as instant settlements for merchants, instant refunds, instant disbursal of loans.

As a result, we have seen a large number of Chinese partners start with us and grow to significant market share in a very short period of time. Currently, more than 10 million transactions are processed in a month by our Chinese partners via Cashfree.

Rao Fu

Rao Fu is a Beijing-based tech reporter. She attracted to the big names as well as the small startups at the content consumer industry. She can be reached at raofu@thepassage.cc

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